INCOME TAX ACT, 1961

Section 40A(2)(b)

Business disallowance under section 40A(2)(b) - Disallowance of milk transportation charges paid to specified persons - Validity of -

Assessee-company was engaged in business of collection of dairy milk and had declared the transactions with sister concern in respect of purchase of milk and transport payments. AO noted that payment was made to four directors and one family member. AO on verification of vouchers, books of account, etc. noted that transportation charges were paid on self drawn vouchers and further, no supporting evidence in the form of bills raised by related parties were available with the assessee. AO in final analysis observed that out of total milk transportation expenses of Rs. 2.70 crores, Rs. 1.24 crores was paid to directors and family members and the said payments were hit by provisions of section 40A(2)(b) Accordingly disallowed the same. Held: Provisions of section 40A(2)(a) were attracted where a person makes payment to the related parties as defined in section 40A(2)(b) at a price which was higher than market price. In this regard, Revenue authorities have to come to a finding after the onus was discharged by assessee to establish that it had not paid any price higher than market price to related parties. AO while working the disallowance had considered total transactions of assessee company for transportation of milk, whereas the same should be restricted only to transaction of milk through the directors. Therefore assessee was directed to delete the disallowance made.

REFERRED :

FAVOUR : In assessee's favour

A.Y. : 2007-08

SUBSCRIBE FOR FULL CONTENT