INCOME TAX ACT, 1961

Section 40A(2)

Business disallowance under section 40A(2)(b) - Excessive or unreasonable payments made to specified persons - Expenses towards RCC Labour contractor/masonary work paid -

Assessee had claimed expenses towards RCC Labour contractor/masonary work. AO noted that payments fall under the category of section 40A(2)(b). Assessee was asked to explain as to why payments not be considered to be colourable device and added to the income, to which assessee inter alia submitted that payments have been made to ladies were not at a higher rate than what was paid to other outside parties and were payments are made for the purpose of business. AO therefore was of the view that the genuineness of the payments was not fully verifiable and accordingly disallowed 5% of the expenses. Held: It was seen that AO had not done any exercise to determine as to whether the amount paid by assessee to the said two ladies were excessive or unreasonable by comparing the prevalent market rates. He had not arrived at an exact figure of excessive payment by comparing the amount paid by assessee with the market rates for similar services but he had rather proceeded to disallow the expenses @ 5% on adhoc basis. Thus, no case was made out for disallowance under section 40A(2)(b) and accordingly, no disallowance can be made under section 40A(2)(b).

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2013-14

INCOME TAX ACT, 1961

Section 14A read writ Rule 8D

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