INCOME TAX ACT, 1961

Section 40A(2)(b)

Business disallowance under section 40A(2)(b) - Excessive or unreasonable payment - Applicability of section 40A(2)(b) in case of estimation of income without doubting expenses incurred by assessee -

Assessee was a joint venture of KEC International Limited and M/s. Asia Communication and Electronics SDN BHD and M/s. Unique Builders who were engaged in the business of civil construction and all the parties entered into JV agreement dated 13-7-2010 for execution of contract awarded by Eastern Railways Kolkata. KEC International Limited was appointed as the lead partner of the JV. Assessee filed return of income declaring a total loss of Rs. 29,295. AO disallowed expenditure @ 4% of total expenses incurred towards KEC International Ltd. by invoking section 40A(2)(b). Held: Provisions of section 40A(2)(b) which are applicable to expenses considered to be excessive or unreasonable having regard to fair market value of goods/services or facilities for which the payment is made. However, in the instant case, AO estimated profit of assessee and nowhere doubted the expenses rather made disallowance under section 40A(2)(b) in respect of income which assessee in his opinion ought to have earned rather than certain expenses incurred. Accordingly, provisions of this section were not attracted and disallowance was not sustainable.

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2015-16

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