| The Tax Publishers2020 TaxPub(DT) 3171 (Jp-Trib) INCOME TAX ACT, 1961
Section 40A(2)(b)
Although rent payment was made by assessee to one of its directors, however, merely because the payment was made to a related person, would not be sufficient to make disallowance under section 40A(2)(b) because there was nothing on record, which had been brought by the Revenue to hold the said payment as excessive. Accordingly, the disallowance made under section 40A(2)(b) was liable to be deleted.
|
Business disallowance under section 40A(2)(b) - Excessive or unreasonable payment - Rent paid to director - Revenue failed to prove payment of rent being excessive or unreasonable
AO noticed that assessee-company paid rent to one of its directors for its registered office. He further, noticed that assessee was using the said premises just for address purpose and no business activities were being carried out from the said premises. Further, there was no separate electric and water connection in the name of the assessee. Thus, he concluded that the rent paid to the director was unreasonable and disallowed the same under section 40A(2)(b). Assessee submitted that it was maintaining its registered office at the said premises as required under the Company Act where all necessary regulatory and other correspondence could be received, therefore, the rent paid in respect of the said premises was justified. Held: It was undisputed that the said premises was used as the registered office of the assessee. Further, on perusal of the minute books of the assessee, it was noted the meetings of Board of Directors and shareholders were regularly held at the said place. Therefore, the said premises was used for the purposes of assessee's business and it had established the necessary nexus of the rent expenses being incurred for the purpose of its business. Further, it was admitted fact that the rent payment was made by the assessee to one of its directors, however, merely because payment was made to a related person, would not be sufficient to make disallowance under section 40A(2)(b). The onus was on the Revenue to bring on record comparable instances wherein the rent payment for similar premises was lower than the rent paid by the assessee. However, there was nothing on record, which had been brought by the Revenue to hold the payment as excessive. Accordingly, the disallowance made under section 40A(2)(b) was deleted.
REFERRED :
FAVOUR : In assessee's favour.
A.Y. : 2010-11
INCOME TAX ACT, 1961
Section 40A(2)(b)
 SUBSCRIBE FOR FULL CONTENT
OR Try Reload the Page |