Disallowance of Business Expenditure No Disallowance Under Section 40A(2) Where Unreasonableness or Excessiveness of Expenditure not Proved

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The Tax Publishers Income Tax--Disallowance of Business Expenditure No Disallowance Under Section 40A(2) Where Unreasonableness or Excessiveness of Expenditure not Proved Shripal Mehta The present write up highlights the limitation of the assessing officer's power while making disallowance under Section 40A(2). Actually no disallowance can be made by invoking Section 40A(2) if it is not proved by the assessing officer by cogent material that expenditure incurred by the assessee in relation to the related parties are excessive and unreasonable. 1. Disallowance under Section 40A(2) when can be attracted As provided in Section 40A(2), where the assessee incurs any expenditure in respect of which payment has been or is to be made to any person referred to in clause (b) of Section 40A(2) and the assessing officer is of the view that such expenditure is excessive or unreasonable, having regard to the fair market value of the goods, services or facilities for which the payment is made or the legitimate needs of the business or profession of the assessee or the benefit derived by or accruing to him there from, so much of the expenditure as is so considered by the assessing officer to be excessive or unreasonable shall not be allowed as a deduction. SUBSCRIBE FOR FULL CONTENT

The Tax Publishers

Income Tax--Disallowance of Business Expenditure

No Disallowance Under Section 40A(2) Where Unreasonableness or Excessiveness of Expenditure not Proved

Shripal Mehta

The present write up highlights the limitation of the assessing officer's power while making disallowance under Section 40A(2). Actually no disallowance can be made by invoking Section 40A(2) if it is not proved by the assessing officer by cogent material that expenditure incurred by the assessee in relation to the related parties are excessive and unreasonable.

1. Disallowance under Section 40A(2) when can be attracted

As provided in Section 40A(2), where the assessee incurs any expenditure in respect of which payment has been or is to be made to any person referred to in clause (b) of Section 40A(2) and the assessing officer is of the view that such expenditure is excessive or unreasonable, having regard to the fair market value of the goods, services or facilities for which the payment is made or the legitimate needs of the business or profession of the assessee or the benefit derived by or accruing to him there from, so much of the expenditure as is so considered by the assessing officer to be excessive or unreasonable shall not be allowed as a deduction.