Disallowance under section 40A(2)

Posted Date : 26-Dec-2013 , 12:27:46 pm | Posted By CASANSAAR print

Listen to this Article

0:00

Expenses or Payments disallowed under section 40A (2)

The provision of section 40A(2)(a) disallows the expenditure incurred towards payment made or to be made to a person (related party) to the extent such expenditure is excessive or unreasonable having regard to the fair market value of goods, services or facilities for which the payment is made.

that no disallowance shall be made on account of any expenditure in respect of a specified domestic transaction referred to in section 92BA, if such transaction is at Arm’s Length Price as defined in clause (ii) of section 92F.

Person (related party) referred to in section 40A(2)(a) has been defined under clause (b) of section 40A(2) namely :-

Category of Taxpayer

Specified Persons

Individual

Any Relative (i.e. Spouse, Brother, Sister, Lineal Ascendant or Descendant) of such individual.

Any person in whose buinsess or profession, the individual himself or his relative has substancial interest.

Company, Firm, HUF, AOP

Any Director, Partner, Member or relative of the said person.

Any Person in whose business or profession the assessee or director or partner or member of the assessee or any relative of such person has a substantial interest.

All Assessees

Any Individual who has substantial interest in the business or profession of the assessee.

A Company, Firm, AOP, or HUF having a substantial interest in business or profession of the assessee or any director, partner or member of any such person or any relative of any such director, partner or member.

A Company, firm, AOP or HUF of which a director, partner or member has a substantial interest in the business or profession of the assessee or any director, partner, or member of any such person or any relative of any such director, partner or member.

A person shall be deemed to have substantial interest in a business or profession, if:-

In a case where business or profession is carried on by a company, such person is, at any time during the previous year, the beneficial owner of shares carrying not less than 20% of the voting power.

In any other case, such person is, at any time during the previous year beneficially entitles o not less than 20% of the profits of such business or profession.

Important Findings

If an assessee purchases a capital asset from the persons specified under section 40A(2)(b) then depreciation on such capital asset will not be disallowed as depreciation is not an expense but an allowance. It is governed by Section 32. If at all it is to be disallowed, it will be disallowed under section 32 and not under any other section. And section 32 nowhere says that one of the conditions for claiming the allowance is that the payment for the fixed asset should have been made otherwise than through cash.

Category : Income Tax | Comments : 0 | Hits : 605

Also Read -

Old vs New Tax Regime: Section 54F vs Section 86 for Capital Gains on Property

Selling property in India? You're probably worried about the capital gains tax bill that comes with it. Here's some good news—both the old and new tax regimes offer you ways to save big on taxes if you reinvest your sale money in a residential house. Let me break down Section 54F (from the old Income Tax Act 1961) and Section 86 (from the new Income Tax Bill 2025) in simple words, so you can understand which rules apply to you and how to make the most of them. What's the Big...

Also Read -

Income Tax Alert - Here Are 5 High-Value Transactions That May Come Under Scrutiny

Income Tax Alert - Here Are 5 High-Value Transactions That May Come Under Scrutiny. Large Cash Deposits: Any cash deposit exceeding Rs 10 lakh in a financial year across savings accounts draws the attention of the income tax department. Even if deposits are spread across multiple accounts, the cumulative amount beyond the threshold triggers scrutiny. Fixed Deposits: Surpassing the Rs 10-lakh limit in fixed deposits within a financial year prompts inquiries regarding the source of f...

Also Read -

Delhi Court Sentences 6 (Six) Months Jail for not filing ITR (Income Tax Return)

Delhi Court Sentences Woman to 6 months Jail for not filing the return of income (ITR) discussed. Accordingly, the accused is held guilty of not filing the return of income for the assessment year 2014-15 under Section 276CC of The Act. Accordingly, the accused is convicted for an offence punishable under Section 276CC of the Act," the court said in the judgement. "The convict is awarded a sentence of simple imprisonment for six months with a fine of Rs 5,000 and in default to unde...

Also Read -

Payments to MSME vendors

Corporates, Non-corporates or government department all are procuring major part of services or goods from the MSMEs. There are provision under the Micro, Small, and Medium Enterprises Development (MSMED) Act, to ensure that businesses make payments to MSMEs within a specified time frame, and failure to which can impact the deduction claims for such payments. To facilitate timely payments to micro, small, and medium enterprises (MSMEs) and address the challenges faced by these businesses in rec...

Also Read -

The Concepts of Turnover, Sales and Gross Receipts

In the Income tax act, the words “Turnover”, “Gross receipts” and Sales are used at many places. In the common business parlance, the terms sales and turnover are used interchangeably. However, as per Income Tax law, guidelines are available on the question of what constitutes turnover. Understanding the concepts of these words is necessary for the purpose of the tax audit. An audit is mandatory for corporate assessees, irrespective of the amount of turnover. In ...