Mere existence of related-party transaction does not trigger s.40A(2)(b)

 ACIT Vs. Pankaj Kalra (ITAT Delhi)

Related Party ≠ Excess Payment: ITAT Rejects 40A(2)(b) Disallowance

Delhi ITAT dismissed Revenue’s appeal and upheld deletion of disallowances and additions for AY 2017-18 in ACIT vs. Pankaj Kalra, ITA No. 855/Del/2025. Tribunal held that mere existence of related-party transaction does not trigger s.40A(2)(b) unless AO demonstrates excessiveness or unreasonableness by comparables. Assessee had purchased mobile phone stock from group concern Salvation Group at the same rate at which Micromax supplied goods to distributor, resulting in discounted purchases rather than excess payment. Since Assessee discharged onus with documentary evidence and AO made no adverse comment in remand report, deletion of ₹6.94 crore disallowance u/s 40A(2)(b) was upheld.

Tribunal further affirmed CIT(A)’s relief on demonetisation cash deposits, holding that cash realised from sales and debtors, already credited in books and not disputed by Revenue, constituted explained source. Partial sustenance of addition relating to old cash gifts on estimate basis was found reasonable. On capital-gains issue, Tribunal upheld allowance of cost of improvement of ₹8.41 lakh, noting that payments were made through banking channels, supported by invoices, confirmations and remand verification, and that joint ownership explained sharing of expenditure. Finding no perversity in CIT(A)’s conclusions, Revenue’s appeal was dismissed in entirety.