Payment to related party cannot be disallowed u/s. 40A(2)(b) as AO failed to prove it as unreasonable: ITAT Delhi

Trinity Global Enterprises Ltd. Vs ITO (ITAT Delhi)

ITAT Delhi held that supervision and management charges paid to sister concern (i.e. related parties) doesn’t attract section 40A(2)(b) of the Income Tax Act as AO failed to prove the payment as unreasonable and excessive. Accordingly, charges duly allowed.

Facts- AO observed that the assessee had issued 1500000 shares of Rs.10 each on a premium of Rs.50/- per share and received Rs.90,00,000/- during the year. Based on the information furnished by the assessee, AO the assessee company was failed to furnish confirmation of share money and share premium money received during the course of proceedings. Owing to filing of non-confirmation, AO treated the amount of share application received of Rs. 90,00,000/- u/s. 68 of the Income Tax Act. CIT(A) affirmed the order of AO. Being aggrieved, the present appeal is filed.

Further, assessee incurred supervision and management charges u/s. 40A(2)(b) which were disallowed by AO reasoning that payments has been made to sister concern and payment is not made for doing actual work. CIT(A) allowed ad hoc 30% deduction and disallowed 70%.

Conclusion- Tribunal in the case of Al Anam Agro Foods (P.) Ltd. Vs. CIT has held that since identity of shareholders stood proved on record, amount of share application money could not be added to income of assessee. Thus, held that no addition is called for u/s 68 of the Income Tax Act, 1961.

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