Case Law Details
Motilal Laxmichand Sanghavi Vs ACIT (ITAT Mumbai)
A reading of the provision of section 40A(2) of the Act as a whole makes it clear that if in the opinion of the Assessing Officer, the expenditure claimed by the assessee in respect of payment made to any related party/associated concern is excessive or unreasonable having regard to the fair market value, disallowance has to be made under the said provision.
Therefore, before making any disallowance under the said provision, two conditions have to be satisfied. Firstly, the payment in respect of which deduction has been claimed must have been made to a related party and secondly, such payment must be excessive and unreasonable having regard to the market rate.
Therefore, the Assessing Officer must form an opinion objectively on the basis of material brought on record to demonstrate that the payment made by the assessee is excessive and unreasonable having regard to the market rate. No doubt, in the facts of the present case, the first condition of section 40A(2) of the Act has been fulfilled as the assessee has made the payment to the related parties.
However, as regards the second condition relating to unreasonableness of the payment made, on a perusal of the impugned assessment order it is noticed that the Assessing Officer has not brought any material on record to demonstrate that the payment made is excessive and unreasonable having regard to the market rate.
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