INCOME TAX ACT, 1961

Section 40A(2)(b)

Business disallowance under section 40A(2)(b) - Excessive or unreasonable payment - -

Assessee claimed deduction on account of commission paid to related party M/s. DLF Home Developers Ltd. for service charges on account of collection received from customers on account of project Capital Green Phase 1. AO invoked section 40A(2)(b) and made disallowance holding that assessee had not incurred the expenses to meet legitimate needs of business. Held: AO disallowed amount involved in last bill but allowed the earlier two bills, despite payments made for same services. There was no reasoning given by AO as to why the earlier two payments to the same party for the same services for the same accounting period on same terms and conditions were allowable, whereas last bill itself was found to be not justified. Even at the time of disallowances, AO could not show any comparable cases that the payment made to the recipient of income was unreasonable or excessive. Payment was made by developer assessee for arranging and organizing collection from customers on behalf of assesse as marketing right of the project lies with DLF Home Developers only. Assessee paid commission to this party @ 1%, whereas commission to other brokers was paid @ 2%. Therefore, conditions specified under section 40A(2) of classifying expenditure as excessive or unreasonable were not satisfied as the comparable market rate for same services provided by unrelated parties was higher. In view of this, disallowance was deleted.

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2011-12

INCOME TAX ACT, 1961

Section 14A Rule 8D(2)(iii)

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