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| The Tax Publishers2021 TaxPub(DT) 0304 (Bang-Trib) INCOME TAX ACT, 1961
Section 40A(2)(b)
Where neither AO nor CIT (A) examined the fair market value of rent of building in question; the issue with regard to disallowance of excess rent under section 40A(2)(b), was remanded to AO for fresh consideration and assessee was directed to furnish evidence to establish the fair market value of the rent of the building.
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Business disallowance under section 40A(2)(b) - Excessive or unreasonable payment - AO not tested rent against fair value -
Assessee-company paid rent for a building, which was owned by daughter of MD of the company. AO noticed that the building, for which rent was paid, was in a busy locality and he obtained copy of municipal tax valuation by the BBMP. Further, the AO considered the rental value determined by the BBMP and on the basis of same, he arrived at the fair market value of the rent of the building. Further, on basis of such fair market value, the AO made disallowance of excess rent under section 40A(2)(b) and such disallowance was upheld by CIT(A). Held: In instant case, the basis of making disallowance under section 40A(2)(b) by adopting the annual rental value fixed by the BBMP, was not correct in the context of the provisions of section 40A(2)(b). What is important under the relevant provision is the excessiveness of expenditure having regard to the fair market value. Since neither AO nor CIT (A) examined the fair market value of rent of the building in question, the issue was remanded to the AO for fresh consideration. Further, the assessee was directed to furnish evidence to establish the fair market value of the rent of the building.
REFERRED :
FAVOUR : Matter remanded.
A.Y. : 2015-16
INCOME TAX ACT, 1961
Section 14A Rule 8D
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