Profit and gains of business and profession

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

09 December 2011 disallowance U/s.40a(2)

IF a partnership firm pays an amount in excess of market value of asset purchased from a partner, the excess amount paid is disallowed in the books of the firm U/s 40a(2)

if in the above case if the amount paid is less than market value of the asset what will be the treatment of difference amount ?

Kapil Arora

Kapil Arora (Expert)
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09 December 2011 No Section 40A(2) will not attract as 38 [Expenses or payments not deductible in certain circumstances.

40A (2)(a) Where the assessee incurs any expenditure in respect of which payment has been or is to be made to any person41 referred to in clause (b) of this sub-section, and the 42 [Assessing] Officer is of opinion that such expenditure is excessive or unreasonable having regard to the fair market value of the goods, services or facilities for which the payment is made or the legitimate needs of the business or profession of the assessee or the benefit derived by or accruing to him therefrom, so much of the expenditure as is so considered by him to be excessive or unreasonable shall not be allowed as a deduction.
It Clearly Defines any Expenditure.