75th Founding Day Lecture Meeting on “India@2030” Know More

March 2011

Business expenditure: Disallowance u/s. 40A(2) of Income-tax Act, 1961: Disallowance on the ground that the assessee paid higher rate to its sister concern: Sister concerns paying tax at the same rate as the assessee: Disallowance u/s.40A(2) not warranted

By K. B. Bhujle | Advocate
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50 Business expenditure: Disallowance u/s. 40A(2) of
Income-tax Act, 1961: Disallowance on the ground that the assessee paid higher
rate to its sister concern: Sister concerns paying tax at the same rate as the
assessee: Disallowance u/s.40A(2) not warranted/justified.


[CIT v. Siya Ram Garg (HUF), 237 CTR 321 (P&H)]:

The Assessing Officer had made disallowance u/s. 40A(2) of
the Income-tax Act, 1961 in respect of the cotton and waste purchased from the
sister concerns on the ground that the purchases were at a higher rate. The
Tribunal deleted the disallowance.

On appeal by the Revenue, the Punjab and Haryana High Court
upheld the decision of the Tribunal and held as under :

“(i) The details filed by the assessee showed that its
sister concerns were being taxed at the same rate at which the assessee was
being taxed, proving that there was no reason for the assessee to show higher
rate purchases made by the assessee from its sister concerns.

(ii) The assessee’s sister concerns had offered their
income from such sales, which fact has not been disputed. Therefore, the
Assessing Officer erred in invoking the provisions of section 40A(2) of the
Act.”

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