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2023 (10) TMI 1362 - KARNATAKA HIGH COURTDisallowances u/s 40A(2) - service charges paid to own holding company - HELD THAT:- AO has recorded that assessee company is ‘unduly benefitting’ the holding company and derives the legitimate profits of the company through a colorable device termed as service agreement. AO has clearly made no efforts to demonstrate as to why payment made is excessive and unreasonable having regard to the market value of the services for which such payment was made. Thus, the disallowance made under Section 40A(2) of the Act is based on surmises and hence, unsustainable. ITAT has rightly held that the AO has not doubted the payment nor held the payment as excessive even though in terms of Section 40A (2) only ‘legitimate needs of the business’ is allowable as expenditure. Thus there is no material on record to support AO’s opinion. Therefore, we find no error in the order passed by the ITAT. Decided in favour of the assessee
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