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2019 (9) TMI 264 - HC - Income TaxAddition u/s 40A(2)(b) - excessive expenditure - payment sub-contractors who are the relative of the partners - whether it is a case of applicability of Section 37? - HELD THAT:- All the three sub-contractors are relatives of the partners of the assessee firm, and assessing authority recorded categorical finding had rightly disallowed the expenditure claimed in view of provisions of Section 40A(2)(b) of the Act. The argument raised by assessee does not have any force that it is a case under Section 37 and not under Section 40A(2)(a) of the Act. As the expenditure claimed by the assessee while computing the income chargeable under the head profit and gain of business or profession was disallowed, as payment has been made to persons referred in clause (b) of Section 40A(2) of the Act. The said finding has been confirmed by the first appellate authority as well as the Tribunal. Assessee could not deny the factum of relation of the sub-contractors with the partners of the assessee firm, nor would justify the payments so made by the firm to the sub-contractors who did not have the means and the source to make expenses for the work contract, as the balance in the saving accounts was negligible in comparison to the alleged work contract executed by them and the payments so made. As Section 37 of the Act envisages for any expenditure made for the purpose of business to be allowed in computing the income, while Section 40A puts a barrier for expenses of payments not deductible in certain circumstances as enumerated in the said section. In the present case, as it was found by the taxing authorities that payment made by the assessee firm to three sub-contractors out of 21 work contracts given by it was to the relatives of the partners of the firm, as such same was disallowed in view of Clause (b) of Section 40A(2) of the Act. Thus, the authority had rightly disallowed the expenditure so claimed by the assessee - Decided against assessee
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