Amendment of section 40A.
12. In section 40A of the Income-tax Act, in sub-section (2), with effect from the 1st day of April, 2013,—
(i) in clause (a), the following proviso shall be inserted, namely:—
“Provided that no disallowance, on account of any expenditure being excessive or unreasonable having regard to the fair market value, shall be made in respect of a specified domestic transaction referred to in section 92BA, if such transaction is at arm’s length price as defined in clause (ii) of section 92F.”;
(ii) in clause (b), in sub-clause (iv), after the words “or any relative of such director, partner or member”, the words “or any other company carrying on business or profession in which the first mentioned company has substantial interest” shall be inserted.
Notes on Clauses:
Clause 12 of the Bill seeks to amend section 40A of the Income-tax Act relating to expenses or payments not deductible in certain circumstances.
The existing provisions of clause (a) of sub-section (2) of the aforesaid section 40A provides that where the assessee incurs any expenditure in respect of which payment has been or is to be made to any person referred to in clause (b) of the said section and the Assessing Officer is of the opinion that such expenditure is excessive or unreasonable having regard to 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 assesse or the benefit derived by or accruing to him therefrom, so much of expenditure as is so considered by him to be excessive or unreasonable shall not be allowed as deduction.
It is proposed to amend the aforesaid clause so as to provide that no disallowance under this clause, on account of any expenditure being excessive or unreasonable having regard to the fair market value, shall be made in respect of a specified domestic transaction referred to in section 92BA, if such transaction is at arm’s length price as defined in clause (ii) of section 92F.
The existing provisions of clause (b) of the aforesaid sub-section defines the persons referred to in clause (a).
Sub-clause (iv) of the said clause defines the persons in a company, firm, association of persons or Hindu undivided family having a substantial interest in the business or profession of the assessee or any director, partner or member of such company, firm, association or family, relative of such director, partner or member.
It is proposed to amend the aforesaid clause (b) so as to include therein any other company carrying on a business or profession in which the company referred to in the aforesaid sub-clause has substantial interest.
These amendments will take effect from 1st April, 2013 and will, accordingly, apply in relation to assessment year 2013-2014 and subsequent assessment years.
