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2018 (3) TMI 1752

old, obsolete and had outlived their use and utility and the payment of rent was only to reduce the liability of the assessee - absence of inquiry by the AO - HELD THAT:- AO observed that the payments were made to the persons covered u/s 40A(2)(b). But that is why section 40A(2)(a) has been invoked. The issue is whether the AO’s opinion that the expenditure was excessive, is correct. As per section 40A(2)(a), such opinion of the AO is to be formed having regard to the fair market value of the goods in which the payment is made. AO has to place on record material showing the fair market value of the goods. In the present case, the AO did not conduct any inquiry or verification into the reasonableness of the expenditure with reference t .....

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is found to be excessive or unreasonable having regard to the market value of the goods, services or facilities for which the payment is made; and that in the absence of inquiry by the AO, as contemplated by the provisions of section 40A(2)(a) , no disallowance can be made. - Decided in favour of assessee. - I.T.A No. 497/Agra/2015 (ASSESSMENT YEAR 2011-12) - 28-3-2018 - SHRI A. D. Jain And Dr. Mitha Lal Meena, JJ. Assessee by Shri Somil Agarwal, AR. Revenue by Shri Waseem Arshad, Sr. DR. ORDER A. D. Jain, This is assessee s appeal for Assessment Year 2011-12, raising the following grounds: 1. That having regard to the fact and circumstances of the case, Ld. CIT(A) has erred in law and on facts in not deleting the addition of ₹ 10,0 .....

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not pressed. 3. Ground No. 3 and 4 are against the CIT(A) s action of not fully deleting the disallowance of ₹ 4,89,934/- and confirming disallowance of ₹ 3,51,406/- on account of alleged excessive rent paid on machineries hire for hospital. The ld. CIT(A) observed that the machinery were very old, obsolete and had outlived their use and utility and the payment of rent was only to reduce the liability of the assessee. These were also the very observations made by the AO. 4. The ld. Counsel for the assessee has contended that the ld. CIT(A) failed to appreciate that u/s 40A (2)(a) of the IT Act, it is the onus of the AO to prove expenditure to be excessive and such onus was not discharged by the AO, rather, the AO only observed t .....

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was held that since the AO had not brought on record anything to show that the payment made was unreasonable or excessive having regard to the fair market value of the services for which the payment was made or the benefit derived from such services, the conditions of section 40A(2) were not satisfied. 10. In S.K. Engineering vs. JCIT , 103 ITD 97 (Bangalore), referring to paras 72 and 74 of CBDT Circular No.68 (LXXVI-66) of 1968, dated 06.07.1968, it was held, inter alia, that for invoking the provisions of section 40A(2), the onus lies on the AO that the payment is excessive or unreasonable having regard to the fair market value of the goods; and that the Revenue has to place on record evidence as regards excessiveness or unreasonableness .....

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