Section 40A of ITA, 1961 : Section 40A: Expenses Or Payments Not Deductible In Certain Circumstances

Explanation using Example

Imagine a scenario where a business owner, Mr. Sharma, runs a textile manufacturing company. He decides to contract his cousin's company to provide certain specialized machinery maintenance services. The market rate for such services is generally around INR 50,000. However, Mr. Sharma agrees to pay INR 1,20,000 for the same services to his cousin's company.

During the tax assessment, the Assessing Officer (AO) notes this transaction and considers the payment excessive compared to the fair mar...

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