Persons specified under section 40A(2)(b).

One of the important clause of Tax Audit Report is Clause No 23 which require the auditor to give details of payments made under section 40A(2)(b). In the day to day language we call this clause to be a Related Party Disclosure. The word payment need not be taken literally; harmonious interpretation is to be made. Payment shall include amount actually paid or payable in the name of related person. There is no exception that if the payment is made at arm’s length price it need not be disclosed. Also carefully note that the clause only talks about expenditure and therefore income from related party need not be disclosed. The income earned by assessee from related party will be disclosed by the related party if covered in tax audit.

The persons referred to in clause under section 40A(2)(b) are the following:

(A) In case individual is an assessee relative of the individual.

(B) In case assessee is HUF/ Firm/ Company/ Association of Person any director of the company, partner of the firm, or member of the association or family, or any relative of such director, partner or member

(C) any individual who has a substantial interest in the business or profession of the assessee, or any relative of such individual;

(D) 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, or any relative of such director, partner or member or any other company carrying on business or profession in which the first mentioned company has substantial interest;

(E) a company, firm, association of persons or Hindu undivided family of which a director, partner or member, as the case may be, has a substantial interest in the business or profession of the assessee; or any director, partner or member of such company, firm, association or family or any relative of such director, partner or member;

(F) any person who carries on a business or profession,—

(a) where the assessee being an individual, or any relative of such assessee, has a substantial interest in the business or profession of that person; or

(b) where the assessee being a company, firm, association of persons or Hindu undivided family, or any director of such company, partner of such firm or member of the association or family, or any relative of such director, partner or member, has a substantial interest in the business or profession of that person.

Explanation.—For the purposes of this sub-section, a person shall be deemed to have a substantial interest in a business or profession, if,—

in a case where the business or profession is carried on by a company, such person is, at any time during the previous year, the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) carrying not less than twenty per cent of the voting power; and

in any other case, such person is, at any time during the previous year, beneficially entitled to not less than twenty per cent of the profits of such business or profession.

The word relative is defined u/s 2(41) of the Income Tax Act in relation to an individual, as the husband, wife, brother or sister or any lineal ascendant or descendant of that individual.

 

 

 

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