Can AO levy 40A(2) on partner’s remuneration?

Can AO levy 40A(2) on Partner's remuneration?


Can AO levy 40A(2) on partner’s remuneration?

Section 40A of the Income Tax Act is an overriding provision. The sub section (1) of the section begins with the words “The provisions of this section shall have effect notwithstanding anything to the contrary contained in any other provision of this Act”. The language used is mandatory.

The disallowance under this section can be made if it is in the opinion of Assessing Officer that remuneration is to be disallowed.  As the sub-section (2) reads as:

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 this sub-section, and the Assessing Officer is of opinion that such expenditure is excessive or unreasonable having regard to the fair market value of the goods….

The Assessing Officer needs to have the reasons of his opinion. The opinion shall not be subjective or merely a personal opinion.

Although Assessing Officer have the power to object, such objections will not be beneficial to the Revenue if it is on a small scale. The Finance Ministry has given the assurance that this provision will not be discriminately resorted.  But still no circular/ instruction is issued by the Central Board of Direct Taxes (CBDT) regarding it.

The person specified by the section can be referred at the below link: