Expenses or payment not deductible in certain circumstances Section 40A

According to Income Tax Act,1961 all expenses relating to business or profession are allows as deduction. The provision which are being discusses under various sub section of section 40A have overriding effect over the provision of other sections.

For an amount to be disallowed under this section following conditions have to be fulfilled.

i The payment is in respect of any expenditure

ii the payment has been made or is to be made to a relative or close associates of the assessee in respect of such expenditure.

iii the payment for the expenditure is considered excessive or unreasonable having regard to

a the fair market value of the goods, services or facilities or

b the legitimate business needs of the assesses business or profession or

c the benefit derived by or accruing to the assessee form the payment