NIRAV DINESHBHAI BHA vs. AR,AHMEDABADVS.THE ITO, WARD-5(3)(2), AHMEDABAD

ITA 1971/AHD/2025Status: DisposedITAT Chandigarh01 October 2026AY 2018-198 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that while the payment to M/s. Tanzil Nutrition Centre, being a proprietary concern of the assessee's wife, falls under Section 40A(2)(b), the provision does not mandate automatic disallowance. The AO must examine if the expenditure is excessive or unreasonable considering the fair market value, legitimate business needs, or benefit derived. The Tribunal noted that the AO's benchmark of 30% was based on a comparison with the Ayurvedic products business, which the assessee contested as inappropriate for his Herbalife distribution model. The assessee had provided an agreement with TNC and stated that TNC incurred substantial expenditure on business promotion. The Tribunal found that a mere comparison with a different business line without comparable material is insufficient to establish excessiveness. It also acknowledged that the recipient being a related person requires verification of services rendered and commercial justification. Considering the facts, the Tribunal set aside the disallowance of Rs. 18,76,286/- made under Section 40A(2)(b).

What were the facts?

The assessee, Nirav Dineshbhai Bhavsar, is appealing an order dated August 7, 2025, passed by the Commissioner of Income-Tax (Appeals)/National Faceless Appeal Centre, Delhi, for Assessment Year 2018-2019. The assessee is engaged in earning commission as a distributor for Herbalife Nutrition India Private Limited. The dispute concerns a commission payment of Rs. 31,87,156/- made to M/s. Tanzil Nutrition Centre (TNC), a proprietary concern of the assessee's wife, Mrs. Riddhi Bhavsar. The Assessing Officer (AO) disallowed Rs. 18,76,286/- of this commission under Section 40A(2)(b) of the Income-tax Act, 1961, by restricting it to 30% of the turnover, considering it excessive and unreasonable. The Ld. CIT(A) confirmed this disallowance.

What were the issues?

1. Whether the Ld. CIT(A) erred in law and facts by confirming the AO's action in restricting the commission expense paid to M/s. Tanzil Nutrition Centre (wife of the assessee) to 30% of turnover and disallowing the excess amount of Rs. 18,76,286/- under Section 40A(2)(b) of the Income-tax Act, 1961. Assessee's Contention: The assessee argued that his business model, which involves multi-level marketing and team building for Herbalife products, is fundamentally different from the business of selling Ayurvedic products, making the 30% benchmark used by the AO inappropriate. The assessee also contended that the Ld. CIT(A) and AO failed to appreciate the facts, ignored submissions, and breached principles of natural justice. Revenue's Contention: The revenue, through the AO and Ld. CIT(A), relied on the fact that the payment was made to a related party (assessee's wife) and that the assessee failed to provide sufficient documentary evidence to justify the quantum and nature of services rendered by M/s. Tanzil Nutrition Centre, thus deeming the expenditure excessive and unreasonable.

Which sections of the Income-tax Act were involved?

Section 40A(2)(b),Section 250

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “SMC” BENCH, AHMEDABAD

For Appellant: Ms. Yashvi Mashruwala, AR
For Respondent: Shri Drop Singh Meena, Sr. DR
Hearing: 08.07.2026Pronounced: 01.10.2026

PER DR. B.R.R. KUMAR, VICE-PRESIDENT:

- This appeal has been filed by the assessee against the order dated 07.08.2025 passed by the Commissioner of Income-Tax (Appeals)/National Faceless Appeal Centre, Delhi (hereinafter referred to as ‘Ld. CIT (A)’ in short), under Section 250 of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’ in short) for Assessment Year 2018- 2019. 2. The Assessee has raised the following grounds of Appeal:-

1.

The Ld. CIT(A) has erred in law and on facts in confirming the action of the Ld. Assessing Officer in restricting the commission expense paid to M/s Tanzil Nutrition Centre (Proprietor: Mrs. Riddhi Bhavsar, wife of the a

The order continues below.

Read the full judgment

A free account opens 10 full judgments a month. Re-reading one you have already opened does not count again.

Create a free accountSign in

See plans and prices

The summary, the parties, the sections and the citations above are open to everyone and always will be. Only the text of the order and the PDF are metered.

More judgments on Section 40A(2)(b)

All 1,172 judgments and leading authorities on Section 40A(2)(b) →

Recent GST High Court judgments

Search GST case law →