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“excessive or unreasonable payment”

DisallowancesSection 40A(2)(b)Section 40A(2)(b)19 judgments

The decision most relied on for excessive or unreasonable payment is Upper India Publishing House Pvt. Ltd. v. CIT (117 ITR 569), cited in 37 judgments on BharatTax.

Leading authorities on excessive or unreasonable payment

Upper India Publishing House Pvt. Ltd. v. CIT
117 ITR 569 · 1979 · Supreme Court
37
citing judgments

Expenditure or payments to related persons cannot be disallowed under Section 40A(2)(b) unless the Assessing Officer first establishes that the expenditure is excessive or unreasonable. The onus is on the revenue to prove such unreasonableness.

CIT v. Indo Saudi Services (Travel) (P.) Ltd.
219 CTR 562 · 2008 · High Court
20
citing judgments

Disallowance under section 40A(2) of excessive or unreasonable payments to related parties is not justified if the revenue cannot demonstrate tax evasion, especially when the related party also pays taxes at a similar or higher rate.

CIT v. Ashok J. Patel
43 Taxmann.com 227 · 2014 · High Court
19
citing judgments

The Assessing Officer has the onus to prove that payments made to related parties under section 40A(2)(b) are excessive, by providing comparable market prices and demonstrating the unreasonableness of the payment.

Emersons Process Management India P.Ltd. v. Addl.CIT
47 SOT 157 · 2011 · ITAT
19
citing judgments

A disallowance of expenditure under section 40A(2)(b) must be based on a finding that the payment was excessive or unreasonable vis-à-vis the fair market value of the services, not merely on the quantum of expenditure.

CIT v. Sarjan Realities Ltd.
50 Taxmann.com 52 · 2014 · High Court
17
citing judgments

A payment of interest cannot be deemed excessive or unreasonable solely because the assessee pays different rates to different companies, provided the rates are not above the market rate.

Judgments citing excessive or unreasonable payment

Dentsu Aegis Network India Private Limited(Erstwhile Vizeum Media Service India Merged in Dan India), Mumbai vs. Income Tax Officer, Circle 8(3)(2), Mumbai

In the result, the appeal of the assessee is allowed

ITA 6122/MUM/2025[2014-15]Status: DisposedITAT Mumbai20 Feb 2026AY 2014-15

Bench: Shri Rahul Chaudhary & Shri Makarand Vasant Mahadeokardentsu Aegis Network Dcit Central India Private Limited Circle-1(1), (Erstwhile Vizeum Media Vs. Aayakar Bhavan, Service India Merged Maharashi Karve With Dentsu Aegis Marg, Mumbai-400 Network India Private 020 Limited W.E.F. 1St April 2017) 2Nd Floor, Devchand House, Dr. A. B. Road, Shiv Sagar Estate Mumbai, Worli So, Mumbai-400 018 Pan/Gir No. Aahca3058N (Applicant) (Respondent) Assessee By Shri Ketan Ved & Shri Abdul Kadir Jawadwala, Ld. Ars Revenue By Shri Annavaram Kosuri, Ld. Dr Date Of Hearing 02.02.2026 Date Of Pronouncement 20.02.2026

Section 142(1)Section 143(3)Section 250Section 37(1)Section 40Section 40A(2)(b)

same rate, and there is no allegation of tax evasion, disallowance under section 40A(2) on the ground of excessive or unreasonable payment is not justified. It was submitted that in the present case also both Aegis and Carat were taxable at the effect of tax evasion in making ... same rate and there is no allegation or evidence of tax evasion, disallowance under section 40A(2) on the ground of excessive or unreasonable payment is not justified in the absence of a finding that the payment is excessive having regard to fair market value or business needs

ACIT, Circle - 34(1), Delhi vs. Pankaj Kalra, Delhi

In the result, the appeal of the revenue is dismissed

ITA 855/DEL/2025[2017]Status: DisposedITAT Delhi31 Dec 2025

Bench: Shri M. Balaganesh & Ms Madhumita Royacit, Vs. Pankaj Kalra, Circle-34(1), A-28, Phase-1, Ashok Vihar, Delhi Delhi (Appellant) (Respondent) Pan: Amqpk6707N

For Appellant: Shri Gaurav Jain, AdvFor Respondent: Shri Om Prakash, Sr. DR
Section 143(3)Section 40A(2)(b)

rates of the parent company as such it did not contravene the provisions of Section 40A(2)(b) of the Act and no excessive or unreasonable payment was made by the Assessee to Salvation Group. The Assessee produced the ledger account of Salvation Group in support of his contentions

Sri Maharaja Refineries, Erode vs. ACIT, Circle-I, Erode

ITA 1956/CHNY/2024[2014-15]Status: DisposedITAT Chennai07 May 2025AY 2014-15

Bench: Shri Manu Kumar Giri & Shri Amitabh Shuklaआयकरअपीलसं./I.T.A.Nos.1955 & 1956/Chny/2024 (निर्धारणवर्ष / Assessment Years: 2013-14 & 2014-15) Sri Maharaja Refineries, # 128, Bhavani Road, Erode-638 004. Vs The Assistant Commissioner Of Income-Tax, Circle-1, Erode. Pan: Aaffs-8491-N (अपीलार्थी/Appellant) (प्रत्यर्थी/Respondent) अपीलार्थीकीओरसे / Appellant By प्रत्यर्थीकीओरसे/Respondent By : Mr. S.Sridhar, Advocate (Erode) : Mr. R.Clement Ramesh Kumar, Cit & Ms.Anitha, Addl.Cit सुनवाईकीतारीख/Date Of Hearing : 19.02.2025 घोषणाकीतारीख / Date Of Pronouncement : 07.05.2025 आदेश / Order Per Manu Kumar Giri, Jm: The Captioned Appeals Filed By The Assessee Are Directed Against Separate Orders Of The Ld. Commissioner Of Income Tax (Appeals)(Nfac), Delhi [Cit(A)] Both Dated 07.06.2024 For

For Respondent: Mr. S.Sridhar, Advocate (Erode)
Section 143(2)Section 143(3)Section 153(5)Section 40A(2)Section 40A(2)(a)Section 40A(2)(b)Section 92

contention and the effect of the decision is to be given without any further verification/examination whereas in the present case, the issue of excessive or unreasonable payment/ expenses claimed by the appellant was never examined by the AO and therefore, the Hon'ble ITAT set-aside the issue

Sri Maharaja Refineries, Erode vs. ACIT, Circle-1, Erode

ITA 1955/CHNY/2024[2013-14]Status: DisposedITAT Chennai07 May 2025AY 2013-14

Bench: Shri Manu Kumar Giri & Shri Amitabh Shuklaआयकरअपीलसं./I.T.A.Nos.1955 & 1956/Chny/2024 (निर्धारणवर्ष / Assessment Years: 2013-14 & 2014-15) Sri Maharaja Refineries, # 128, Bhavani Road, Erode-638 004. Vs The Assistant Commissioner Of Income-Tax, Circle-1, Erode. (प्रत्यर्थी/Respondent) Pan: Aaffs-8491-N (अपीलार्थी/Appellant) अपीलार्थीकीओरसे / Appellant By : Mr. S.Sridhar, Advocate (Erode) प्रत्यर्थीकीओरसे/Respondent By : Mr. R.Clement Ramesh Kumar, Cit & Ms.Anitha, Addl.Cit सुनवाईकीतारीख/Date Of Hearing : 19.02.2025 घोषणाकीतारीख / Date Of Pronouncement : 07.05.2025 आदेश / Order Per Manu Kumar Giri, Jm: The Captioned Appeals Filed By The Assessee Are Directed Against Separate Orders Of The Ld. Commissioner Of Income Tax (Appeals)(Nfac), Delhi [Cit(A)] Both Dated 07.06.2024 For

For Appellant: Mr. S.Sridhar, Advocate (Erode)For Respondent: Mr. R.Clement Ramesh Kumar
Section 143(2)Section 143(3)Section 153(5)Section 40A(2)Section 40A(2)(a)Section 40A(2)(b)Section 92

contention and the effect of the decision is to be given without any further verification/examination whereas in the present case, the issue of excessive or unreasonable payment/ expenses claimed by the appellant was never examined by the AO and therefore, the Hon'ble ITAT set-aside the issue

ACIT, Central Circle-3(1), Hyderabad vs. Sri Chaitanya Educational Committe, Vijayawada

In the result, the appeal filed by the Revenue is dismissed

ITA 325/HYD/2023[2012-13]Status: DisposedITAT Hyderabad06 May 2025AY 2012-13

Bench: Shri Vijay Pal Rao & Shri Manjunatha G

For Appellant: Shri AV Raghuram, AdvocateFor Respondent: MS. M. Narmada, CIT-DR
Section 11Section 12Section 12ASection 13(1)(c)Section 13(3)

society for the purpose of it’s objects for the previous financial year 2010- 2011 and observed that, the appellant- society has made excessive and unreasonable payment to the above two companies for rendering services, which attracts section 13(2)(c) of the Act, where if any amount is paid ... Assessing Officer after considering relevant provisions of the Act and also applying provisions of sec.40A(2)(a) observed that, appellant society has made excessive and unreasonable payment to the above two companies for rendering services which cannot be allowed as deduction. Thus, the Assessing Officer disallowed a sum of Rs.25

Lalitaben Dipakbhai Modh, Surat vs. PCIT-3, Ahmedabad

In the result, the appeal filed by the Assessee is hereby allowed

ITA 715/AHD/2024[2013-14]Status: DisposedITAT Ahmedabad31 Dec 2024AY 2013-14

Bench: Shri T.R. Senthil Kumar (Judicial Member), Shri Narendra Prasad Sinha (Accountant Member)

Section 139(1)Section 147Section 148Section 271F

revisional proceedings under section 263, to take a different view on same material Held, no Whether on facts stated under heading 'Business disallowance Excessive or unreasonable payments' when Assessing Officer had duly verified all details from books and records, and had made no addition in regular assessment, Commissioner was justified

Eastern Cargo Carriers (India) Private Limited, Mumbai, Maharashtra, India vs. The Assessment Unit, Income Tax Department

In the result, the appeal of the In the result, the appeal of the assessee is partly allowed for statistical purposes

ITA 4610/MUM/2023[2021-2022]Status: DisposedITAT Mumbai20 Dec 2024AY 2021-2022

Bench: Shri Om Prakash Kant () & Shri Raj Kumar Chauhan () Assessment Year: 2021-22 M/S Eastern Cargo Carriers (India) The Assessment Unit, Income Tax Pvt. Ltd., Department, Vs. Unit No. 26, Adarsh Ind. Estates, Aaykar Bhavan, M.K. Road, Sahar Road, Andheri East, Mumbai-400020. Mumbai-400099. Pan No. Aaace 1520 E Appellant Respondent

For Appellant: Mr. Niraj Sheth a/wFor Respondent: Mr. Hemanshu Joshi, Sr. DR
Section 40A(2)(a)

intended to check evasion of tax through to check evasion of tax through excessive or unreasonable payments to relatives or associate excessive or unreasonable payments to relatives or associate excessive or unreasonable payments to relatives or associate concern and should not be applied in a manner which will cause ... borne in mind that the provision is meant to check evasion of tax provision is meant to check evasion of tax through excessive or unreasonable payments to relatives and associate through excessive or unreasonable payments to relatives and associate through excessive or unreasonable payments to relatives and associate concerns

Narayan Das Talreja, N.S.M., Azadpur, Delhi vs. ITO Ward 36(1), New Delhi

In the result, appeal of the assessee is partly allowed

ITA 2564/DEL/2023[2018-2019]Status: DisposedITAT Delhi18 Dec 2024AY 2018-2019

Bench: Shri Vikas Awasthyआअसं.2564/िद"ी/2023(िन.व. 2018-19) Narain Dass Talreja, (Through Kishore Talreja Lr) B-206, New Subzi Mandi, Azad Pur, Delhi-110033 ...... अपीलाथ"/Appellant Pan: Acspt-4460-B बनाम Vs. Income Tax Officer, Income Tax Department, ..... "ितवादी/Respondent National E-Assessment Centre, Delhi अपीलाथ" "ारा/ Appellant By : S/Shri K.P Ganguly & Narender Kumar, Advocate "ितवादी"ारा/Respondent By : Shri Sanjay Tripathi, Sr. Dr सुनवाई क" ितिथ/ Date Of Hearing : 19/09/2024 घोषणा क" ितिथ/ Date Of Pronouncement : : 18/12/2024 आदेश/Order Per Vikas Awasthy, Jm: This Appeal By The Assessee Is Directed Against The Order Of Commissioner Of Income Tax (Appeals), National Faceless Appeal Centre, Delhi (Hereinafter Referred To As 'The Cit(A)') Dated 19.07.2023, For Assessment Year 2018-19. 2. The Facts Of The Case In Brief As Emanating From Records Are: The Assessee Is A Commission Agent & Is Engaged In Trading Of Fresh Fruits. The Assessee Filed Its Return Of Income For The Impugned Assessment Year Declaring Income Of Rs.9,30,120/-. In The Course Of Assessment Proceedings The Assessing Officer (Ao) Found That In Violation Of Provisions Of U/S. 40A(3) Of The Income Tax Act, 1961(Hereinafter Referred To As ‘The Act’) The Assessee Has Made Payment In Cash In Excess Of Rs.10,000/- To A Single Person & There Are Several Such Payments. Hence, He Made Disallowance U/S. 40A(3) Of The Act On Following Transactions:

For Appellant: S/Shri K.P Ganguly, & Narender Kumar, AdvocateFor Respondent: Shri Sanjay Tripathi, Sr. DR
Section 40A(2)Section 40A(3)

estimations. The disallowance under provisions of u/s. 40A(2) of the Act can be made by the AO, where in his opinion excessive or unreasonable payments having with regard to fair market value of goods, services or facilities is made to the relative of the assessee, if assessee

Varun Satyapal Singhal, Vadodara vs. The Incometax Officer, Ward-1(2)(3( Now the DCIT, Circle-1(1)(1), Vadodara

In the result, the appeal filed by the assessee is allowed

ITA 636/AHD/2023[2013-14]Status: DisposedITAT Ahmedabad10 Jun 2024AY 2013-14

Bench: Us, At The Outset, Ld. Counsel For The Assessee Submitted That He Shall Not Be Pressing For Ground Nos. 3, 4 & 5 Of His

Section 250Section 40ASection 40A(2)(a)Section 40A(2)(b)Section 41(1)Section 68

comparative prices. The learned CIT(A) deleted the said disallowances by observing that the AO has not made out any case for excessive or unreasonable payments to the related purpose towards the motor bus rent. The learned CIT(A) also observed that no comparative prices for similar transport services

Apex Health Care Limited, Ankleshwar vs. The ACIT, Circle-2, Bharuch Present Juridiction the Dy.CIT, Central Circle-2, Vadodara

In the result, the appeal filed by the assessee is partly allowed

ITA 547/AHD/2023[2015-16]Status: DisposedITAT Ahmedabad05 Apr 2024AY 2015-16

Bench: Smt. Annapurna Gupta (Accountant Member), Shri T.R. Senthil Kumar (Judicial Member)

Section 143(3)Section 40A(2)(b)

Assessing Officer having not made comparable study by observing as follows: “I. Section 40A(2) of the Income-tax Act, 1961 - Business disallowance - Excessive or unreasonable payments (Onus to prove) - Assessment years 2005-06 and 2006-07 – Assessee made payment to persons specified under section 40A(2)(b) - Assessing Officer ... then invocation of section 40A(2) was not valid as follows: “Section 40A(2) of the Income-tax Act, 1961 - Business disallowance - Excessive or unreasonable payments (Service charges) -a 100 per cent subsidiary company of 'G Ltd.', a Government company - 'G Ltd,' was in distributing through pipelines to its customers

M/S.Hdb Financial Services Ltd., Ahmedabad vs. The Pr. CIT-1, Ahmedabad

In the result, the appeal filed by the Assessee is hereby allowed

ITA 177/AHD/2022[2017-18]Status: DisposedITAT Ahmedabad24 Jan 2024AY 2017-18

Bench: Shri Waseem Ahmed (Accountant Member), Shri T.R. Senthil Kumar (Judicial Member)

Section 115JSection 142(1)Section 143(2)Section 143(3)Section 14ASection 36(1)(vii)Section 36(1)(viia)Section 80J

revisional proceedings under section 263, to take a different view on same material Held, no Whether on facts stated under heading 'Business disallowance - Excessive or unreasonable payments' when Assessing Officer had duly verified all details from books and records, and had made no addition in regular assessment, Commissioner was justified

M/S. Trinity Global Enterprises Ltd., Jaipur vs. ITO, New Delhi

In the result, the appeal of the assessee is allowed

ITA 2122/DEL/2016[2011-12]Status: DisposedITAT Delhi12 Jan 2024AY 2011-12

Bench: Dr. B. R. R. Kumarsh. Yogesh Kumar Us

For Appellant: Sh. Rajkumar Gupta, CA &For Respondent: Sh. Subhra J. Chakraborty, CIT-DR
Section 133(6)Section 142(1)Section 40A(2)(b)Section 68

India) (P.) Ltd. Vs. DCIT [2021] 123 taxmann.com 129 (Delhi -Trib.) “Section 40(A)(2) of the Income-tax Act, 1961 - Business disallowance - Excessive or unreasonable payments (Payments to directors) - Assessment year 2004-05 - During course of scrutiny assessment proceedings, Assessing Officer asked assessee to explain payment made ... Enterprises Ltd. Amit Mehra Vs. ITO [2020] 116 taxmann.com 870 (Delhi - Trib.) “Section 40A(2) of the Income-tax Act, 1961 - Business disallowance - Excessive or unreasonable payment (Applicability of) - Assessment year 2012-13 - Whether section 40A(2)(b) does not envisage complete disallowance of expenditure unless it is proved

Deputy Commissioner of Income Tax, Jaipur vs. M/S Worship Infraprojects Pvt Ltd(Previously Known As Om Metals Spml Infraprojects Pvt Ltd), Jaipur

In the result of the appeal of the assessee is allowed

ITA 431/JPR/2022[2014-15]Status: DisposedITAT Jaipur22 May 2023AY 2014-15

Bench: SHRI SANDEEP GOSAIN (Judicial Member), SHRI RATHOD KAMLESH JAYANTBHAI (Accountant Member)

For Appellant: Shri Vijay Goyal, CA &For Respondent: Shri A.K. Bhardwaj, CIT &
Section 92C

Paper book page 145- 152) 2.4 It is clear that the objective of Section 40A(2) is to check evasion of tax through excessive or unreasonable payments to the associates concern and therefore, this provision should not be applied in a manner which will create hardship in bonafide cases

Worship Infraprojects Private Limited, Jaipur vs. DCIT, Ceircle-2, Jaipur

In the result of the appeal of the assessee is allowed

ITA 394/JPR/2022[2014-15]Status: DisposedITAT Jaipur22 May 2023AY 2014-15

Bench: SHRI SANDEEP GOSAIN (Judicial Member), SHRI RATHOD KAMLESH JAYANTBHAI (Accountant Member)

For Appellant: Shri Vijay Goyal, CA &For Respondent: Shri A.K. Bhardwaj, CIT &
Section 92C

Paper book page 145- 152) 2.4 It is clear that the objective of Section 40A(2) is to check evasion of tax through excessive or unreasonable payments to the associates concern and therefore, this provision should not be applied in a manner which will create hardship in bonafide cases

DCIT - 3(3)(2), Mumbai vs. V. Hotels Ltd.(Formerly Known As Tulip Hospitality Services Ltd), Mumbai

In the result, all the appeals filed by the revenue are dismissed

ITA 5664/MUM/2018[2013-14]Status: DisposedITAT Mumbai20 Jul 2022AY 2013-14
Section 32(1)(ii)

enough. 7 Moreover, the ITAT has rightly concluded that the provisions like Section 40A are meant to check evasion of tax through excessive or unreasonable payment to relatives and associate concerns and should not be applied in a manner which will cause hardship in bonafide cases relying on Section

DCIT - 3(3)(2), Mumbai vs. V. Hotels Ltd.(Formerly Known As Tulip Hospitality Services Ltd), Mumbai

In the result, all the appeals filed by the revenue are dismissed

ITA 5663/MUM/2018[2013-14]Status: DisposedITAT Mumbai20 Jul 2022AY 2013-14
Section 32(1)(ii)

enough. 7 Moreover, the ITAT has rightly concluded that the provisions like Section 40A are meant to check evasion of tax through excessive or unreasonable payment to relatives and associate concerns and should not be applied in a manner which will cause hardship in bonafide cases relying on Section

DCIT - 3(3)(2), Mumbai vs. V. Hotels Ltd.(Formerly Known As Tulip Hospitality Services Ltd), Mumbai

In the result, all the appeals filed by the revenue are dismissed

ITA 5662/MUM/2018[2012-13]Status: DisposedITAT Mumbai20 Jul 2022AY 2012-13
Section 32(1)(ii)

enough. 7 Moreover, the ITAT has rightly concluded that the provisions like Section 40A are meant to check evasion of tax through excessive or unreasonable payment to relatives and associate concerns and should not be applied in a manner which will cause hardship in bonafide cases relying on Section

Orange Associates Pvt. Ltd., New Delhi vs. ACIT, Circle- 22(1), New Delhi

The appeal of the assessee stands allowed

ITA 5874/DEL/2017[2014-15]Status: DisposedITAT Delhi24 Sept 2021AY 2014-15

Bench: Shri Kuldip Singh & Shri Prashant Maharishi

For Appellant: Shri Taranpreet Kohli, CAFor Respondent: Shri Gaurav Pundir, Senior DR
Section 40A(2)Section 40A(2)(b)

Years. All the same, it is settled law that although the objective of section 40A(2) is to prevent evasion of tax through excessive or unreasonable payments, but this provision should not be applied in a manner which will create hardship in bona fide cases. A perusal of the assessment

Hive Communications Pvt Ltd

Appeal is allowed

ITA - 306 / 2011HC Delhi08 Jul 2011
Section 143Section 260Section 40ASection 40A(2)

reasonable and fair manner. It should be borne in mind that the provision is meant to check evasion of tax through excessive or unreasonable payments to relatives and associate concerns and should not be applied in a manner which will cause hardship in bona fide cases. 12. It will also