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Section 40(A)2 of the Income Tax Act provides powers to the assessing officer. In case of expenditure incurred or payment has been made or is to be made to a specified person, Assessing Officer is of the opinion that the expenditure incurred or to be incurred is unreasonable or excessive with regard to the market value or fair value of the goods and services then he may disallow such expenditure excessive or unreasonable to the extent he thinks fit.
Thus Section 40(A)2 is the overriding provision which states that even if the expenditure or allowance is allowed in any other section if the expenditure is made to the specified person the Section 40(A)2 will override and prevail in case of such application.
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As per Section 40(A) 2 of the Income Tax Act, Specified Persons are a different category of individuals mentioned below:
A person shall have deemed to have a substantial interest in a business or profession if:
There is no definition mentioned as per Section 40(A) 2. In such cases, the definition of Relative is taken from Section 2 of the Income Tax Act[1], 1961.
As per Section 2(41) of the Act Relative in relation to individual means:
I hope we have taken you through the entire Section 40(A) 2 of the Income Tax Act, 1961.
We have a team of Income Tax Experts whom we guide through the deductions, allowance under various sections of Income Act, 1961. Contact our expert www.enterslice.com.
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