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. Disallowance in case the following 3 conditions are satisfied: Payment is made in case of any expenditurePayment is made or to be made to a Specified Persons in respect of such expenditurePayment of expenditure is considered excessive or unreasonable with regard to the fair market value of goods or services provided. Read our article: File the Income Tax Refund with the Help of Experts Who is a Specified Person? As per Section 40(A) 2 of the Income Tax Act, Specified Persons are a different category of individuals mentioned below: Tax Payer Specified Persons Individual Any Relative Any person in whose business or profession the individual has a substantial interest. Company, Firm Association of Person (AOP), Body of Individuals (BOI) Any director of the company or any partner of the firm or any member of the association or any family members or relative of such director or partner or memberAny person in whose business r profession the director or partner of the member has any substantial interest. All Assesses Any person who has a substantial interest in the business or profession Company, firm or AOP or BOI having a substantial interest in the business or profession or any relative of any such director or partner or member.A Company or Firm or AOP or BOI of which a director or partner or member has a substantial interest in the business of the profession of the assessee or any director or partner or member of any such person or any relative of any such director partner or member. What does substantial interest mean? A person shall have deemed to have a substantial interest in a business or profession if: In the case where business or profession is carried on by a company, such a person holds at any time during the previous year beneficial ownership of not less than 20 % of the voting power.In any other case other than the company, at any time during the previous year beneficially entitles to not less than 20% of the profits of such business or profession Definition of Relative under Section 40(A)2: 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, 1961. As per Section 2(41) of the Act Relative in relation to individual means: HusbandWifeBrother or SisterLinear Ascendant or Descendant of that Individual Note: It is important to note that relatives or the spouse of the individual would not be considered and only the relatives of that person himself would be considered. Conclusion 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. Read our article: How to Claim Income Tax Refund Online?