Remuneration paid by CA firm to wives of CA partners for their services rendered allowed in the absence of any comparable analysis made
In a recent judgment, ITAT Mumbai has deleted addition made by AO on account of remuneration paid by CA firm to wives of CA partners for their services rendered in the absence of any comparable analysis made
ABCAUS Case Law Citation:
5094 (2026) (04) abacus.in ITAT
In the instant case, the assessee had challenged the order passed by the CIT(A) in upholding the addition under section 40A(2)(b) of the Income Tax Act, 1961 (the Act) towards related party payments.
The appellant assessee is a Chartered Accountants firm. The return was selected for scrutiny. During the assessment proceedings, the AO inter alia noted that assessee had made certain payments to related parties i.e. wives of the CA partners.
The AO noted that assessee had paid a large amount to wives of the CA partners of the firm. The AO was of the view that the assessee failed to file sufficient supporting evidence to justify such claim. No evidence of genuineness of such payment was furnished. The AO accordingly disallowed such payments under section 40A(2)(b).
Before the CIT(A), the assessee stated that those wives were working in firm for last 15 years even before the merger of the firm and consistently helping in audit assignments as well as administrative issues pertaining to the activities of the firm.
It was thus stated that payment had been made against the services rendered. Therefore, the payment was not hit by section 40A(2)(b) of the Act.
However, the CIT(A) confirmed the disallowance
The Tribunal observed that the AO had objected in his remand report to the CIT(A) but had not seen ledger account of salaries paid to wives of CA partners from last fifteen years.
The Tribunal observed that the payment to related parties is not prohibited under the law. It has to be seen with its reasonableness. The services rendered by such related parties were not disputed. Such disallowances had to be made if such expenditure is excessive or unreasonableness having regard to the fair markets of services rendered or facilities availed or goods purchase. However, no comparable analysis is made by lower authorities.
In view of the above, the Tribunal held that there was no justification in absence of observation of reasonableness / unreasonableness of such expenses on account of the remuneration paid to wives of partners for their services rendered.
Accordingly, ground of assessee’s appeal was allowed.
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