Disallowance in income tax

[madhavvan n]

if an individual makes some capital purchases and expenditure thru its sister concern which is also individual is there any disallowance in income tax ( both are subject to tax audit) the amounts are credited and debited to the sister concerns account and shown as balance receivable/ payable

[Ravi Chopra]

In case of purchase through sister concern, you need to read the provisions of Section 40A(1) thoroughly. Otherwise, if the transaction is on one to one basis and at arm's length, it appears there is no difficulty. But in certain situations you may be required to disclosed the facts in the forms or statements, as and when required to desired.

AI Summary

Related-party purchases through a sister concern are acceptable if at arm's length, subject to disclosure and Section 40A(1) review. Disallowance of expenditures routed through a sister concern is governed by the payment disallowance framework and Section 40A(1). Such transactions are not automatically disallowed if they are on a one to one basis and at arm's length; genuine arm's length dealings are typically acceptable. However, taxpayers must maintain proper receivable/payable records and make required disclosures in tax returns or statements to meet audit and reporting obligations.