On appeal by the revenue the Tribunal held that when the partners of assessee-firm made capital contribution in form of land which was treated as stock-in-trade, provisions S. 45(3) would not apply rather case would be governed by provisions of S 28 to 43A and, thus, AO was entitled to examine reasonableness of payments made to partners for their contribution of land in terms of S 40A(2)(a) accordingly the matter was set aside to examine the issue in terms of S.40A(2)(a) of the Act. ( AY.2007-08 )
ACIT v. Karuna Estates & Developers. (2018) 170 ITD 249 (Visakh) (Trib.)
S. 40A(2): Expenses or payments not deductible – Excessive or unreasonable –Firm -Partner- When partners of the firm contribute land as stock in trade though provision of S.45(3) would not be applicable , AO can examine reasonableness of payment to partners [ S.45(3) ]