Provisions u/s.40A(5), Income Tax Act 1961. - Income Tax - 1202/CBDT

INSTRUCTION NO. 1202/CBDT Dated : September 12, 1978 Section(s) Referred: 40A(5) Statute: Income - Tax Act, 1961 Instances have come to the notice of the Board where on account of the lack of proper coordination between the ITOs assessing the cases of the foreign technicians and the ITOs assessing the cases of the employers the question of disallowing the salaries and perquisites paid in excess of the limits prescribed u/s.40A(5) has escaped the attention of the ITO assessing the employer. This has resulted in loss of revenue and under-assessment in certain cases pointed out by the Revenue Audit. 2. In order to avoid such lapses in future and to ensure proper coordination, the following instructions should be observed carefully by all the assessing officers and the audit parties:-- a. The ITOs assessing the cases of the technicians, should make full enquiries regarding the period of employment of the technicians the terms of payments made to them, the liability of the technicians and/or the employers for the payment of the taxes due to the government and other relevant factors. While utilising this information in making the assessments of the technicians the ITO should also forward a copy of the relevant information to the ITO assessing the employers. b) The ITO assessing the employers in their turn, should invariably make an enquiry from their assessees about the employment of the technicians by them, the terms of the employment etc., and should take suitable action to disallow the excess amount if any in the assessment of the employer in terms of sec.40A(5)/40(a)(v). c). The IAPs auditing the cases of the technicians should also consider the question of the application of sec.40A(5)/40a(v) in the case of the employer on, the basis of the facts and material available in the technicians assessment records and advise their counterparts, Audit parties auditing the case of the employers to take note of the relevant information while auditing the cases of the employers.