Section 40(a)(2b)

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Querist : Anonymous

Querist : Anonymous (Querist)

09 May 2012 1.Our co. has reimbursed tour expenses to the directors. Whether the same are required to be report in Form 3CD?
2.And Director is Karta of HUF whether rent paid to HUF by the co. would be reported.?
Please reply.

CA CKP

CA CKP (Expert)
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09 May 2012 1. Reimbursement of exp to Director is not required to report in 3CD
2. Rent paid to HUF of Director is required to report as related party.

Querist : Anonymous

Querist : Anonymous (Querist)

09 May 2012 Thanks for the reply but please tell me the reason of Ans.(1)....company has accounted tour expenses in its financial statements then why there is no need to report?

Aashok Kumar Sharma online

Aashok Kumar Sharma

(Expert)
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23 July 2025 Great question! Let's break this down clearly under Section 40A(2)(b) and Tax Audit reporting in Form 3CD (Clause 23):

📌 Your Questions Recap:
Reimbursement of tour expenses to directors — Is it required to be reported in Form 3CD?

Rent paid to HUF of a director (where the director is Karta) — Should this be reported?

✅ Answer 1: Reimbursement of Tour Expenses to Director
➤ Whether to report in Form 3CD (Clause 23)?
No, reimbursement per se is not required to be reported under Clause 23, if:

It is purely reimbursement of actual expenses incurred by the director (i.e., supported by bills/invoices),

And not a perquisite, allowance, or a markup over actuals.

💡 Why?
Clause 23 of Form 3CD under section 40A(2)(b) asks for:

“Particulars of payments made to persons specified under section 40A(2)(b) where such payments are excessive or unreasonable having regard to the fair market value…”

🔹 Pure reimbursement of expenses does not constitute "payment" in the nature of expenditure involving profit/benefit transfer — it’s cost recovery.

🔹 CBDT Circulars and ICAI’s “Tax Audit under Section 44AB” guide clarify this — reimbursement of actual expenditure is not covered under clause 23, unless it has some embedded profit or unreasonable element.

✅ Answer 2: Rent Paid to HUF Where Director is Karta
Yes, this must be reported under Clause 23 of Form 3CD.

➤ Why?
Section 40A(2)(b) covers relatives and their entities.

If a director is Karta of an HUF, then payments made to the HUF are considered payments to a related party.

ICAI has clarified that HUF is a related party if the director is its Karta.

So, rent paid to that HUF must be disclosed under Clause 23, and the tax auditor needs to examine whether it is excessive or unreasonable.

🧾 Summary Table:
Nature of Transaction Report in 3CD? Reason
Reimbursement of tour expenses to Director ❌ No Pure reimbursement, not payment for services or perquisite
Rent paid to HUF where Director is Karta ✅ Yes HUF is a related party under 40A(2)(b)

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