“Section 40(4)”

Payments by Indian residents to non-resident foreign software suppliers for software are considered royalty, constituting income deemed to accrue in India under section 9(1)(v), thereby requiring tax deduction at source under section 195.

When an assessee's income is estimated after rejecting their books of account, further additions or disallowances for specific expenses are generally not permissible, as the estimation already accounts for these.

Prior to the jurisdictional High Court's decision in CIT v. Samsung Electronics Co. Ltd. on October 15, 2011, the purchase of off-the-shelf software was not subject to TDS, and therefore, no disallowance under Section 40(a)(i) or 40(a)(ia) could be made.

Where purchases are supported by bills, reflected in books of account, and payments are made through account payee cheques, such purchases cannot be treated as bogus in the absence of specific contrary evidence from the Assessing Officer.

If a sum is not chargeable to tax in the hands of the recipient, the payer is not obligated to deduct tax at source, and consequently, no disallowance under section 40(a)(i) can be made. The Bombay High Court also affirmed that penalty proceedings under section 271B may be quashed in certain circumstances.

When business income is estimated, disallowances under Section 40A(3) for cash payments and Section 40(a)(ia) for non-deduction of TDS should not be made.

An Indian company that exercises control and supervision over a seconded employee and bears the salary cost is an economic employer. Such a company is not liable to withhold tax on the reimbursement of salary to the overseas company, thereby avoiding disallowance under Section 40(a)(i).

For banks, bad debts written off from non-rural advances are not subject to the limitations of the provisos to sections 36(1)(vii) and 36(1)(viii), as these provisos apply only to rural advances; section 36(1)(viia) also applies exclusively to rural advances. Additionally, depreciation on investments valued at market price on the balance sheet date is eligible for deduction.