Section 142(2A) of the Income Tax Act
Income-tax Act, 2025: s.268
Section 142(2A) falls under section 142 of the Income-tax Act, 1961, which corresponds to section 268 (Inquiry before assessment) of the Income-tax Act, 2025.
Read section 268 of the 2025 Act
Correspondence checked against the ICAI tabular mapping of the two Acts and the BharatTax.co section commentary.
The decision most relied on for Section 142(2A) is Godhra Electricity Co. Ltd. v. CIT (225 ITR 746), cited in 514 of the 676 judgments on BharatTax that turn on this section.
Leading authorities on Section 142(2A)
Income is not taxable until it actually accrues or is received; hypothetical income, based on a mere claim not yet settled, is not chargeable to tax.
Section 14A of the Income-tax Act, 1961, which disallows expenditure incurred in relation to exempt income, is not applicable if the assessee has not earned any exempt income in the relevant assessment year.
The necessity and reasonableness of business expenditure, including the utilization of borrowed funds, must be judged from the perspective of a businessman based on commercial expediency, and cannot be dictated by revenue authorities. The onus is on the assessee to demonstrate the business purpose and commercial expediency.
Administrative orders must be consistent with the rules of natural justice.
Unclaimed deposits received in the course of trading transactions and sundry credit balances written back are taxable as business income under Section 41(1) of the Income-tax Act, 1961, as they constitute a cessation of trading liability.
Deemed dividend under section 2(22)(e) cannot be taxed in the hands of a non-shareholder. The Supreme Court confirmed this view, affirming the Delhi High Court's decision in Ankitech.
For a limited company, expenses cannot be disallowed merely on the grounds of presumed personal use of assets by directors or by treating the expenditure as a non-business purpose. Percentage disallowances of expenses in such cases are not sustainable.
An approving authority must apply its mind and cannot reverse the findings of an adjudicating authority; it is not an appellate authority for remanding the matter.
Interest expenditure incurred for acquiring capital assets, even if capitalized in the books, is deductible if for the purpose of business. Section 36(1)(iii) is a self-contained code regarding such deductions.
The reasonableness of an expenditure for business purposes must be assessed from the businessman's perspective, not the revenue's, and the primary motive to earn income directly is not a prerequisite for its admissibility as a deduction.