Section 40A(2) of the Income Tax Act
The decision most relied on for Section 40A(2) is CIT v. Tasgaon Taluka S.S.K. Ltd. (103 Taxmann.com 57), cited in 306 of the 74 judgments on BharatTax that turn on this section.
Leading authorities on Section 40A(2)
Expenditure for replacement of machinery parts qualifies as 'current repairs' under Section 31(i) of the Income-tax Act if it does not result in a new asset or substantially enhance the existing asset's life. For Section 31(i), the critical factor is whether the expense constitutes current repairs, making the general revenue vs. capital distinction less relevant for that specific section.
An expenditure disallowance is not sustainable solely because both the payer and payee are assessed to tax at the same rate, particularly in the context of sections like 40A(2) or 36(1)(iii).
Depreciation under section 32 is allowable even if an asset is not actively used, provided it is kept in a condition of readiness or is put ready for use, as this amounts to passive user.
For Section 80IA and 80IB deductions, the profits of an eligible industrial undertaking or unit must be computed independently based on its actual profitability and market-rate inter-unit transactions, rather than applying a global profit margin of all the assessee's units.
The Principal Commissioner cannot exercise revisionary powers under Section 263 by merely stating that further enquiry is required or by simply setting aside the assessment order. To revise an assessment, the Principal Commissioner must establish how the assessment order is erroneous and prejudicial to the interest of the revenue.
Interest expenditure should not be disallowed under Section 14A when the assessee has sufficient interest-free funds available to make investments yielding exempt income. This principle applies to the computation of disallowance under Rule 8D.
Goodwill arising on amalgamation is a capital asset. Depreciation is allowable on goodwill if it has been acquired by the assessee. The cost of acquisition for depreciation purposes is the amount paid for goodwill at the time of amalgamation.
Deduction for commission payments cannot be disallowed solely because summons served on commission agents were returned unserved, especially if the agents may have moved addresses years after the transactions.
Judgments on Section 40A(2)
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