Section 40A(2)(a) of the Income Tax Act
Income-tax Act, 2025: s.36
Section 40A(2)(a) falls under section 40A of the Income-tax Act, 1961, which corresponds to section 36 (Expenses or payments not deductible in certain circumstances) of the Income-tax Act, 2025.
Read section 36 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 40A(2)(a) is CIT v. Krishna SSK (211 Taxmann 109), cited in 102 of the 266 judgments on BharatTax that turn on this section.
Leading authorities on Section 40A(2)(a)
The Supreme Court in CIT v. Krishna SSK establishes principles for de novo assessment of co-operative sugar factories concerning the tax implications of sugar sales to members, acknowledging that such sales are regulated under Section 79(A) of the Maharashtra Co-operative Societies Act, 1960. These principles guide the computation of total income from these regulated transactions.
Expenditure incurred for exploring the feasibility of expanding or extending an existing business by setting up a new unit in the same line of business is revenue expenditure, not capital expenditure. Such expenditure, including obtaining project reports or legal opinions on desirability or feasibility, does not constitute the setting up of a new business.
Expenditure incurred for starting a new business is capital in nature, irrespective of whether the project materializes. The essential purpose for which an expenditure is incurred determines its character as capital or revenue under Section 37(1).
Donations eligible for deduction under Section 80G can be remitted back to the Assessing Officer for verification of receipts and eligibility.
Disallowance under Section 40A(2)(b) is not maintainable when both the payer and payee are assessed at the maximum marginal rate, as it results in a revenue-neutral situation.
Interest paid on delayed remittances of service tax is compensatory in nature and not a penalty hit by the Explanation to Section 37(1) of the Income Tax Act, 1961, making it a allowable business expenditure.
Interest chargeable under section 201(1A) of the Income Tax Act is not penal in nature and therefore cannot be waived on the basis of intentional default or other grounds.
A mere change of opinion by the Assessing Officer, without any new material coming on record, is not a valid ground for reopening an assessment under section 147 of the Income-tax Act, especially after the expiry of four years from the end of the relevant assessment year.