Section 40A(2)(b) of the Income Tax Act

Income-tax Act, 2025: s.36

Section 40A(2)(b) 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)(b) is CIT v. Dalmia Cement (Bharat) Ltd. (254 ITR 377), cited in 417 of the 1,172 judgments on BharatTax that turn on this section.

Leading authorities on Section 40A(2)(b)

CIT v. Dalmia Cement (Bharat) Ltd.
254 ITR 377 · 2002 · High Court
417
citing judgments

When there is a nexus between an expenditure and the purpose of business, incurred on grounds of commercial expediency, the Revenue cannot question its reasonableness or assume the role of the businessman to compel profit maximization. This principle applies even if the business is not that of the assessee itself.

CIT v. Winsome Textile Industries Ltd.
319 ITR 204 · 2009 · High Court
378
citing judgments

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.

Eastern Investments Ltd. v. CIT
38 ITR 601 · 1960 · Supreme Court
346
citing judgments

Expenditure must be commercially expedient for carrying on the business, and it is not for revenue authorities to dictate how an assessee should conduct its business. The court will not question the business expediency of a transaction, even if a third party also benefits.

Biocon Ltd. v. DCIT
35 Taxmann.com 335 · 2013 · ITAT
322
citing judgments

The discount arising from the grant of Employee Stock Option Plans (ESOPs) is an allowable business expenditure under Section 37(1) of the Income-tax Act, 1961, as it is an ascertained liability, not a contingent one, and constitutes a revenue expense rather than a capital expense.

CIT v. Walchand & Co.
65 ITR 381 · 1967 · Supreme Court
314
citing judgments

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.

India Cements Ltd. v. CIT
60 ITR 52 · 1966 · Supreme Court
247
citing judgments

Expenses incurred for obtaining a loan for the purpose of the assessee's business, such as debenture discount, bank guarantee charges, and stamp duty, are considered revenue expenditure. These liabilities, though potentially spread over time, are deductible as revenue expenses.

CIT v. Ankitech (P) Ltd.
340 ITR 14 · 2012 · High Court
202
citing judgments

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.

Challapalli Sugars Ltd. v. CIT
98 ITR 167 · 1975 · Supreme Court
185
citing judgments

Interest on borrowed capital utilized for acquiring a capital asset is capitalized until business commences. Once business is set up, this interest is deductible under section 36(1)(iii) even if the asset has not yet been put to use, accepting commercial accounting standards in the absence of contrary statutory provisions.

DCIT v. Core Health Care Ltd.
298 ITR 194 · 2008 · Supreme Court
165
citing judgments

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.

CIT v. Dhanrajgirji Raja Narasingirji
91 ITR 544 · 1973 · Supreme Court
154
citing judgments

The revenue cannot question the commercial expediency or wisdom of an expenditure incurred by a businessman, as the businessman is the best judge of their own business interests. The department's role is limited to verifying if the expenditure was genuinely incurred and was wholly and exclusively for business purposes.

Judgments on Section 40A(2)(b)

Income Tax Officer, Ward-1, Jharsuguda, Aayakar Bhawan vs. Hirakhand Transport and Multi Purpose Co-Operative Society Ltd., Brajaraj Nagar

ITA 282/CTK/2024[2015-2016]Status: HeardITAT Cuttack04 Sept 2024AY 2015-2016

Bench: Shri George Mathan & Shri Manish Agarwalआयकर अऩीऱ सं/Ita No.282/Ctk/2024 (ननधाारण वषा / Assessment Year : 2015-2016) Ito, Ward-1, Jharsuguda Vs Hirakhand Transport & Multi Purpose Cooperative Society Pvt. Ltd., At-Chingriguda, Bijapara, R Kudopali, Brajrajnagar, Jharsuguda-768216 Pan No. :Aaaah 5874 Q & प्रत्याक्षेऩ सं/Cross Objection No.04/Ctk/2024 (Arising Out Of Ita No.282/Ctk/2024) (ननधाारण वषा / Assessment Year : 2015-2016) Hirakhand Transport & Multi Vs Ito, Ward-1, Jharsuguda Purpose Cooperative Society Pvt. Ltd., At-Chingriguda, Bijapara, R Kudopali, Brajrajnagar, Jharsuguda-768216 Pan No. :Aaaah 5874 Q (अऩीऱाथी /Appellant) (प्रत्यथी / Respondent) .. ननधााररती की ओर से /Assessee By : Shri Anil Kumar Agrawala, Ca राजस्व की ओर से /Revenue By : Shri Sanjay Kumar, Cit-Dr सुनवाई की तारीख / Date Of Hearing : 04/09/2024 घोषणा की तारीख/Date Of Pronouncement : 04/09/2024 आदेश / O R D E R Per Bench : This Is An Appeal Filed By The Assessee Against The Order Of The Ld. Cit(A), National Faceless Appeal Centre (Nfac), Delhi, Dated 15.05.2024, Passed In Din & Order No.Itba/Nfac/S/250/2024- 25/1064895008(1) For The Assessment Year 2015-2016, On The Following Grounds Of Appeal :-

For Appellant: Shri Anil Kumar Agrawala, CAFor Respondent: Shri Sanjay Kumar, CIT-DR
Section 147Section 148Section 151(1)Section 151(2)Section 250Section 251(1)(a)Section 40A(2)(b)

Shanti Multilink Pvt. Ltd, Ahmedabad vs. The Income Tax Officer, Ward-4(1)(3), Ahmedabad

In the result, the appeal filed by the Assessee is treated as allowed for statistical purposes

ITA 31/AHD/2023[2016-17]Status: DisposedITAT Ahmedabad16 Jul 2024AY 2016-17

Bench: Ms. Suchitra Kamble & Shri Makarand V. Mahadeokarआयकर अपील सं /Ita No.31/Ahd/2023 "नधा"रण वष" /Assessment Year : 2016-17 Shanti Multilink Pvt.Ltd. The Income Tax Officer बनाम/ A-215, Siddhi Vinayak Tower Ward-4(1)(3) Off S.G. Road Ahmedabad-380 015 V/S. Makarba Ahmedabad – 380 051 "थायी लेखा सं./Pan: Aahcs 1972 M अपीलाथ"/ (Appellant) ….. "" यथ"/ (Respondent) Assessee By : Shri Vivek Chavda, Ar Revenue By : Shri Ashok Kumar Suthar, Sr.Dr सुनवाई क" तार"ख/Date Of Hearing : 15/07/2024 घोषणा क" तार"ख /Date Of Pronouncement: 16/07/2024 आदेश/O R D E R Per Shri Makarand V. Mahadeokar, Am: This Appeal Is Filed By The Assessee As Against The Order Dated 09/11/2022 Passed By The Commissioner Of Income-Tax (Appeals), National Faceless Appeal Centre (Nfac), Delhi [Hereinafter Referred To As “The Ld.Cit(A)” In Short], Arising Out Of The Assessment Order Dated 28/12/2018 Passed By The Assessing Officer (Ao) Under Section 143(3) Of The Income Tax Act, 1961 (Hereinafter Referred To As "The Act") Relevant To The Assessment Year (Ay) 2016-17. Shanti Multilink Pvt.Ltd. Vs. Ito Asst. Year : 2016-17

For Appellant: Shri Vivek Chavda, ARFor Respondent: Shri Ashok Kumar Suthar, Sr.DR
Section 143(3)Section 40A(2)(b)

Shri Girishbhai Vadilal Shah, Ahmedabad vs. The DCIT, Circle-4(1)(2), Ahmedabad

In the result, appeal preferred by the assessee in ITA No

ITA 332/AHD/2020[2016-17]Status: DisposedITAT Ahmedabad15 Jul 2024AY 2016-17

Bench: Ms. Suchitra Raghunath Kamble, Judical Member & Shri Narendra Prasad Sinhaआयकर अपील सं./I.T.A. Nos. 330, 331 & 332/Ahd/2020 (िनधा"रण वष" िनधा"रण वष" िनधा"रण वष" / Assessment Years : 2014-15, 2015-16 & 2016-17) िनधा"रण वष" Girishbhai Vadilal Shah Dcit बनाम बनाम/ बनाम बनाम 139, V R Shah Smruti Circle – 4(1)(2), Vs. Shikshan Mandir, Nr. Ahmedabad Dharnidhar Derasar, Vasna, Ahmedabad, Gujarat, 380007 "थायी लेखा सं./जीआइआर सं./Pan/Gir No. : Abjps3102P (Appellant) .. (Respondent) Shri Jaimin Shah, Ar अपीलाथ" ओर से /Appellant By : ""यथ" क" ओर से/Respondent By : Ms. Saumya Pandey Jain, Sr. Dr Date Of Hearing 26/06/2024 Date Of Pronouncement 15/07/2024 O R D E R Per Shri Narendra Prasad Sinha, Am: These Three Appeals Are Filed By The Assessee Against The Order Of The Commissioner Of Income Tax (Appeals)-8, Ahmedabad, (In Short The ‘Cit(A)’), (In Short ‘The Cit(A)’) All Dated 16.03.2020 For The Assessment Year 2014-15, 2015-16 & 2016-17. As The Issues Involved In The Three Appeals Are Common, They Were Heard Together & Are Being Disposed Vide This Common Order.

For Respondent: Ms. Saumya Pandey Jain, Sr. DR
Section 40A(2)(b)Section 57

Shri Girishbhai Vadilal Shah, Ahmedabad vs. The DCIT, Circle-4(1)(2), Ahmedabad

In the result, appeal preferred by the assessee in ITA No

ITA 331/AHD/2020[2015-16]Status: DisposedITAT Ahmedabad15 Jul 2024AY 2015-16

Bench: Ms. Suchitra Raghunath Kamble, Judical Member & Shri Narendra Prasad Sinhaआयकर अपील सं./I.T.A. Nos. 330, 331 & 332/Ahd/2020 (िनधा"रण वष" िनधा"रण वष" िनधा"रण वष" / Assessment Years : 2014-15, 2015-16 & 2016-17) िनधा"रण वष" Girishbhai Vadilal Shah Dcit बनाम बनाम/ बनाम बनाम 139, V R Shah Smruti Circle – 4(1)(2), Vs. Shikshan Mandir, Nr. Ahmedabad Dharnidhar Derasar, Vasna, Ahmedabad, Gujarat, 380007 "थायी लेखा सं./जीआइआर सं./Pan/Gir No. : Abjps3102P (Appellant) .. (Respondent) Shri Jaimin Shah, Ar अपीलाथ" ओर से /Appellant By : ""यथ" क" ओर से/Respondent By : Ms. Saumya Pandey Jain, Sr. Dr Date Of Hearing 26/06/2024 Date Of Pronouncement 15/07/2024 O R D E R Per Shri Narendra Prasad Sinha, Am: These Three Appeals Are Filed By The Assessee Against The Order Of The Commissioner Of Income Tax (Appeals)-8, Ahmedabad, (In Short The ‘Cit(A)’), (In Short ‘The Cit(A)’) All Dated 16.03.2020 For The Assessment Year 2014-15, 2015-16 & 2016-17. As The Issues Involved In The Three Appeals Are Common, They Were Heard Together & Are Being Disposed Vide This Common Order.

For Respondent: Ms. Saumya Pandey Jain, Sr. DR
Section 40A(2)(b)Section 57

Shri Girishbhai Vadilal Shah, Ahmedabad vs. The DCIT, Circle-4(1)(2), Ahmedabad

In the result, appeal preferred by the assessee in ITA No

ITA 330/AHD/2020[2014-15]Status: DisposedITAT Ahmedabad15 Jul 2024AY 2014-15

Bench: Ms. Suchitra Raghunath Kamble, Judical Member & Shri Narendra Prasad Sinhaआयकर अपील सं./I.T.A. Nos. 330, 331 & 332/Ahd/2020 (िनधा"रण वष" िनधा"रण वष" िनधा"रण वष" / Assessment Years : 2014-15, 2015-16 & 2016-17) िनधा"रण वष" Girishbhai Vadilal Shah Dcit बनाम बनाम/ बनाम बनाम 139, V R Shah Smruti Circle – 4(1)(2), Vs. Shikshan Mandir, Nr. Ahmedabad Dharnidhar Derasar, Vasna, Ahmedabad, Gujarat, 380007 "थायी लेखा सं./जीआइआर सं./Pan/Gir No. : Abjps3102P (Appellant) .. (Respondent) Shri Jaimin Shah, Ar अपीलाथ" ओर से /Appellant By : ""यथ" क" ओर से/Respondent By : Ms. Saumya Pandey Jain, Sr. Dr Date Of Hearing 26/06/2024 Date Of Pronouncement 15/07/2024 O R D E R Per Shri Narendra Prasad Sinha, Am: These Three Appeals Are Filed By The Assessee Against The Order Of The Commissioner Of Income Tax (Appeals)-8, Ahmedabad, (In Short The ‘Cit(A)’), (In Short ‘The Cit(A)’) All Dated 16.03.2020 For The Assessment Year 2014-15, 2015-16 & 2016-17. As The Issues Involved In The Three Appeals Are Common, They Were Heard Together & Are Being Disposed Vide This Common Order.

For Respondent: Ms. Saumya Pandey Jain, Sr. DR
Section 40A(2)(b)Section 57