Section 40A(2) of the Income Tax Act

Income-tax Act, 2025: s.36

Section 40A(2) 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) is CIT v. Tasgaon Taluka S.S.K. Ltd. (103 Taxmann.com 57), cited in 306 of the 542 judgments on BharatTax that turn on this section.

Leading authorities on Section 40A(2)

CIT v. Tasgaon Taluka S.S.K. Ltd.
103 Taxmann.com 57 · 2019 · Supreme Court
306
citing judgments

The Supreme Court holds that the issue of payment of excessive price on purchase of sugarcane by assesses is no longer res integra. The court elaborately dealt with this issue.

CIT v. Saravana Spinning Mills Ltd.
293 ITR 201 · 2007 · Supreme Court
109
citing judgments

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.

CIT v. Indo Saudi Services (Travel) Pvt. Ltd.
310 ITR 306 · 2009 · High Court
109
citing judgments

No tax evasion occurs when a company pays higher expenditure to a sister concern if the sister concern also pays taxes at a higher rate. This principle applies to disallowances under section 40A(2)(b) when it can be shown that the related entity is not benefiting from a lower tax rate.

Capital Bus Service Pvt. Ltd. v. CIT
123 ITR 404 · 1980 · High Court
91
citing judgments

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.

Climate Systems India Ltd. v. CIT
319 ITR 109 · 2009 · High Court
67
citing judgments
CIT v. Delhi Press Patra Prakashan Ltd.
355 ITR 14 · 2013 · High Court
61
citing judgments

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.

CIT v. Kanda Rice Mills
178 ITR 446 · 1989 · High Court
53
citing judgments

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.

PCIT v. Hindusthan Aeronautics Ltd.
143 Taxmann.com 357 · 2022 · High Court
43
citing judgments

The Assessing Officer must establish a proximate nexus between the expenditure and the investments before invoking Section 14A(2) and Rule 8D for disallowance. Failure to do so renders the invocation illegal and the addition liable for deletion.

Pr. CIT v. Gujarat Alkalis & Chemicals Ltd.
88 Taxmann.com 722 · 2017 · High Court
35
citing judgments

For the purpose of computing the deduction allowable under Section 80IA, the market price of electricity supplied by a captive power plant (CPP) is to be determined by adopting the rate at which the manufacturing unit has been purchasing electricity from the open market.

Mather & Platt (India) Ltd. v. CIT
168 ITR 493 · 1987 · High Court
30
citing judgments

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)

JCIT(OSD), Circle- 16(2), New Delhi vs. Max Medical Services Ltd., New Delhi

In the result, all appeals of the Revenue are dismissed

ITA 4711/DEL/2018[2014-15]Status: DisposedITAT Delhi31 Jul 2020AY 2014-15

Bench: Ms. Sushma Chowla, Vp & Shri Prashant Maharishi, Am [Through Video Conferencing] आयकर आयकर अपील आयकर आयकर अपील अपील संसंसंसं. / Ita Nos.4711 & 8340/Del/2018 अपील िनधा"रण वष" िनधा"रण वष" /Assessment Years 2014-15 & 2015-16 िनधा"रण िनधा"रण वष" वष" Dcit, Circle-16(2), Room No.308, C.R. Building, I.P. Estate, ..........अपीलाथ"/Appellant New Delhi-110002 Vs Max Medical Services Ltd. 1, Dr. Jha Marg, Okhla, Phase-Iii, New Delhi-110020 …………. ""यथ" / Respondent Pan-Aadcm3619D आयकर आयकर अपील आयकर आयकर अपील अपील संसंसंसं. / Ita Nos.1819 & 5477/Del/2017 अपील िनधा"रण वष" िनधा"रण वष" /Assessment Years 2012-13 & 2013-14 िनधा"रण िनधा"रण वष" वष" Dcit, Circle-16(2), Room No.308, C.R. Building, I.P. Estate, ..........अपीलाथ"/Appellant New Delhi-110002 Vs Max Medical Services Ltd. 1, Dr. Jha Marg, Okhla, Phase-Iii, New Delhi-110020 …………. ""यथ" / Respondent Pan-Aadcm3619D अपीलाथ" क" ओर से / Appellant By : Ms. Rakhi Vimal, Sr. Dr ""यथ" क" ओर से / Respondent By : Sh. Atul Ninawat, C.A. Assessment Years 2012-13 To 2015-16

For Appellant: Ms. Rakhi Vimal, Sr. DRFor Respondent: Sh. Atul Ninawat, C.A
Section 143(3)Section 40A(2)

S N Kapoor Exports, Jaipur vs. ACIT, Circle-5, Jaipur

In the result, the appeal of the assessee is partly allowed

ITA 67/JPR/2020[2012-13]Status: DisposedITAT Jaipur20 Mar 2020AY 2012-13

Bench: : Shri Vijay Pal Rao, Jm & Shri Vikram Singh Yadav, Am Vk;Dj Vihy La-@Ita No. 67/Jp/2020 Fu/Kzkj.K O"Kz@Assessment Year : 2012-13 Cuke M/S. S.N. Kapoor Exports The Acit Vs. Khawas Ji Ka Bagh, Amer Road Circle - 5 Jaipur Jaipur Lfkk;H Ys[Kk La-@Thvkbzvkj La-@ Pan/Gir No.: Aadfs 6912 J Vihykfkhz@Appellant Izr;Fkhz@Respondent Fu/Kzkfjrh Dh Vksj Ls@ Assessee By : Shri S.L. Jain,Advocate & Shri Ashok Kumar Gupta, Advocate Jktlo Dh Vksj Ls@ Revenue By : Smt. Runi Paul, Jcit-Dr Lquokbz Dh Rkjh[K@ Date Of Hearing : 18/03/2020 ?Kks"K.Kk Dh Rkjh[K@ Date Of Pronouncement : 20 /03/2020 Vkns'K@ Order Per Vijay Pal Rao, Jm This Appeal By The Assessee Is Directed Against The Order Of Ld. Cit(A) -2, Jaipur Dated 15-11-2019 For The Assessment Year 2012-13. The Assessee Has Raised The Following Grounds. ‘’1. That The Ld.Cit (A), Jaipur As Grossly Erred In Law & Facts In Confirming Disallowance Of Foreign Travelling Expenses Rs. 17,77,454 /- As Per Details As Under Without Any Basis & Justification. M/S. S.N.Kapoor Exports Vs Acit, Circle - 5, Jaipur S. Name Of The Person Exp. % Of Exp. Amount Of Exp. Dis % Of Dis No Claimed Allowed Exp. Allowed Allowed By Ao Allowed By Ao By Ao By Assessee 1. Suriender Nath Kapoor 2178661 100% 2178661 Nil Nil

For Appellant: Shri S.L. Jain,Advocate &For Respondent: Smt. Runi Paul, JCIT-DR