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)

Shri Vridheswar Sahkari Sakhar Limited, Ahmednagar vs. Deputy Commissioner of Income-Tax, Ahmednagar Circle, Ahmednagar

In the result, appeal of the assessee is allowed for statistical purpose

ITA 1896/PUN/2019[2006-07]Status: DisposedITAT Pune27 Jul 2022AY 2006-07

Bench: Shri S.S.Godara & Dr. Dipak P. Ripoteआयकरअपीलसं. / Ita No.1896/Pun/2019 िनधा"रणवष" / Assessment Year : 2006-07 Shri Vridheswhar S.S.K. Ltd., The Dcit, Ahmednagar. Adinathnagar, Tal-Pathardi, Vs Dist-Ahmednagar – 414505. Pan: Aabcv 0782 E Appellant/ Assessee Respondent / Revenue Assessee By None. Revenue By Shri M.G.Jasnani – Dr Date Of Hearing 19/07/2022 Date Of Pronouncement 27/07/2022 आदेश/ Order Per Dr. Dipak P. Ripote, Am: This Appeal Filed By The Assessee Is Directed Against The Order Of Ld.Commissioner Of Income Tax(Appeals), Pune-2 For The Assessment Year 2006-07 Dated 13.09.2019. The Assessee Has Raised Following Grounds Of Appeal: 1. On The Facts & In The Circumstances Of The Case, The Hon. Commissioner Of Income Tax (Appeals) Has Erred In Confirming The Addition Of Rs. 3,88,87,750/- Made By The Ao On Account Of Entire Difference Between Sugarcane Price Paid At The Rate Of Sap & Price Payable At The Rate Of Smp Considering It As Excessive & Unresponciable & As Distribution Of Profit Ignoring The Decision Dated 05.03.2019 Of The Decision Dated 05.03.2019 Of The Hon. Supreme Court In The Less Case Of Tasgaon Tal. Ssk Ltd In Appeal No.8890 Of 2012 Along With Other Appeals In Which The Hon. Supreme Court (Civil

Shree Shankar Sahakari Sakhar Karkhana Ltd, Soalpur vs. Assistant Commissioner of Income-Tax, Circle - 1, Solapur

In the result, appeal of the assessee is allowed for statistical purpose

ITA 317/PUN/2019[2013-14]Status: DisposedITAT Pune21 Jul 2022AY 2013-14

Bench: Shri S.S.Godara & Dr. Dipak P. Ripoteआयकरअपीलसं. / Ita No.317/Pun/2019 िनधा"रणवष" / Assessment Year : 2013-14 Shree Shankar Sahakari Sakhar The Asst.Cit, Circle-1, Karkhan Ltd., Vs Solapur. Sadashivnagar, Tal-Malshiras, Dist.Solapur – 413111. Pan: Aaaas 3735 M Appellant/ Assessee Respondent / Revenue Assessee By Shri Prasanna Joshi – Ar Revenue By Shri Sardar Singh Meena – Dr Date Of Hearing 14/07/2022 Date Of Pronouncement 21/07/2022 आदेश/ Order Per Dr. Dipak P. Ripote, Am: This Appeal Filed By The Assessee Is Directed Against The Order Of Ld.Commissioner Of Income Tax(Appeals)-7, Pune For The A.Y. 2013-14 Dated 02.01.2018, Emanating Out Of Order Under Section 143(3) Of The Income Tax Act, 1961[In Short “The Act”]. The Assessee Has Raised Following Grounds Of Appeal: (A) Disallowance Out Of Sugarcane Purchases: 1. From 2011 To 2016 Appellant Suffered Cash Losses Of Rs 87.58 Crores Eroding Its Net Worth Many Times Over; Farmers Were Not Paid Their Frp For Cane Supplied In 2014-15 & 2015-16; Sugar Factory Could Start Or Operate In 2016-17; Workers Were Not Paid Salaries For 27 Months & Stopped Attending Office; State Govt, Appointed An Administrator On 7/12/2016 Whose Office Was Located At Solapur Over 100 Kms From Appellant’S Factory; And

Section 143(3)

Rayat Sahakari Sakhar Karkhana Limited, Satara vs. Assistant Commissioner of Income-Tax, Circle - Satara, Satara

In the result, the appeal of the Assessee is Allowed for statistical purpose

ITA 1583/PUN/2019[2009-10]Status: DisposedITAT Pune15 Jul 2022AY 2009-10

Bench: Shri S.S.Godara & Dr. Dipak P. Ripoteआयकरअपीलसं. / Ita No.1583/Pun/2019 िनधा"रणवष" /Assessment Year: 2009-10 Rayat Sahakari Sakhar Karkhana The Assistant Ltd., Vs Commissioner Of Income A/P.Shewalewadi, Tal. Karad, Tax, Satara Circle, Satara. Dist.Satara – 415011. Pan: Aabar 0241 C Appellant/ Assessee Respondent/ Revenue Assessee By Shri Hanmant Dhavle – Ar Revenue By Shri Sardar Siongh Meena – Dr Date Of Hearing 13/07/2022 Date Of Pronouncement 15/07/2022 आदेश/ Order Per Dr.Dipak P.Ripote, Am: This Appeal Filed By The Assessee Is Directed Against The Order Of Ld.Commissioner Of Income-Tax(Appeals)-13, Pune’S, Order Dated 11.07.2019 For The Assessment Year 2009-10, Involving Proceedings Under Section 143(3) Of The Income Tax Act, 1961. The Assessee Has Raised The Following Grounds Of Appeal: “1. On The Fact & In The Circumstance Of The Case & In Law Of The Learned Commissioner Of Income Tax (Appeals)-013, Pune Has Grievously Erred In Deciding The Appeal Ex-Parte, Without Providing Sufficient Opportunity To Appellate. 2. On The Fact & In The Circumstance Of The Case & In Law Of The Learned Commissioner Of Income Tax (Appeals)-13, Pune Has Ought To Have Decided The Appeal On Merit Instead Of Dismissing The Appeal For Non Attendance.

Section 143(3)