26 May 2009
Section 40A(3)(a) is reproduced hereunder
3)(a) Where the assessee incurs any expenditure in respect of which payment is made in a sum exceeding twenty thousand rupees otherwise than by an account payee cheque drawn on a bank or account payee bank draft, no deduction shall be allowed in respect of such expenditure64; (b) where an allowance has been made in the assessment for any year in respect of any liability incurred by the assessee for any expenditure and subsequently during any previous year (hereinafter referred to as subsequent year) the assessee makes payment in respect thereof, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, the payment so made shall be deemed to be the profits and gains of business or profession and accordingly chargeable to income-tax as income of the subsequent year if the amount of payment exceeds twenty thousand rupees:
From a careful perusal of the above it can be seen that the provision for section 40A(3)(2)(a) & (b) are applicable where the assessee has made an expenditure. The Section 40A falls between section 28 to 44 of the Act. These section deal with the computation of income from Business and profession. The section 40 A about the deductibility of certain expenditure as business expenditure, thus can be only expenditure in the revenue account. So the following principal emerge from this –
1. The section 40A (3)(2) applies to an expenditure not to an income. 2. For disallowance, the expenditure should be revenue expenditure, hence section does not apply to an expenditure of capital nature.
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