Professional Documents
Culture Documents
• Where an assessee incurs any expenditure by way of payment of any sum to (i) a public sector
company or (ii) a local authority or (iii) to an association or institution approved by the National
Committee for carrying out any eligible project or scheme for promoting the social and economic
welfare of or the uplift of the public as the Central Government may specify, the amount so paid,
shall be allowed as deduction provided a certificate in Form No. 58A is obtained from the said
institution and furnished along with the return of income.
Expenditure by way of payments to associations and institutions for carrying out Rural Development
Programmes [Section 35CCA]
• Under section 35CCA, any assessee who is carrying on a business/profession shall be allowed a
deduction of the amount of the expenditure incurred by way of payment of any sum:
• (a) to an association or institution, which has as its object the undertaking of any rural
development programme approved by the prescribed authority;
• (b) to an association or institution engaged in training of persons for implementing rural
development programmes;
• (c) to National Fund for Rural Development set up by the Central Government;
• (d) to the National Urban Poverty Eradication Fund set up and notified by the Central
Government.
• Quantum of deduction: The amount qualifying, as per the limits specified above, shall be allowed as
a deduction in 5 equal annual installments
•
Amortisation of expenses incurred for amalgamation (35DD)
Indian company
Deductions in five successive installments
Expenses or payments not deductible where such payments are made to relatives [Section 40A(2)]: Where the
assessee incurs any expenditure, in respect of which payment has been made or is to be made to certain
specified persons (i.e. relatives or close associates of the assessee), and the Assessing Officer is of the opinion
that such expenditure is excessive or unreasonable having regard to the fair market value of the goods,
services or facilities for which the payment is made
Examples
(i) X Co. Ltd., dealing in furniture, buys 100 tables at the rate of Rs. 2,500 per table from R, a director of the
company. The market rate of each table is Rs. 2,000. Tn this case, the payment has been made to a specified
person and is excessive. The assessing officer will disallow an amount of Rs. 50,000 (Rs. 500 x 100) in
computing the business income of the assessee.
(ii) X, an individual carrying on business, has employed his son as the General Manager of the concern and
pays him a salary of Rs. 10,000 per month. Having regard to the qualifications and experience of the son, the
assessing officer feels that the appropriate salary of the son should not be more than Rs. 4,000 per month. The
assessing officer can disallow Rs. 6,000 per month under provisions of this section.
Disallowance of 100% of expenditure if payment is made by any mode other than account payee cheque or
draft [Section 40A(3)(a)]: Where the assessee incurs any expenditure in respect of which a payment or
aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank
or account payee bank draft, exceeds Rs. 20,000, no deduction shall be allowed in respect of such expenditure.
Disallowance in respect of provision for gratuity [Section 40A(7]: Gratuity is a liability which normally arises
according to the length of the service of the employees’ of the assessee. The liability would generally accrue
year after year. No deduction shall be allowed in respect of any provision made for the payment of gratuity to
the employees, even though the assessee may be following the mercantile system of accounting, unless it is a
provision for the purpose of payment of a sum by way of any contribution towards an approved gratuity
fund.
Disallowance in respect of contributions to non-statutory funds [Section 40A(9) As per provisions of various
sections, only the sum contributed by the assessee as an employer towards an approved gratuity fund,
recognised provident fund or an approved superannuation fund (for the purposes and to the extent required
by law), shall be allowed as a deduction. No deduction shall be allowed in respect of any sum paid towards
setting up or formation of any other fund, trust, society, etc. for any other purpose.