Section 40A - Expenses or payments not deductible in certain circumstances - Income-tax Act, 1961

1 [Expenses or payments not deductible in certain circumstances. 40A. (1) The provisions of this section shall have effect notwithstanding anything to the contrary contained in any other provision of this Act relating to the computation of income under the head Profits and gains of business or profession . (2)( a ) Where the assessee incurs any expenditure in respect of which payment has been or is to be made to any person referred to in clause ( b ) of this sub-section, and the 2 [ Assessing ] Officer is of 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 or the legitimate needs of the business or profession of the assessee or the benefit derived by or accruing to him therefrom, so much of the expenditure as is so considered by him to be excessive or unreasonable shall not be allowed as a deduction. 28 [Provided that 30 [ for an assessment year commencing on or before the 1st day of April, 2016 ] no disallowance, on account of any expenditure being excessive or unreasonable having regard to the fair market value, shall be made in respect of a specified domestic transaction referred to in section 92BA, if such transaction is at arm s length price as defined in clause (ii) of section 92F. ] 3 [ **** ] ( b ) The persons referred to in clause ( a ) are the following, namely :- (i) where the assessee is an individual, any relative of the assessee; (ii) where the assessee is a company, firm, association of persons or Hindu undivided family any director of the company, partner of the firm, or member of the association or family, or any relative of such director, partner or member; ( iii ) any individual who has a substantial interest in the business or profession of the assessee, or any relative of such individual; ( iv ) a company, firm, association of persons or Hindu undivided family having a substantial interest in the business or profession of the assessee or any director, partner or member of such company, firm, association or family, or any relative of such director, partner or member, 29 [ or any other company carrying on business or profession in which the first mentioned company has substantial interest ] ; ( v ) a company, firm, association of persons or Hindu undivided family of which a director, partner or member, as the case may be, has a substantial interest in the business or profession of the assessee; or any director, partner or member of such company, firm, association or family or any relative of such director, partner or member; ( vi ) any person who carries on a business or profession,- ( A ) where the assessee being an individual, or any relative of such assessee, has a substantial interest in the business or profession of that person; or ( B ) where the assessee being a company, firm, association of persons or Hindu undivided family, or any director of such company, partner of such firm or member of the association or family, or any relative of such director, partner or member, has a substantial interest in the business or profession of that person. Explanation. -For the purposes of this sub-section, a person shall be deemed to have a substantial interest in a business or profession, if,- ( a ) in a case where the business or profession is carried on by a company, such person is, at any time during the previous year, the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) carrying not less than twenty per cent of the voting power; and ( b ) in any other case, such person is, at any time during the previous year, beneficially entitled to not less than twenty per cent of the profits of such business or profession. 25 [ (3) 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, 31 [ or use of electronic clearing system through a 39 [ bank account or through such other electronic mode as may be prescribed ] , exceeds ten thousand rupees, ] no deduction shall be allowed in respect of such expenditure. (3A) 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 32 [ or use of electronic clearing system through a 39 [ bank account or through such other electronic mode as may be prescribed ]] , 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 payment or aggregate of payments made to a person in a day, exceeds 33 [ ten thousand rupees ] : Provided that no disallowance shall be made and no payment shall be deemed to be the profits and gains of business or profession under sub-section (3) and this subsection where 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, 34 [ or use of electronic clearing system through a 39 [ bank account or through such other electronic mode as may be prescribed ] , exceeds ten thousand rupees, ] in such cases and under such circumstances as may be prescribed, having regard to the nature and extent of banking facilities available, considerations of business expediency and other relevant factors. ] 26 [Provided further that in the case of payment made for plying, hiring or leasing goods carriages, the provisions of sub-sections (3) and (3A) shall have effect as if for the words 35 [ ten thousand rupees ] , the words thirty-five thousand rupees had been substituted. ] 15 [ (4) Notwithstanding anything contained in any other law for the time being in force or in any contract, where any payment in respect of any expenditure has to be made by 16 [ an account payee cheque drawn on a bank or account payee bank draft ] 36 [ or use of electronic clearing system through a 39 [ bank account or through such other electronic mode as may be prescribed ]] in order that such expenditure may not be disallowed as a deduction under sub-section (3), then the payment may be made by such cheque or draft 37 [ or electronic clearing system ] 40 [ or such other electronic mode as may be prescribed ] ; and where the payment is so made or tendered, no person shall be allowed to raise, in any suit or other proceeding, a plea based on the ground that the payment was not made or tendered in cash or in any other manner. ] (5) 17 [****] (6) 18 [****] 19 [ (7) ( a ) Subject to the provisions of clause ( b ), no deduction shall be allowed in respect of any provision (whether called as such or by any other name) made by the assessee for the payment of gratuity to his employees on their retirement or on termination of their employment for any reason. ( b ) Nothing in clause ( a ) shall apply in relation to any provision made by the assessee for the purpose of payment of a sum by way of any contribution towards an approved gratuity fund, or for the purpose of payment of any gratuity, that has become payable during the previous year. Explanation. -For the removal of doubts, it is hereby declared that where any provision made by the assessee for the payment of gratuity to his employees on their retirement or termination of their employment for any reason has been allowed as a deduction in computing the income of the assessee for any assessment year, any sum paid out of such provision by way of contribution towards an approved gratuity fund or by way of gratuity to any employee shall not be allowed as a deduction in computing the income of the assessee of the previous year in which the sum is so paid. ] (8) 20 [ **** ] 21 [ (9) No deduction shall be allowed in respect of any sum paid by the assessee as an employer towards the setting up or formation of, or as contribution to, any fund, trust, company, association of persons, body of individuals, society registered under the Societies Registration Act, 1860 (21 of 1860), or other institution for any purpose, except where such sum is so paid, for the purposes and to the extent provided by or under clause (iv) 27 [ or clause (iva) ] or clause (v) of sub-section (1) of section 36, or as required by or under any other law for the time being in force. (10) Notwithstanding anything contained in sub-section (9), where the 22 [ Assessing ] Officer is satisfied that the fund, trust, company, association of persons, body of individuals, society or other institution referred to in that sub-section has, before the 1st day of March, 1984, bona fide laid out or expended any expenditure (not being in the nature of capital expenditure) wholly and exclusively for the welfare of the employees of the assessee referred to in sub-section (9) out of the sum referred to in that sub-section, the amount of such expenditure shall, in case no deduction has been allowed to the assessee in respect of such sum and subject to the other provisions of this Act, be deducted in computing the income referred to in section 28 of the assessee of the previous year in which such expenditure is so laid out or expended, as if such expenditure had been laid out or expended by the assessee. ] 23 [ (11) Where the assessee has, before the 1st day of March, 1984, paid any sum to any fund, trust, company, association of persons, body of individuals, society or other institution referred to in sub-section (9), then, notwithstanding anything contained in any other law or in any instrument, he shall be entitled- ( i ) to claim that so much of the amount paid by him as has not been laid out or expended by such fund, trust, company, association of persons, body of individuals, society or other institution (such amount being hereinafter referred to as the unutilised amount) be repaid to him, and where any claim is so made, the unutilised amount shall be repaid, as soon as may be, to him; ( ii ) to claim that any asset, being land, building, machinery, plant or furniture acquired or constructed by the fund, trust, company, association of persons, body of individuals, society or other institution out of the sum paid by the assessee, be transferred to him, and where any claim is so made, such asset shall be transferred, as soon as may be, to him. ] (12) 24 [****] 38 [ (13) No deduction or allowance shall be allowed in respect of any marked to market loss or other expected loss, except as allowable under clause (xviii) of sub-section (1) of section 36. ] ***************** NOTES:- 1. Inserted vide Section 7 of the Finance Act, 1968 w.e.f. 01-04-1968 2. Substituted vide Section 2 of the Direct Tax Laws (Amendment) Act, 1987 w.e.f. 01-04-1988 before it was read as, Income-tax 3. Omitted vide Section 126 of the Direct Tax Laws (Amendment) Act, 1987 w.e.f. 01-04-1989 before it was read as, Provided that the provisions of this sub-section shall not apply in the case of an assessee being a company in respect of any expenditure to which sub-clause (i) of clause (c) of section 40 applies. Earlier , Amended vide Section 10 of the Finance (No. 2) Act, 1971 w.e.f. 01-04-1972 4. Substituted vide Section 14 of the Direct Tax Laws (Amendment) Act, 1987 w.e.f. 01-04-1989 before it was read as, two thousand five hundred 5. Substituted vide Section 15 of the Finance (No. 2) Act, 1996 w.e.f. 01-04-1997 before it was read as, ten 6. Substituted vide Section 9 of the Taxation Laws (Amendment) Act, 2006 w.e.f. 13-07-2006 before it was read as, a crossed cheque drawn on a bank or by a crossed bank draft 7. Substituted vide Section 11 of the Finance Act, 1995 w.e.f. 01-04-1996 before it was read as, such expenditure shall not be allowed as a deduction 8. Substituted vide Section 14 of the Direct Tax Laws (Amendment) Act, 1987 w.e.f. 01-04-1989 before it was read as, two thousand five hundred 9. Substituted vide Section 15 of the Finance (No. 2) Act, 1996 w.e.f. 01-04-1997 before it was read as, ten 10. Substituted vide Section 9 of the Taxation Laws (Amendment) Act, 2006 w.e.f. 13-07-2006 before it was read as, a crossed cheque drawn on a bank or by a crossed bank draft 11. Substituted vide Section 2 of the Direct Tax Laws (Amendment) Act, 1987 w.e.f. 01-04-1988 before it was read as, Income-tax 12. Substituted vide Section 14 of the Direct Tax Laws (Amendment) Act, 1987 w.e.f. 01-04-1989 before it was read as, two thousand five hundred 13. Substituted vide Section 15 of the Finance (No. 2) Act, 1996 w.e.f. 01-04-1997 before it was read as, ten 14. Substituted vide Section 9 of the Taxation Laws (Amendment) Act, 2006 w.e.f. 13-07-2006 before it was read as, a crossed cheque drawn on a bank or by a crossed bank draft 15. Inserted vide Section 5 of the Finance Act, 1969 w.e.f. 01-04-1969 16. Substituted vide Section 9 of the Taxation Laws (Amendment) Act, 2006 w.e.f. 13-07-2006 before it was read as, a crossed cheque drawn on a bank or by a crossed bank draft 17. Omitted vide Section 14 of the Direct Tax Laws (Amendment) Act, 1987 w.e.f. 01-04-1989 before it was read as, (5)(a) Where the assessee - (i) incurs any expenditure which results directly or indirectly in the payment of any salary to an employee or a former employee, or (ii) incurs any expenditure which results directly or indirectly in the provision of any perquisite (whether convertible into money or not) to an employee or incurs directly or indirectly any expenditure or is entitled to any allowance in respect of any assets of the assessee used by an employee either wholly or partly for his own purposes or benefit, then, subject to the provisions of clause (b), so much of such expenditure or allowance as is in excess of the limit specified in respect thereof in clause (c) shall not be allowed as a deduction : Provided that where the assessee is a company, so much of the aggregate of - (a) the expenditure and allowance referred to in sub-clauses (i) and (ii) of this clause; and (b) the expenditure and allowance referred to in sub-clauses (i) and (ii) of clause (c) of section 40, in respect of an employee or a former employee, being a director or a person who has a substantial interest in the company or a relative of the director or of such person, as is in excess of the sum of one hundred and two thousand rupees, shall in no case be allowed as a deduction : Provided further that in computing the expenditure referred to in sub-clause (i) or the expenditure or allowance referred to in sub-clause (ii) of this clause or the aggregate referred to in the foregoing proviso, the following shall not be taken into account, namely :- (i) the value of any travel concession or assistance referred to in clause (5) of section 10; (ii) passage moneys or the value of any free or concessional passage referred to in sub-clause (i) of clause (6) of section 10; (iii) any payment referred to in clause (iv) or clause (v) of sub-section (1) of section 36; (iv) any expenditure referred to in clause (ix) of sub-section (1) of section 36. (b) Nothing in clause (a) shall apply to any expenditure or allowance in relation to - (i) any employee in respect of any period of his employment outside India; (ii) any employee being an individual referred to in sub-clause (vii) or sub-clause (viia) of clause (6) of section 10 in respect of any period during which he is entitled to the exemption under sub-clause (vii) or, as the case may be, sub-clause (viia) aforesaid; (iii) any employee whose income chargeable under the head Salaries is seven thousand and five hundred rupees or less. (c) The limits referred to in clause (a) are the following, namely :- (i) in respect of the expenditure referred to in sub-clause (i) of clause (a), in the case of an employee, an amount calculated at the rate of seven thousand five hundred rupees for each month or plant thereof comprised in the period of his employment in India during the previous year, and in the case of a former employee, being an individual who ceases or ceased to be the employee of the assessee during the previous year or any earlier previous year, ninety thousand rupees; Provided that where the expenditure is incurred on payment of any salary to an employee or a former employee engaged in scientific, research during any one or more of the three years immediately preceding the commencement of the business and such expenditure is deemed under the Explanation to clause (i), of sub-section (1) of section 35 to have been laid out or expended in the previous year in which the business is commenced, the limit referred to in this sub-clause shall, in relation to the previous year in which the business is commenced, be an amount calculated at the rate of five thousand rupees for each month or part thereof comprised in the period of his employment in India during the previous year in which such business is commenced and in the period of his employment in India during which he was engaged in scientific research during the three years immediately preceding that previous year; Provided further that in relation to any month or part thereof comprised in any such previous year as is relevant to the assessment year commencing on the 1st day of April, 1985, or any subsequent assessment year, the reference to five thousand rupees in the preceding proviso shall be construed as a reference to seven thousand five hundred rupees . (ii) in respect of the aggregate of the expenditure and the allowance referred to in sub-clause (ii) of clause (a), one-fifth of the amount of the salary payable to the employee or an amount calculated at the rate of one thousand rupees for each month or part thereof comprised in the period of employment in India of the employee during the previous year, whichever is less. Explanation 1 : The provisions of this sub-section shall apply notwithstanding that any amount not to be allowed under this sub-section is included in the total income of the employee or, as the case may be, the former employee. Explanation 2 : In this sub-section, - (a) salary has the meaning assigned to it in clause (1) read with clause (3) of section 17 subject to the following modifications, namely :- (1) in the said clause (1), the word perquisites occurring in sub-clause (iv) and the whole of sub-clause (vii) shall be omitted; (2) in the said clause (3), the references to assessee shall be construed as references to employee or former employee and the references to his employer of former employer and an employer or a former employer shall be construed as references to the assessee ; (b) perquisite means - (i) rent-free accommodation provided to the employee by the assessee; (ii) any concession in the matter of rent respecting any accommodation provided to the employee by the assessee; (iii) any benefit or amenity granted or provided free of cost or at concessional rate to the employee by the assessee; (iv) payment by the assessee of any sum in respect of any obligation which, but for such payment, would have been payable by the employee; and (v) payment by the assessee of any sum, whether directly or through a fund, other than a recognised provident fund or an approved superannuation fund, to effect an assurance on the life of the employee or to effect a contract for an annuity; Earlier , Inserted vide Section 10 of the Finance (No. 2) Act, 1971 w.e.f. 01-04-1972 And was Amended vide Section 7 of the Direct Taxes (Amendment) Act, 1974 w.e.f. 01-04-1974 And was Amended vide Section 11 of the Taxation Laws (Amendment) Act, 1984 w.e.f. 01-04-1985 And was Amended vide Section 10 of the Finance Act, 1984 w.e.f. 01-04-1985 And was Amended vide Section 12 of the Finance Act, 1985 w.e.f. 01-04-1985 18. Omitted vide Section 14 of the Direct Tax Laws (Amendment) Act, 1987 w.e.f. 01-04-1989 before it was read as, (6) Where the assessee incurs any expenditure by way of fees for services rendered by a person who at any time during the twenty-four months immediately preceding the previous year was an employee of the assessee, - (a) such expenditure by way of fees, or (b) where the assessee has also incurred in relation to such person any expenditure by way of salary referred to sub-clause (i) of clause (a) of sub-section (5), the aggregate of such expenditure by way of fees and by way of salary, shall not be allowed as a deduction to the extent such expenditure by way of fees or, as the case may be, the aggregate of such expenditure by way of fees and by way of salary exceed ninety thousand rupees. Earlier , Inserted vide Section 10 of the Finance (No. 2) Act, 1971 w.e.f. 01-04-1972 And was Amended vide Section 10 of the Finance Act, 1984 w.e.f. 01-04-1985 19. Substituted vide Section 23 of the Finance Act, 1999 w.e.f. 01-04-2000 before it was read as, (7)(a) Subject to the provisions of clause (b), no deduction shall be allowed in respect of any provision (whether called as such or by any other name) made by the assessee for the payment of gratuity to his employees on their retirement or on termination of their employment for any reason. (b) Nothing in clause (a) shall apply in relation to- (i) any provision made by the assessee for the purpose of payment of a sum by way of any contribution towards an approved gratuity fund, or for the purpose of payment of any gratuity, that has become payable during the previous year; (ii) any provision made by the assessee for the previous year relevant to any assessment year commencing on or after the 1st day of April, 1973, but before the 1st day of April, 1976, to the extent the amount of such provision does not exceed the admissible amount, if the following conditions are fulfilled, namely :- (1) the provision is made in accordance with an actuarial valuation of the ascertainable liability of the assessee for payment of gratuity to his employees on their retirement or on termination of their employment for any reason; (2) the assessee creates an approved gratuity fund for the exclusive benefit of his employees under an irrevocable trust, the application for the approval of the fund having been made before the 1st day of January, 1976; and (3) a sum equal to at least fifty per cent of the admissible amount, or where any amount has been utilised out of such provision for the purpose of payment of any gratuity before the creation of the approved gratuity fund, a sum equal to at least fifty per cent of the admissible amount as reduced by the amount so utilised, is paid by the assessee by way of contribution to the approved gratuity fund before the 1st day of April, 1976, and the balance of the admissible amount or, as the case may be, the balance of the admissible amount as reduced by the amount so utilised, is paid by the assessee by way of such contribution before the 1st day of April, 1977. Explanation 1.- For the purposes of sub-clause (ii) of clause (b) of this sub-section, admissible amount means the amount of the provision made by the assessee for the payment of gratuity to his employees on their retirement or on termination of their employment for any reason, to the extent such amount does not exceed an amount calculated at the rate of eight and one-third per cent of the salary [as defined in clause (h) of rule 2 of Part A of the Fourth Schedule] of each employee entitled to the payment of such gratuity for each year of his service in respect of which such provision is made. Explanation 2.- For the removal of doubts, it is hereby declared that where any provision made by the assessee for the payment of gratuity to his employees on their retirement or on termination of their employment for any reason has been allowed as a deduction in computing the income of the assessee for any assessment year, any sum paid out of such provision by way of contribution towards an approved gratuity fund or by way of gratuity to any employee shall not be allowed as a deduction in computing the income of the assessee of the previous year in which the sum is so paid. Earlier , Inserted vide Section 6 of the Finance Act, 1975 w.e.f. 01-04-1973 20. Omitted vide Section 12 of the Finance Act, 1985 w.e.f. 01-04-1986 before it was read as, (8) Where the assessee, being a company (other than a banking company or a financial company), incurs any expenditure by way of interest in respect of any deposit received by it, fifteen per cent. of such expenditure shall not be allowed as a deduction. Explanation : In this sub-section, - (a) banking company means a company to which the Banking Regulation Act, 1949 (10 of 1949), applies and includes any bank or banking institution referred to in section 51 of that Act; (b) deposit means any deposit of money with, and includes any money borrowed by, a company, but does not include any amount received by the company - (i) from the Central Government or any State Government or any local authority, or from any other source where the repayment of the amount is guaranteed by the Central Government or a State Government; (ii) from the Government of a foreign State, or from a citizen of a foreign State, or from any institution, association or body (whether incorporated or not) established outside India; (iii) as a loan from a banking company or from a co-operative society engaged in carrying on the business of banking (including a co-operative land mortgage bank or a co-operative land development bank); (iv) as a loan from any institution or body specified in the list in the Tenth Schedule or such other institution or body as the Central Government may, having regard to the nature and objects of the institution or body, by notification in the Official Gazette, specify in this behalf; (v) from any other company; (vi) from an employee of the company by way of security deposit; (vii) by way of security or as an advance from any purchasing agent, selling agent or other agent in the course of, or for the purpose of, the business of the company or as advance against orders for the supply of goods or for the rendering of any service; (viii) by way of subscription to any share, stock, bond or debenture (such bond or debenture being secured by a charge or a lien on the assets of the company) pending the allotment of the said share, stock, bond or debenture, or by way of advance payment of any moneys uncalled and unpaid upon any shares in the company, if such moneys are not repayable in accordance with the articles of association of the company; (ix) as a loan from any person where the loan is secured by the creation of a mortgage, charge or pledge of any assets of the company (such loan being hereafter in this sub-clause referred to as the relevant loan) and the amount of the relevant loan, together with the amount of any other prior debt or loan secured by the creation of a mortgage, charge or pledge of such assets, is not more than seventy-five per cent. of the price that such assets would ordinarily fetch on sale in the open market on the date of creation of the mortgage, charge or pledge for the relevant loan; (c) financial company means - (i) a hire-purchase finance company, that is to say, a company which carries on, as its principal business, hire-purchase transactions or the financing of such transactions; or (ii) an investment company, that is to say, a company which carries on, as its principal business, the acquisition of shares, stock, bonds, debentures, debenture stock, or securities issued by the Government or a local authority, or other marketable securities of a like nature; or (iii) a housing finance company, that is to say, a company which carries on, as its principal business, the business of financing of acquisition or construction of houses, including acquisition or development of land in connection therewith; (iv) a loan company, that is to say, a company [not being a company referred to in sub-clauses (i) to (iii)] which carries on, as its principal business, the business of providing finance, whether by making loans or advances or otherwise; (v) a mutual benefit finance company, that is to say, a company which carries on, as its principal business, the business of acceptance of deposits from its members and which is declared by the Central Government under section 620A of the Companies Act, 1956 (1 of 1956), to be a Nidhi or Mutual Benefit Society; (vi) a miscellaneous finance company, that is to say, a company which carries on exclusively, or almost exclusively, two or more classes of business referred to in the preceding sub-clauses. Earlier , Inserted vide Section 6 of the Finance Act, 1975 w.e.f. 01-04-1976 21. Inserted Section 10 of the Finance Act, 1984 w.e.f. 01-04-1980 22. Substituted vide Section 2 of the Direct Tax Laws (Amendment) Act, 1987 w.e.f. 01-04-1988 before it was read as, Income-tax 23. Inserted Section 10 of the Finance Act, 1984 w.e.f. 01-04-1980 24. Omitted vide Section 17 of the Finance Act, 1992 w.e.f. 01-04-1993 before it was read as, (12) No deduction shall be allowed in excess of ten thousand rupees for any assessment year in respect of any expenditure incurred by the assessee by way of fees or other remuneration paid to any person (other than an employee of the assessee), - (a) for services (not being services by way of preparation of return of income) in connection with any proceeding under this Act before any income-tax authority or the Commission constituted under section 245B or a competent authority within the meaning of clause (b) of section 269A or the Appellate Tribunal or any court; (b) for services in connection with any other proceeding before any court, being a proceeding relating to tax, penalty, interest or any other matter under this Act; and (c) for any advice in connection with tax, penalty, interest or any other matter under this Act. Earlier , Inserted vide Section 12 of the Fi nance Act, 1985 w.e.f. 01-04-1986 25. Substituted vide Section 11 of the Finance Act, 2008 w.e.f. 01-04-2009 before it was read as, (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 expenditure; (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: Provided that no disallowance shall be made and no payment shall be deemed to be the profits and gains of business or profession under this sub-section where any payment in a sum exceeding twenty thousand rupees is made otherwise than by an account payee cheque drawn on a bank or account payee bank draft, in such cases and under such circumstances as may be prescribed, having regard to the nature and extent of banking facilities available, considerations of business expediency and other relevant factors. Earlier, Substituted vide Section 14 of the Finance Act, 2007 w.e.f. 01-04-2008 before it was read as, (3) Where the assessee incurs any expenditure in respect of which payment is made, after such date (not being later than the 31st day of March, 1969) as may be specified in this behalf by the Central Government by notification in the Official Gazette, in a sum exceeding 4 [ 5 [ twenty ] thousand ] rupees otherwise than by 6 [ an account payee cheque drawn on a bank or account payee bank draft ] , 7 [ twenty per cent of such expenditure shall not be allowed as a deduction ] Provided that where an allowance has been made in the assessment for any year not being an assessment year commencing prior to the 1st day of April, 1969, in respect of any liability incurred by the assessee for any expenditure and subsequently during any previous year the assessee makes any payment in respect thereof in a sum exceeding 8 [ 9 [ twenty ] thousand ] rupees otherwise than by 10 [ an account payee cheque drawn on a bank or account payee bank draft ], the allowance originally made shall be deemed to have been wrongly made and the 11 [ Assessing ] Officer may recompute the total income of the assessee for the previous year in which such liability was incurred and make the necessary amendment, and the provisions of section 154 shall, so far as may be, apply thereto, the period of four years specified in sub-section (7) of that section being reckoned from the end of the assessment year next following the previous year in which the payment was so made : Provided further that no disallowance under this sub-section shall be made where any payment in a sum exceeding 12 [ 13 [ twenty ] thousand ] rupees is made otherwise than by 14 [ an account payee cheque drawn on a bank or account payee bank draft ] , in such cases and under such circumstances as may be prescribed, having regard to the nature and extent of banking facilities available, considerations of business expediency and other relevant factors. ] 26. Inserted vide Section 16 of the Finance (No. 2) Act, 2009 w.e.f. 01-10-2009 27. Inserted vide Section 8 of the Finance Act, 2011 w.e.f. 01-04-2012 28. Inserted vide Section 12 of the Finance Act, 2012 w.e.f. 01-04-2013 29. Inserted vide Section 12 of the Finance Act, 2012 w.e.f. 01-04-2013 30. Inserted vide Section 15 of the Finance Act, 2017 w.e.f. 01-04-2017 31. Substituted vide Section 15 of the Finance Act, 2017 w.e.f. 01-04-2018 before it was read as, exceeds twenty thousand rupees 32. Inserted vide Section 15 of the Finance Act, 2017 w.e.f. 01-04-2018 33. Substituted vide Section 15 of the Finance Act, 2017 w.e.f. 01-04-2018 before it was read as, twenty thousand rupees 34. Substituted vide Section 15 of the Finance Act, 2017 w.e.f. 01-04-2018 before it was read as, exceeds twenty thousand rupees 35. Substituted vide Section 15 of the Finance Act, 2017 w.e.f. 01-04-2018 before it was read as, twenty thousand rupees 36. Inserted vide Section 15 of the Finance Act, 2017 w.e.f. 01-04-2018 37. Inserted vide Section 15 of the Finance Act, 2017 w.e.f. 01-04-2018 38. Inserted vide Section 11 of the Finance Act, 2018 w.e.f. 01-04-2017 39. Substituted vide Section 11 of the Finance (No. 2) Act, 2019 w.e.f. 01-04-2020 before it was read as bank account 40. Inserted vide Section 11 of the Finance (No. 2) Act, 2019 w.e.f. 01-04-2020