Cash expenditure abroad may attract section 40A(3), while ad hoc personal-use disallowance needs evidence, not presumption.

Cash expenditure incurred abroad in foreign currency was held disallowable under section 40A(3) because the payment was booked in India in rupee terms and the provision was treated as applying to the monetary threshold rather than Indian currency only; the rule 6DD exception was found inapplicable, so the disallowance was sustained. An ad hoc disallowance of vehicle, conveyance and telephone expenses for alleged personal use could not stand without enquiry or supporting material; the flat percentage addition was deleted for being based only on presumption.

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Issues: (i) Whether cash expenditure incurred abroad in foreign currency was disallowable under section 40A(3); (ii) Whether the ad hoc disallowance of vehicle, conveyance and telephone expenses on account of alleged personal use was sustainable.

Issue (i): Whether cash expenditure incurred abroad in foreign currency was disallowable under section 40A(3).

Analysis: The payment was made in cash abroad, but the expenditure was booked in India in rupee terms. The expression used in section 40A(3) was held to denote the monetary threshold and not to confine the provision only to Indian currency. The contention that the provision could not apply outside India was rejected, since the allowability of the expenditure was being examined in the assessment proceedings in India. The claimed exception under rule 6DD was also found inapplicable, as no specific clause covered the case and other banking modes were available.

Conclusion: The disallowance under section 40A(3) was upheld and the issue was decided against the assessee.

Issue (ii): Whether the ad hoc disallowance of vehicle, conveyance and telephone expenses on account of alleged personal use was sustainable.

Analysis: The disallowance was made on a flat percentage basis without any enquiry to establish actual personal use. No material was shown to justify the assumption that a part of the expenditure was for personal purposes. A disallowance cannot rest only on presumption and surmise.

Conclusion: The ad hoc disallowance was deleted and the issue was decided in favour of the assessee.

Final Conclusion: The appeal succeeded only in part, with relief granted on the vehicle, conveyance and telephone expenditure issue, while the disallowance under section 40A(3) was sustained.

Ratio Decidendi: Section 40A(3) applies to cash expenditure booked in India even if incurred in foreign currency abroad, and an ad hoc disallowance for personal use cannot be sustained without supporting enquiry or material evidence.

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