Expenditure not claimed or allowed cannot trigger tax disallowance under Section 40A(i), including External Development Charges.

Section 40A(i) of the Income-tax Act, 1961 operates where expenditure involving a payment has been claimed or allowed but the required tax deduction has not been made. External Development Charges paid to HUDA were shown in the assessment records and profit and loss account as neither claimed nor allowed as expenditure. The statutory condition for applying the disallowance provision was therefore absent, and the amount was not liable to disallowance under Section 40A(i). The governing principle is that an amount neither claimed nor allowed as expenditure cannot be disallowed under a provision regulating expenditure disallowances.

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Issues: Whether 30% of the External Development Charges paid to HUDA could be disallowed under Section 40A(i) of the Income-tax Act, 1961 when the amount was neither claimed nor allowed as expenditure.

Analysis: Section 40A(i) of the Income-tax Act, 1961 permits disallowance where expenditure involving a payment is otherwise claimed or allowed and the requisite tax deduction has not been made. The assessment order and the profit and loss account showed that the relevant External Development Charges were not claimed as expenditure and had not been allowed. Consequently, the statutory condition for disallowance was absent.

Conclusion: The amount was not liable to disallowance under Section 40A(i) of the Income-tax Act, 1961.

Ratio Decidendi: An amount that has neither been claimed nor allowed as expenditure cannot be disallowed under a provision governing disallowance of expenditure.

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