40a(2) applicability

Sorry I doesn't have any case law right now but i ve the raitionale behind it:-

1. Section 40A(2) says about the disallowance of expenditure which is not of the legitimate needs of the business. now apply the logic that what can be disallowed, which is actually being allowed as per the Income tax law.

Once a capital expenditure which is actually not allowed in the computation of income , then income tax deptt can't agitate to disallow it.

The provision of 40(A)(2) apply only for the expenses that are routed through the profit & loss account.  so anything that is outside of the P&L will naturally be not disallowed.