Sec 40 a (3)

yes.it will applicable to employees also.

& for payment of purchase of raw meterial..........??

EXCEPTION TO ABOVE PROVISION:The provisions of this section are subject to exceptions as provided in Rule 6DD of the Income-tax Rules, 1962.

• Payment to Specified payee Rule 6DD(a)- Where the payment is made to 
  • (i) Reserve Bank of India  or any  banking company as defined in section 5(c) of Banking Regulation Act, 1949; 
  • (ii) State Bank of India or any subsidiary bank as defined in section 2 of SBI (Subsidiary Banks) Act, 1959; 
  • (iii) any co-operative bank or land mortgage bank; 
  • (iv) any primary agricultural credit society or any primary credit society as defined under section 56 of the Banking Regulation Act, 1949; 
  • (v) Life Insurance Corporation of India.
• Payment to Government  Rule 6DD(b)- Where payment is made to the Government and, under  the rules framed by it, such payment is required to be made in legal tender.
•  Payment by certain modesRule 6DD(c) - Where the payment is made by
  •  (i) any letter of credit arrangements through a bank; 
  • (ii) a mail or telegraphic transfer through a bank; 
  • (iii) a book adjustment from any account in a bank to any other account in that or any other bank; 
  • (iv) a bill of exchange made payable only to a bank; 
  • (v) the use of electronic clearing system through a bank account; 
  • (vi) a credit card; 
  • (vii) a debit card. 
  • Note: “Bank” means any bank, banking company or society referred to in #(i) to (iv) of rule 6DD(a) and includes any bank [not being a banking company as defined in section 5(c) of the Banking Regulation Act, 1949], whether incorporated or not, which is established outside India.
• Adjustment in books Rule 6DD(d)-  Where the payment is made by way of adjustment against the amount of any liability incurred by the payee for any goods supplied or services rendered by the assessee to such payee.
• Purchase of certain productsRule 6DD(e):Where the payment is made for the purchase of  -
  •   (i) agricultural or forest produce; or 
  • (ii) the produce of animal husbandry (including livestock, meat, hides and skins)***** or dairy or poultry farming; or 
  • (iii) fish or fish products; or 
  • (iv) the products of horticulture or apiculture, to the cultivator, grower or producer of such articles, produce or products. 
• Cottage industry Rule 6DD(f)- Where the payment is made for the purchase of the  products manufactured or processed without the aid of power in a cottage industry, to the producer of such products.
• No bank service Rule 6DD(g)  - Where the payment is made in a village or town, which on the date of such payment is not served by any bank,to any person who ordinarily resides, or is carrying on any business, profession or vocation, in any such village or town.
  •  Note: “Bank” means any bank, banking company or society referred to in #(i) to (iv) of rule 6DD(a) and includes any bank [not being a banking company as defined in section 5(c) of the Banking Regulation Act, 1949], whether incorporated or not, which is established outside India.
• Terminal benefit to employee - Rule 6DD(h) Where any payment is made to an employee of the  assessee or the heir of any such employee, on or in connection with the retirement, retrenchment, resignation, discharge or death of such employee, on account of gratuity, retrenchment compensation or similar terminal benefit and the aggregate of such sums payable to the employee or his heir does not exceed Rs. 50,000.
• Temporary posting of employee - Rule 6DD(i) Where the payment is made by an assessee by way of  salary to his employee after deducting the income-tax from salary as per section 192, and when such employee
  •  (i) is temporarily posted for a continuous period of 15 days or more in a place other than his normal place of duty or on a ship; and 
  • (ii) does not maintain any account in any bank at such place or ship. 
• Bank closed - Rule 6DD(j) Where the payment was required to be made on a day on which the banks were closed either on account of holiday or strike.
• Payment to agent  Rule 6DD(k)- Where the payment is made by any person to his agent  who is required to make payment in cash for goods or services on behalf of such person. 
• Foreign currency Rule 6DD(l)- Where the payment is made by an authorised dealer or  a money changer against purchase of foreign currency or travellers cheques in the normal course of his business. Note: “Authorised dealer” or “money changer” means a person authorised as an authorised dealer or a money changer to deal in foreign currency or foreign exchange under any law for the time being in force

it covers pretty much all "expenditure".

Purchases are covered - unless covered by Rule 6DD.