Section 40(a)(ia) of the Income Tax Act

Income-tax Act, 2025: s.35

Section 40(a)(ia) falls under section 40 of the Income-tax Act, 1961, which corresponds to section 35 (Amounts not deductible in certain circumstances) of the Income-tax Act, 2025.

Read section 35 of the 2025 Act

Correspondence checked against the ICAI tabular mapping of the two Acts and the BharatTax.co section commentary.

The decision most relied on for Section 40(a)(ia) is S.A. Builders Ltd. v. CIT (288 ITR 1), cited in 1,484 of the 7,300 judgments on BharatTax that turn on this section.

Leading authorities on Section 40(a)(ia)

S.A. Builders Ltd. v. CIT
288 ITR 1 · 2007 · Supreme Court
1,484
citing judgments

Interest paid on borrowed funds cannot be disallowed merely because the assessee made interest-free advances, provided those advances were made for business purposes and commercial expediency. The Revenue cannot dictate a businessman's commercial decisions, but the assessee bears the onus to prove the business expediency.

CIT v. Alom Extrusions Ltd.
319 ITR 306 · 2009 · Supreme Court
1,344
citing judgments

A proviso inserted into a section to remedy unintended consequences, make the section workable, or supply an obvious omission must be read retrospectively in operation to give effect to the section as a whole.

CIT v. Woodward Governor India Pvt. Ltd.
312 ITR 254 · 2009 · Supreme Court
968
citing judgments

Foreign exchange fluctuations, whether gains or losses, are inextricably linked to the underlying business transaction and must be accounted for under the mercantile system. The Supreme Court also affirmed the standard accounting principle of valuing stock at cost or net realisable value, whichever is lower.

Bharat Earth Movers v. CIT
245 ITR 428 · 2000 · Supreme Court
901
citing judgments

A business liability that has definitely arisen in an accounting year is deductible even if it needs to be quantified and discharged later, as long as its incurring is certain and can be reasonably estimated.

Rotork Controls India Pvt. Ltd. v. CIT
314 ITR 62 · 2009 · Supreme Court
739
citing judgments

A provision for expenses, such as warranty, is a deductible liability for income tax purposes if it constitutes a present obligation arising from past events, and a reliable estimate of the amount of obligation is possible.

TRF Ltd. v. CIT
323 ITR 397 · 2010 · Supreme Court
714
citing judgments

For claiming deduction for bad debts under section 36(1)(vii) of the Income Tax Act, it is sufficient for the assessee to write off the debt as irrecoverable in its accounts, and it is not necessary to prove that the debt has actually become irrecoverable.

GE India Technology Centre Pvt. Ltd. v. CIT
327 ITR 456 · 2010 · Supreme Court
663
citing judgments

Tax must be deducted at source from payments made to a non-resident under Section 195 only if such payment is chargeable to tax in India. The Assessing Officer bears the onus to establish that the payments made are indeed chargeable to tax under the Income Tax Act.

Tuticorin Alkali Chemicals & Fertilizers Ltd. v. CIT
227 ITR 172 · 1997 · Supreme Court
621
citing judgments

Interest income earned on deposits, particularly before the commencement of business operations or as a requirement for business licensing, is taxable as "income from other sources" under Section 56, and cannot be treated as business income or set off against interest on borrowed funds.

Hindustan Coca Cola Beverage Pvt. Ltd. v. CIT
293 ITR 226 · 2007 · Supreme Court
576
citing judgments

The deductor cannot be treated as an assessee-in-default under Section 201(1) if the deductee has already paid the tax or offered the impugned receipts in their return of income. However, interest under Section 201(1A) for delayed deposit of tax can still be levied up to the date of filing of the return of income by the deductee.

CIT v. Reliance Industries Ltd.
410 ITR 466 · 2019 · Supreme Court
501
citing judgments

When mixed funds are available, interest-free advances are presumed to be made from the assessee's own interest-free funds, preventing disallowance of interest expenditure under section 36(1)(iii). This principle also applies to section 14A disallowance, where interest expenditure is not disallowed if surplus funds are available and no direct nexus is established with borrowed funds for investments earning exempt income.

Judgments on Section 40(a)(ia)

Warner Multimedia Limited, Kolkata vs. ITO, Ward-8(2), Kolkata

In the result, appeal of the assessee is partly allowed

ITA 239/KOL/2022[2006-07]Status: DisposedITAT Kolkata31 Oct 2022AY 2006-07

Bench: Shri Sanjay Garg, Hon’Ble & Shri Manish Borad, Hon’Blei.T.A. No. 239/Kol/2022 Assessment Year: 2006-07 Warner Multimedia Limited Income Tax Officer, Ward-8(2), C/O B.C. Purohit & Co. Kolkata Vs 2, G.C. Avenue 2Nd Floor, Room No. 5 Commerce House Kolkata - 700013 Pan : Aabcc0225H अपीलाथ"/ (Appellant) "" यथ"/ (Respondent) Assessee By : Shri Miraj D. Shah, Advocate Revenue By : Shri Vijay Kumar, Addl. Cit, Sr. D/R सुनवाई क" तारीख/Date Of Hearing : 29/09/2022 घोषणा क" तारीख/Date Of Pronouncement : 31/10/2022 आदेश/O R D E R Per Shri Manish Borad: The Present Appeal Is Directed At The Instance Of The Assessee Against The Order Of The National Faceless Appeal Centre (Hereinafter The “Ld. Cit(A)”) Dt. 12/03/2022, Passed U/S 250 Of The Income Tax Act, 1961 (“The Act’), For Assessment Year 2006-07. 2. The Assessee Has Raised The Following Grounds Of Appeal:- “1. For That The Ld. Cit(A), Nfac Has Erred In Law As Well As On Facts Of The Case By Dismissing The Appeal Filed By The Appellant & Confirmed The Addition Of Rs.2,85,500/- On The Ground Of Non-Submission Of Details Regarding Payment Of The Above Mentioned Amount To Different Professionals Which Is Not Correct As No Fixation Notice Either By Offline Mode Or By Online Mode Was Received By The Appellant & Thereby Depriving The Appellant Of Being Heard. 2. For That The Observations & Contentions Of The Ld. Cit(A), Nfac While Passing Order U/S. 250 Of The I.T. Act, 1961 By Not Giving Your Appellant The Chance Of Being Heard On The Grounds Which Are Not Correct. 3. For That The Appellant Craves Leave To Adduce, Modify & Or Alter The Grounds At Or Before Hearing.”

For Appellant: Shri Miraj D. Shah, AdvocateFor Respondent: Shri Vijay Kumar, Addl. CIT, Sr. D/R
Section 143(3)Section 250Section 40

Aiswarya Art Creations Private Limited, Hyderabad vs. Addl. Commissioner of Income Tax-Range -13, Hyderabad

In the result, the appeal of the assessee is partly allowed for statistical purposes

ITA 1535/HYD/2018[2011-12]Status: DisposedITAT Hyderabad20 Oct 2022AY 2011-12

Bench: Shri Rama Kanta Panda & Shri Laliet Kumarm/S. Aiswarya Art Vs. Income Tax Officer, Creations Pvt. Ltd., Ward 15(3), Hyderabad. Hyderabad. Pan Aagca7479J (Appellant) (Respondent) Appellant By : Shri T. Chaitanya Kumar, Adv. Respondent By : Shri Kumar Aditya, (D.R.) Date Of Hearing : 20.10.2022 Date Of Pronouncement : 20.10.2022 O R D E R Per Shri Rama Kanta Panda, A.M. : This Appeal Filed By The Assessee Is Directed Against The Order Dt.04.05.2018 Of The Learned Commissioner Of Income Tax (Appeals)-1, Guntur Relating To Assessment Year 2011-12. 2. Facts Of The Case, In Brief, Are That The Assessee Is A Company Engaged In The Business Of Trading In Satellite Rights. The Assessee Filed Its Return Of Income On 2 26.12.2011 Declaring A Total Income Of Rs.17,47,243. The Case Was Selected For Scrutiny Under Cass. Accordingly, Statutory Notices U/S. 143(2) & 143(1) Of The Income Tax Act, 1961 (In Short ‘The Act’) Were Issued. However, There Was No Compliance From The Side Of The Assessee For Which Summon U/S. 131 Of The Act Was Issued & The Statement Of The Assessee Was Recorded On 29.01.2014 Wherein He Agreed To Furnish The Required Information By 30.01.2014. Since There Was No Compliance Despite Number Of Opportunities, The Assessing Officer Proceeded To Complete The Assessment U/S.144 Of The Act.

For Appellant: Shri T. Chaitanya KumarFor Respondent: Shri Kumar Aditya
Section 131Section 143(2)Section 144Section 68