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)

Sanjay Digambar Malve., Nashik vs. Deputy Commissioner of Income Tax

In the result, appeal of the assessee is Partly Allowed

ITA 2755/PUN/2016[2012-13]Status: DisposedITAT Pune05 May 2022AY 2012-13

Bench: Shri Partha Sarathi Chaudhury, Jm & Dr. Dipak P. Ripote, Am आयकरअपीलसं. / Ita No.2755/Pun/2016 िनधा"रणवष" / Assessment Year : 2012-13 Shri Sanjay Digambar Malve, The Dcit, Circle-1, Nashik. Plot No.2, Suvarnamudra Vs Bungalow, Mate Nursery Road, Sawarkar Nagar, Opp. Vishwas Bank, Nashik. Pan: Aftpm 5169 A Appellant/ Revenue Respondent/ Assessee Assessee By Shri Sanket Milind Joshi – Ar Revenue By Shri S P Walimbe - Dr Date Of Hearing 09/03/2022 Date Of Pronouncement 05/05/2022 आदेश/ Order Per Dr. Dipak P. Ripote, Am: This Is An Appeal Filed By The Assessee Directed Against The Order Of Ld.Commissioner Of Income Tax(Appeals)-1, Nashik Dated 09.09.2016For The Assessment Year 2012-13. The Assessee Raised The Following Grounds Of Appeal: “1. The Learned Cit(A) Erred In Holding That Advances Of Rs.13,61,710/- Received By The Assessee From The Company, M/S. Kamal Infrabuild Pvt. Ltd. Should Be Treated As Deemed Dividend U/S 2(22)(E) In The Hands Of The Assessee. 2. The Learned Cit(A) Failed To Appreciate That The Assessee Was Holding A Running Account With The Above Company & For A Major Part Of The Year, The Assessee Had Advanced Amounts To The Company & Hence, The Advances Received By The Assessee For A Short Period During The Year Were In Consideration Of The Advances Given By The Assessee To Company During The Rest Of The Year & Hence, The Provisions Of Section 2(22)(E) Were Not Applicable To The Instant Case. 3. Without Prejudice To The Above Ground, The Assessee Submits That If At All Any Addition Is To Be Made U/S 2(22)(E), Then The Accumulated Profits Of The Company As On 01.04.2011 Should Be Considered For

Section 194ASection 2(22)(e)Section 40

ITO Ward 1, Namakkal vs. Ever Green Trailor Services, Namakkal

In the result, the appeal filed by the Revenue is allowed for statistical purposes

ITA 1871/CHNY/2018[2014-15]Status: DisposedITAT Chennai05 May 2022AY 2014-15

Bench: Shri V. Durga Rao & Shri G. Manjunathaआयकर अपील सं./I.T.A. No.1871/Chny/2018 िनधा"रण वष"/Assessment Year: 2014-15 The Income Tax Officer, Vs. M/S. Ever Green Trailor Services, Ward 1, Namakkal. No. 6/336-A6,, Paramathi Road, Opposite To Ntloa Petrol Pump, Namakkal 637 001. [Pan:Aacfe5113G] (अपीलाथ"/Appellant) (""थ"/Respondent) अपीलाथ" की ओर से / Appellant By : Shri V. Vivekanandan, Cit ""थ" की ओर से/Respondent By : Shri G. Baskar, Advocate & Shri I. Dinesh, Advocate सुनवाई की तारीख/ Date Of Hearing : 06.04.2022 घोषणा की तारीख /Date Of Pronouncement : 05.05.2022 आदेश /O R D E R Per V. Durga Rao: This Appeal Filed By The Revenue Is Directed Against The Order Of The Ld. Commissioner Of Income Tax (Appeals), Salem, Dated 20.03.2018 Relevant To The Assessment Year 2014-15. The Revenue Has Raised The Following Grounds: “1) The Order Of The Hon'Ble Commissioner Of Income-Tax (Appeals) Is Opposed To The Facts, Law. 2) The Cit(A) Has Failed To Consider The Assessing Officer'S Observation That All The Bearer Cheques Issued By The Assessee

For Appellant: Shri V. Vivekanandan, CITFor Respondent: Shri G. Baskar, Advocate &
Section 194CSection 194C(6)Section 274C(6)Section 40

Agilent Technologies (International) Pvt. Ltd., Gurgaon vs. ACIT, Gurgaon

In the result, the appeal filed by the assessee is partly allowed

ITA 6047/DEL/2012[2008-09]Status: DisposedITAT Delhi05 May 2022AY 2008-09

Bench: Shri R.K. Panda & Ms Astha Chandraassessment Year: 2008-09 Agilent Technologies Vs Acit, (International) Pvt. Ltd., Circle-1(1), Plot No.Cp-11, Gurgaon. Sector-8, Manesar, Gurgaon. Pan: Aadca4115C (Appellant) (Respondent) Assessee By : S/Shri Rohit Tiwari & Shrey Chakarborty, Advocates Revenue By : Shri Surender Pal, Cit-Dr Date Of Hearing : 16.03.2022 Date Of Pronouncement : 05.05.2022 Order Per R.K. Panda, Am: This Appeal Filed By The Assessee Is Directed Against The Order Dated 25Th October, 2012 Passed U/S 144C/143(3) Of The It Act, 1961 For The Assessment Year 2008-09. 2. Facts Of The Case, In Brief, Are That The Assessee, Agilent Technologies (International) Private Limited Is A 100% Subsidiary Of Agilent Technologies International Europe, Bv Which In Turn Is A Wholly Subsidiary Of Agilent Technologies, Inc. The Assessee Is Engaged In The Provision Of Software Development (It) Services & Information Technologies Enabled Services (Ites). It Filed Its Return Of Income On 29Th September, 2008 Declaring The Taxable Income Of Rs.90,31,260/-. Since The Assessee Has Entered Into Certain International Transactions With Its Ae, The Ao Referred The Matter To The Tpo U/S 92Ca Of The It Act For Determination Of The Alp Of The International Transaction Entered Into By The Assessee With Its Aes. During The Course Of Tp Assessment Proceedings, The Tpo Noted That The Assessee Has Entered Into The Following International Transactions As Mentioned In The Tp Study Report:-

For Appellant: S/Shri Rohit Tiwari &For Respondent: Shri Surender Pal, CIT-DR
Section 144CSection 92C