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)

Shri. Kishor Tarachand Patil, Nashik vs. Income-Tax Officer, Ward - 2(2), Nashik

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

ITA 1461/PUN/2018[2012-13]Status: DisposedITAT Pune11 Feb 2022AY 2012-13

Bench: Shri S.S.Viswanethra Ravi & Shri Dr. Dipak P. Ripoteआयकर अपील सं. / Ita No.1461/Pun/2018 िनधा"रण वष" / Assessment Year : 2012-13 Shri Kishor Tarachand Patil, Vs. Ito, Ward 2(2), Flat No.102, Shree Anant Villa Appt., Nashik Near Deepak Laundry, Samartha Nagar, Nashik- 422007. Pan : Ahrpp7621C Appellant Respondent Assessee By Shri Sanket Milind Joshi Revenue By Shri M. G. Jasnani Date Of Hearing 09-02-2022 Date Of Pronouncement 11-02-2022 आदेश / Order Per Dr. Dipak P. Ripote, Am : This Appeal Is Against Commissioner Of Income Tax (Appeals)-2, Nashik’S Order Dated 15.12.2016 For Assessment Year 2012-13. 2. There Is A Delay Of 570 Days In Filing The Appeal. The Appellant Filed Condonation Petition. In The Condonation Petition, The Appellant Submitted That The Appellant Had Suffered Due To Slow Down In Business Which Resulted In Huge Outstanding Of Creditors. Due To Financial Pressure, Health Of The Appellant Also Suffered. The Appellant Was Under Complete Bed Rest For More Than 5 Months Around March, 2016. The Appellant Filed Copy Of Medical Certificate. The Appellant Also Submitted That He Was Kidnapped By The Creditors. Subsequently, There Was A Criminal Case Filed Against The Appellant. The Appellant Also Filed Fir Against The Kidnappers. The Appellant Also Filed Copy Of The Fir. The Appellant Was Under Police Custody, When The Bail Petition Was Rejected By The Hon’Ble

Andaman and Nicobar Island Integrated Development Corporation Ltd., Port Blair vs. DCIT, Port Blair

In the result, the appeal of the assessee is allowed

ITA 893/KOL/2018[2007-08]Status: DisposedITAT Kolkata09 Feb 2022AY 2007-08

Bench: Shri Sanjay Garg & Shri Rajesh Kumarassessment Year: 2007-08 Andaman & Nicobar Dcit, Port Blair Island Integrated Development Corporation Ltd. Vs. Port Blair, Andaman & Nicobar Island Pan: Aacca4070B (Appellant) (Respondent) Present For: Appellant By : Shri Akkal Dudhewala, Ar Respondent By : Smt. Ranu Biswas, Addl. Cit-Dr. Date Of Hearing : 20.12.2021 Date Of Pronouncement : 09.02.2022 O R D E R Per Rajesh Kumar: The Present Appeal Has Been Preferred By The Assessee Against The Order Passed U/S 143(3)/147 Of The Income Tax Act (Hereinafter Referred To As The ‘Act’) By The Commissioner Of Income Tax(Appeals)-1, Kolkata (Hereinafter Referred As The ‘Cit’) Relevant To A.Y 2007-08. 2. The Assessee Has Challenged The Order Of The Cit(A) Upholding The Order Of Assessing Officer On The Legal Issue As Well As On Merits. The Legal Issue Raised By The Assessee Is That The Assessment Framed U/S 143(3)/147 Of The Act Dated 27.02.2015 Is Bad In Law As The Same Is Reopened After Expiry Of Four Years From The End Of The Relevant Assessment Year Without There Being Any Failure On The Part Of The Assessee To Disclose Any Material Fact With Respect To Assessment Of Income.

For Appellant: Shri Akkal Dudhewala, ARFor Respondent: Smt. Ranu Biswas, Addl. CIT-DR
Section 143(3)Section 147Section 40