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)

Munivenkatappa Shivanna, Bangalore vs. ACIT Circle-7(2)(1), Bangalore

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

ITA 358/BANG/2021[2014-15]Status: DisposedITAT Bangalore24 Aug 2021AY 2014-15

Bench: Shri N.V. Vasudevanassessment Year : 2014-15 Shri. Munivenkatappa Shivanna, Vs. Acit, Prop: Maruthi Manunath Travels, Circle – 7(2)(1), No.208/1, Idasarahalli Kempegowda Bengaluru. Main Road, Dasarahalli Near Aswath Katte, Bengaluru City – 560 027. Pan : Bixps 0619 B Appellant Respondent Appellant By : Shri. Adam Kajabee, Ca Respondent By : Shri. Ganesh R. Ghale, Standing Counsel Date Of Hearing : 23.08.2021 Date Of Pronouncement : 24.08.2021 O R D E R Per N.V. Vasudevanthis Is An Appeal By The Assessee Against The Order Dated 14.09.2017 Of Cit(A)-7, Bengaluru, In Relation To Ay 2014-15. 2. The Assessee Is An Individual Engaged In The Business Of Running Vehicles On Hire. The Assessee Paid A Sum Of Rs.5,75,710 As Interest On Loans Borrowed From A Non-Banking Finance Company M/S.Cholmandalam Investments & Finance Co.Ltd. The Assessee Did Not Deduct Tax At Source As Was Required By The Provisions Of Sec.194A Of The Income Tax Act, 1961 ["The Act"] The Ao Therefore Added A Sum Of Rs.5,75,710 To The Total Income Of The Assessee For Non-Deduction Of Tax At Source By Invoking The Page 2 Of 7 Provisions Of Section 40(A)(Ia) Of The Act, Which Lays Down That Where Tax Is Deductible On A Payment & Tax Is Not So Deducted, Then The Sum In Respect Of Which Tax Is Not Deducted At Source, If It Is Claimed As Expenditure In Computing Income From Business, The Same Will Not Be Allowed As A Deduction, While Computing The Income From Business. The Ao Accordingly Made The Impugned Disallowance & Addition To The Total Income U/S. 40(A)(Ia) Of The Act.

For Appellant: Shri. Adam Kajabee, CAFor Respondent: Shri. Ganesh R. Ghale, Standing Counsel
Section 139Section 194ASection 201Section 201(1)Section 40

Francois Compressor India Pvt.Ltd, Pune vs. Deputy Commissioner of Income-Tax, Circle - 1(2), Pune

In the result, the appeal filed by the assessee stands partly allowed for statistical purposes

ITA 2504/PUN/2017[2013-14]Status: DisposedITAT Pune18 Aug 2021AY 2013-14

Bench: Shri Inturi Rama Rao, Am & Shri Partha Sarathi Chaudhury, Jm आयकर अपील सं. / Ita No.2504/Pun/2017 िनधा"रण वष" / Assessment Year : 2013-14 ………. अपीलाथ" / Francois Compressor India Pvt. Ltd., Gat No.147/1(New), Lavale Road, Appellant Pirangut, Tal. Mulshi, Dist. Pune – 412115. Pan : Aabcf0496K. बनाम V/S ………. ""यथ" / The Dy.Commissioner Of Income Tax, Circle 1 (2), Pune. Respondent Assessee By : Shri Sharad Shah. Revenue By : Shri Amol Kamat. सुनवाई क" तारीख / Date Of Hearing : 05.08.2021 घोषणा क" तारीख / Date Of Pronouncement : 18.08.2021 आदेश / Order Per Inturi Rama Rao, Am: This Is An Appeal Filed By The Assessee Directed Against The Final Assessment Order Dt.31.08.2017 Passed Under Sec.143(3) R.W.S. 144C(13) Of The Income Tax Act, 1961 (Hereinafter Referred To “The Act”) For The Assessment Year 2013-14. 2. The Brief Facts Of The Case Are As Under : The Appellant Is A Company Incorporated Under The Provisions Of The Companies Act, 1956. It Is Engaged In The Business Of Development & Sale

For Appellant: Shri Sharad ShahFor Respondent: Shri Amol Kamat
Section 143(3)Section 36(1)(va)Section 40Section 41(1)Section 92C

ACIT, CC - 1 (2), Chennai vs. M/S. Studio Green, Chennai

In the result, the appeal of the Revenue is dismissed and the Cross

ITA 2427/CHNY/2019[2011-12]Status: DisposedITAT Chennai18 Aug 2021AY 2011-12

Bench: Shri V. Durga Rao & Shri G. Manjunathaआयकर अपील सं./I.T.A. No.2427/Chny/2019 िनधा"रण वष"/Assessment Year: 2011-12 & C.O. No. 99/Chny/2019 [In I.T.A. No. 2427/Chny/2019] The Assistant Commissioner Of M/S. Studio Green, Income Tax, Central Circle 1(2), Vs. Old No. 13, New No. 6, Ii Floor, Investigation Wing, Room No. 311, 6, Thanikachalam Road, No. 46, Mg Road, Chennai. T. Nagar, Chennai 600 017. [Pan: Absfs6433Q] (अपीलाथ" /Appellant) (""थ"/Respondent/Cross Objector) अपीलाथ" की ओर से / Appellant By Shri S. Bharath, Cit : ""थ" की ओर से/Respondent By Shri V. Vivek Rajan, C.A. : सुनवाई की तारीख/ Date Of Hearing 18.08.2021 : घोषणा की तारीख /Date Of Pronouncement : 18.08.2021 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) 18, Chennai, Dated 26.06.2019 Relevant To The Assessment Year 2011-12. 2. The Only Issue Involved In The Appeal Of The Revenue Is Relating To Whether The Second Proviso Section 40(A)(Ia) Of The Income Tax Act, 1961 [“Act” In Short] Applies Retrospectively Or Only Prospective From The Date Of 2

Section 194CSection 194JSection 201Section 40