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)

Vanaz Engineers Limited, Pune vs. Addl. Commissioner of Income Tax, Range -7, Pune

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

ITA 1959/PUN/2017[2009-10]Status: DisposedITAT Pune03 Mar 2021AY 2009-10

Bench: Shri Inturi Rama Rao, Am & Shri S. S. Viswanethra Ravi, Jm आयकर अपील सं. / Ita No.1959/Pun/2017 िनधा"रण वष" / Assessment Year : 2009-10 Vanaz Engineers Limited, 85/1, Paud Road, Pune-411 038. .......अपीलाथ" / Appellant Pan : Aaacv6873B बनाम / V/S. Addl. Cit, Range- 7, ……""यथ" / Respondent Pune. Assessee By : Shri Rajendra Agiwal Revenue By : Shri Vitthal Bhosale सुनवाई क" तारीख / Date Of Hearing : 25.02.2021 घोषणा क" तारीख / Date Of Pronouncement : 03.03.2021 आदेश / Order Per Inturi Rama Rao, Am: This Is An Appeal Filed By The Assessee Directed Against The Order Of Ld. Commissioner Of Income Tax (Appeals)- 5, Pune (‘Cit(A)’ For Short) Dated 12.05.2017 For The Assessment Year 2009-10. 2. The Appellant Raised The Following Original Grounds Of Appeal :- “Based On The Facts & Circumstances Of The Case, Vanaz Engineers Limited (‘The Appellant’), Respectfully Craves Leave To Prefer An Appeal Against The Order Dated 12Th May, 2017 Passed By The Learned Commissioner Of Income-Tax (Appeals) - 5 ['Cit(A)’], Pune (Received By The Appellant On 20Th June, 2017) Under Section 250 Of The Income-Tax Act, 1961 (‘Act’) On The Following Grounds Which Are Independent & Without Prejudice To Each Other: On The Facts & In The Circumstances Of The Case & In Law, The Learned Cit (A) Has:

For Appellant: Shri Rajendra AgiwalFor Respondent: Shri Vitthal Bhosale
Section 145ASection 194CSection 201Section 250Section 40

M/S Kundali Jewel (India) Private Limited, Mumbai vs. ITO - 12(3)(1), Mumbai

In the result, the appeal filed by the assessee is hereby partly allowed and the appeal filed by the revenue is hereby dismissed

ITA 3511/MUM/2019[2012-13]Status: DisposedITAT Mumbai23 Feb 2021AY 2012-13

Bench: Shri M. Balaganesh, Am & Shri Amarjit Singh, Jm आयकर अपील सं/ I.T.A. No. 3511/Mum/2019 (निर्धारण वर्ा / Assessment Year: 2012-13) M/S. Kundali Jewels (India) बिधम/ The Income Tax Officer 12 Pvt. Ltd. (3)(1) Vs. Room No.147 A, 1St Floor, 1/1705, Challenger Tower, Thakur Village, Kandivali Aayakar Bhavan, M. K. (E), Mumbai. Marg, Mumbai-400020. आयकर अपील सं/ I.T.A. No. 4337/Mum/2019 (निर्धारण वर्ा / Assessment Year: 2012-13) The Income Tax Officer 12 बिधम/ M/S. Kundali Jewels (India) (3)(1) Pvt. Ltd. Vs. Room No.147 A, 1St Floor, 1/1705, Challenger Tower, Aayakar Bhavan, M. K. Thakur Village, Kandivali Marg, Mumbai-400020. (E), Mumbai. स्थायी लेखा सं./जीआइआर सं./Pan/Gir No. : Pnek10340B (अपीलाथी /Appellant) .. (प्रत्यथी / Respondent) Assessee By: Shri Rashmikant C. Modi Ms. Ketki Rajeshirke Revenue By: Shri Gurbinder Singh (Dr) सुनवाई की तारीख / Date Of Hearing: 04/02/2021 घोषणा की तारीख /Date Of Pronouncement: 23/02/2021 आदेश / O R D E R Per Amarjit Singh (Jm) The Assessee As Well As Revenue Have Filed The Above Mentioned Appeals Against The Order Dated 29.03.2019 Passed By The Commissioner Of Income Tax (Appeals) -21, Mumbai [Hereinafter Referred To As The “Cit(A)”] Relevant To The A.Y. 2012-13. Ita. No.3511/Mum/2019 4337/Mum/2019 A.Y. 2012-13 2. The Assessee Has Filed The Present Appeal Against The Order Dated 29.03.2019 Passed By The Commissioner Of Income Tax (Appeals) -21, Mumbai [Hereinafter Referred To As The “Cit(A)”] Relevant To The A.Y.2012- 13. 3. The Assessee Has Raised The Following Grounds: -

For Appellant: Shri Rashmikant C. ModiFor Respondent: Shri Gurbinder Singh (DR)
Section 143(1)Section 143(2)Section 143(3)Section 147Section 148Section 32Section 40

Kimberly Clark Lever P.Ltd., Pune vs. ACIT, Pune

In the result, the appeal of the assessee stands allowed

ITA 2481/PUN/2012[2008-09]Status: DisposedITAT Pune22 Feb 2021AY 2008-09

Bench: Shri Inturi Rama Rao, Am & Shri Partha Sarathi Chaudhury, Jm आयकर अपील सं. / Ita No.2481/Pun/2012 िनधा"रण वष" / Assessment Year : 2008-09 Kimberly Clark Lever P. Ltd., Gat No.934 To 937, Village Sanaswadi Off Nagar Road, Ta- Shirur, Pune-412208. .......अपीलाथ" / Appellant Pan : Aaack4647E बनाम / V/S. Acit, Circle-Xi(I), ……""यथ" / Respondent Pune. Assessee By : Shri Percy Pardiwalla Revenue By : Shri Sandeep Garg सुनवाई क" तारीख / Date Of Hearing : 08.02.2021 घोषणा क" तारीख / Date Of Pronouncement : 22.02.2021 आदेश / Order Per Inturi Rama Rao, Am: This Is An Appeal Filed By The Assessee Directed Against The Final Assessment Order U/S 143(3) R.W.S. 144C Of The Income Tax Act, 1961 (‘The Act’ For Short) Of The Asstt. Commissioner Of Income Tax, Circle-11(1), Pune (‘The Assessing Officer’ For Short) Dated 29.10.2012 For The Assessment Year 2008-09. 2. The Appellant Raised The Following Grounds Of Appeal :- “The Appellant Objects To The Order Dated 29 October 2012 Passed Under Section 143(3) R.W.S. 144(C) Of The Income-Tax Act, 1961 (‘The Act’) By The Assistant Commissioner Of Income Tax, Circle 11(1), Pune [‘Acit’ Or ‘Ao’] Following The Directions Issued By The Dispute Resolution Panel (‘Drp’) In Respect Of The Aforesaid Assessment Year On The Following Among Other Grounds:

For Appellant: Shri Percy PardiwallaFor Respondent: Shri Sandeep Garg
Section 143(3)Section 194HSection 194JSection 40Section 9(1)(vii)