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)

Deepak Bajaj, Kolkata vs. ITO, Ward-37(1), Kolkata

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

ITA 86/KOL/2015[2011-2012]Status: DisposedITAT Kolkata25 Jan 2019AY 2011-2012

Bench: Shri P.M. Jagtap & Shri S.S. Viswanethra Ravi] I.T.A. No. 86/Kol/2015 Assessment Year: 2011-12 Deepak Bajaj.................................………………………….....................................................Appellant 19/1, Vidyasagar Street, Kolkata – 700 009 [Pan: Aeepb 5525 K] Ito, Ward 37(1) Kolkata...................…………………………………………………….......Respondent Poddar Court, 18, Rabindra Sarani, Kolkata – 700 001. Appearances By: Shri Dilip Chatterjee, Advocate Appearing On Behalf Of The Assessee. Shri Saurabh Kumar, Addl. Cit, Dr Appearing On Behalf Of The Revenue. Date Of Concluding The Hearing : January 21, 2019 Date Of Pronouncing The Order : January 25, 2019 Order Per P.M. Jagtapthis Appeal Filed By The Assessee Is Directed Against The Order Of Ld. Cit(A) – Xxiv, Kolkata Dated 15.10.2014 Whereby He Confirmed The Disallowance Of Rs. 63,58,503/- Made By The A.O. U/S 40(A)(Ia) Of The Income Tax Act, 1961. 2. The Assessee In The Present Case Is An Individual Who Is Engaged In The Business Of Production Of Telefilm. The Return Of Income For The Year Under Consideration Was Filed By Him On 29.03.2012 Declaring A Total Income Of Rs. 9,76,789/-. During The Course Of Assessment Proceedings, It Was Noticed By The A.O. That The Following Expenditure Was Incurred By The Assessee During The Year Under Consideration: “I. Artist Remuneration Rs. 34,69,225/- Ii. Studio Hire Charges Rs. 13,20,000/- Iii. Equipment Hire Charges Rs. 8,19,000/- Rs. 7,50,278/-‘’ Iv. Interest On Loan

Section 143(3)Section 194JSection 40Section 409a

DCIT, New Delhi vs. M/S. Mall Hotel Ltd., New Delhi

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

ITA 4887/DEL/2014[2010-11]Status: DisposedITAT Delhi24 Jan 2019AY 2010-11

Bench: Shri R.K. Panda & Shri K. Narasimha Charyassessment Year: 2010-11 Dcit, Vs. Mall Hotel Ltd., Circle-6(1), D-893, New Delhi. New Friends Colony, New Delhi. Pan: Aabcb0537F (Appellant) (Respondent) Assessee By : Shri Anand Kumar Pandey, Advocate Revenue By : Ms Ashima Neb, Sr.Dr Date Of Hearing : 22.01.2019 Date Of Pronouncement : 24.01.2019 Order Per R.K. Panda, Am: This Appeal Filed By The Revenue Is Directed Against The Order Dated 27Th June, 2014 Of The Cit(A)-9, New Delhi Relating To Assessment Year 2010-11. 2. Facts Of The Case, In Brief, Are That The Assessee Is A Company Engaged In The Business Of Running Hotels, Malls & Entertainment. It Filed Its Return Of Income On 14Th October, 2010 Declaring Nil Income. The Case Was Selected For Scrutiny & Statutory Notice U/S 143(2) & 142(1) Were Issued & Duly Served Upon The Assessee. In Response To The Questionnaire Issued By The Assessing Officer, The Assessee Appeared Before The Assessing Officer & Filed Various Details. However, No Books Of Account Along With Original Bills & Invoices Were Produced Before The Assessing Officer Despite Granting Repeated Opportunities. The Assessing Officer, Therefore, Rejected The Books Of Account & Completed The Assessment U/S 144 Of The It Act Wherein He Made Addition Of Rs.1,13,37,038/- On Account Of Estimated Disallowance Of Expenses, Rs.2,89,56,740/- On Account Of House Property Income As Against Business Income, Rs.30 Lakhs Out Of The Unsecured Loan Of Rs.45 Lakhs, Rs.33,12,126/- U/S 40(A)(Ia) For Non-Deduction Of Tax At Source From Payments To Various Parties & Rs.24,06,044/- On Account Of Royalty Payment Treating The Same As Capital Expenditure. The Assessing Officer Accordingly Determined The Total Income At Rs.2,85,69,124/-.

For Appellant: Shri Anand Kumar Pandey, AdvocateFor Respondent: Ms Ashima Neb, Sr.DR
Section 143(2)Section 144Section 40Section 68