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)

DCIT, Cir-10(2), Kolkata vs. M/S Vineetaz Exports Pvt. Ltd., Howrah

In the result, appeal of the revenue is dismissed

ITA 978/KOL/2016[2011-2012]Status: DisposedITAT Kolkata07 Sept 2018AY 2011-2012

Bench: Sri J. Sudhakar Reddy & Sri S.S. Viswanethra Ravi) Assessment Year: 2011-12 Deputy Commissioner Of Income Tax, Circle-10(2), Kolkata…………………………….……..Appellant Vs. M/S. Vineetaz Exports Pvt. Ltd……………………………………........……….......……….…..………...Respondent 24/25, Moulana Abul Kalam Azad Road 41/A, Ajc Bose Road 2Nd Floor Room No. 206 Howrah – 711 101 [Pan : Aaacv 8640 E] Appearances By: Shri Subash Agarwal, A/R, Appeared On Behalf Of The Assessee. Shri S. Dasgupta, Addl. Cit, D/R. Appearing On Behalf Of The Revenue. Date Of Concluding The Hearing : July 16Th, 2018 Date Of Pronouncing The Order : September 7Th , 2018 Order Per J. Sudhakar Reddy, Am :- This Is An Appeal Filed By The Revenue Directed Against The Order Of The Commissioner Of Income Tax (Appeals) - 4 Kolkata, (Hereinafter The ‘Ld. Cit(A)’), Dt. 22/02/2016, Passed U/S 250 Of The Income Tax Act, 1961 (Hereinafter The ‘Act’), Relating To Assessment Year 2011-12. 2. The Assessee Is A Company & Is In The Business Of Manufacturing & Trading Of Textiles & Machinery Products. It Filed Its Return Of Income On 30/09/2011, Declaring Total Income At Rs.1,77,45,540/-, For The Assessment Year 2011-12. The Assessing Officer Passed An Order U/S 143(3) On 10/03/2014, Determining The Total Income At Rs.6,30,05,406/-, Interalia Disallowing The Claim Of Expenditure Of Commission Paid To Foreign Agents For Exports, Ad-Hoc Disallowance Of 20% Of The Salary Paid To Employees U/S 40A(2), Disallowance Entertainment Expenditure & Expenditure Incurred On Foreign Tours, Disallowance U/S 40(A)(Ia) Of The Act Etc. Aggrieved, The Assessee Carried The Matter In Appeal. The Ld. First Appellate Authority Granted Part Relief.

Section 143(3)Section 14ASection 250Section 40Section 40A(2)

Sk. Golam Mustafa, Jajpur vs. ACIT, Circle-1(1), Cuttack

In the result, appeal of the assessee is partly allowed

ITA 132/CTK/2018[2012-13]Status: DisposedITAT Cuttack31 Aug 2018AY 2012-13

Bench: Shri N.S.Saini, Am & Shri Pavan Kumar Gadale, Jm आयकर अपील सं./Ita No.132/Ctk/2018 Assessment Year: 2012-2013 Sk.Golam Mustafa Vs. Acit, Circle-1(1), Cuttack New Siaria, Trijanga, Rehabilitation Colony, Danagadi, Jajpur-755026 "थायी लेखा सं./जीआइआर सं./Pan/Gir No. : Akgpm 6161 L (अपीलाथ" /Appellant) (""यथ" / Respondent) .. "नधा"रती क" ओर से /Assessee By : Shri P.K.Sahoo, Ar राज"व क" ओर से /Revenue By : Shri Subhendu Dutta, Dr सुनवाई क" तार"ख / Date Of Hearing : 30/08/2018 घोषणा क" तार"ख/Date Of Pronouncement 31/08/2018 आदेश / O R D E R Per Shri Pavan Kumar Gadale, Jm: This Is An Appeal Filed By The Assessee Against The Order Of Cit(A), Cuttack, Dated 27.02.2018 Passed In I.T.Appeal No.0005/2015-16 For The Assessment Year 2012-2013. 2. The Assessee Has Raised The Following Grounds Of Appeal :- 1. The Order Of Learned Commissioner Of Income Tax(Appeals) Cuttack Confirming The Addition Of Rs 2,35,127/- Made By The Acit,Circle-L(L) Cuttack Under Section 40A(3) Of It Act 1961 In Computing The Business Income Of The Assessee Is Arbitrary To Law & The Facts Of The Case. 2. The Learned Commissioner Of Incometax (Appeats),Cuttack Is Not Justified In Disallowing The Professional Fees Paid Amounting To Rs 6,68,680/- On The Ground That No Tds Has Been Deducted From Such Payments. 3. The Appellant Craves Leave To Add Or Amend Any Grounds Of Appeal. 3. Brief Facts Of The Case Are That The Assessee Is Engaged In The Business Of Contract Work Under The Name & Style Of Royal Enterprises

For Appellant: Shri P.K.Sahoo, ARFor Respondent: Shri Subhendu Dutta, DR
Section 143(1)Section 143(2)Section 143(3)Section 194JSection 40Section 40A(3)