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)

Ais Advance Information Systems (I) P. Ltd., Kolkata vs. DCIT, Cir-2(1), Kolkata

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

ITA 1245/KOL/2017[2012-13]Status: DisposedITAT Kolkata22 Jun 2018AY 2012-13

Bench: Shri P.M. Jagtap, Am & Shri S.S. Viswanethra Ravi, Jm] I.T.A. No. 1245/Kol/2017 Assessment Year: 2012-13 Ais Advance Information Systems (I) Pvt. Ltd..................................................Appellant (Now Known As Psi Ametals India Pvt. Ltd. 6, Old Post Office Street, 2Nd Floor, Kolkata – 700 001. [Pan: Aahca 3798 F] Dcit Circle 2(1), Kolkata...................…………………………………………………Respondent P-7, Chowringhee Square, Kolkata – 700 069. Appearances By: Shri I. Banerjee, Fca Appearing On Behalf Of The Assessee. Shri P.K. Srihari, Cit Appearing On Behalf Of The Revenue. Date Of Concluding The Hearing : May 10, 2018 Date Of Pronouncing The Order : June 22, 2018 Order Per P.M. Jagtap, Am This Appeal Filed By The Assessee Is Directed Against The Order Of Ld. Principal Cit – 2, Kolkata Dated 29.03.2017 Passed Under Section 263 Of The Income Tax Act, 1961. 2. The Assessee In The Present Case Is A Company Which Is Engaged In The Business Of Rendering Advance Information Technology Services. The Return Of Income For The Year Under Consideration Was Filed By It On 11.09.2012 Declaring A Total Income Of Rs. 56,01,740/-. In The Assessment Completed U/S 143(3) Vide An Order Dated 11.03.2015, The Total Income Of The Assessee Was Determined By The A.O. At Rs. 1,40,70,003/- After Making A Disallowance Of Rs. 84,68,259/- On Account Of ‘Tax On Remuneration Of Delegates’. The Record Of The Said Assessment Came To Be Examined By The Ld. Principal Cit & On Such Examination, He Found That Out Of Total

Section 143(3)Section 263Section 40

ACIT Non Corporate Circle 10(1), Chennai vs. V.Mamta, Chennai

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

ITA 3072/CHNY/2017[2013-14]Status: DisposedITAT Chennai22 Jun 2018AY 2013-14

Bench: Shri A. Mohan Alankamony & Shri Duvvuru Rl Reddyआयकर अपील सं./I T.A. No. 3072/Mds/2017 "नधा"रण वष"/Assessment Year:2013-14 The Assistant Commissioner Of Smt. V. Mamta, Income Tax, Vs. # 24/3, Chinna Thambi Non Corporate Circle 10(1), Mudali Street, Triplicane, 121, Mahatma Gandhi Road, Chennai 600 005. Chennai 600 034. [Pan:Adepv6877B] (अपीलाथ" /Appellant) (""यथ"/Respondent) अपीलाथ" क" ओर से / Appellant By : Shri Ar. V. Sreenivasan, Jcit ""यथ" क" ओर से/Respondent By : None सुनवाई क" तार"ख/ Date Of Hearing : 11.06.2018 घोषणा क" तार"ख /Date Of Pronouncement : 22.06.2018 आदेश /O R D E R Per Duvvuru Rl Reddy: This Appeal Filed By The Revenue Is Directed Against The Order Of The Commissioner Of Income Tax (Appeals) 12, Chennai Dated 12.10.2017 Relevant To The Assessment Year 2013-14. The Only Effective Ground Raised In The Appeal Of The Revenue Is That The Ld. Cit(A) Has Erred In Deleting The Disallowances Made On Account Of (I) Short Deduction Of Tds At ₹.17,57,680/-, (Ii) Disallowance Incentive Payment Of ₹.20,75,000/-, (Iii)

For Appellant: Shri AR. V. Sreenivasan, JCITFor Respondent: None
Section 143(3)Section 36(1)(iii)Section 40

M/S. Shera Electric Co., Kolkata vs. ITO, Ward - 33(4), Kolkata

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

ITA 186/KOL/2018[2014-15]Status: DisposedITAT Kolkata20 Jun 2018AY 2014-15

Bench: Shri P.M. Jagtap, Am] I.T.A. No. 186/Kol/2018 Assessment Year: 2014-15 M/S. Shera Electric Co. .................................……………………………………….................Appellant 47, Lenin Sarani, Kolkata – 700 013 [Pan: Aamfs 3071 R] Ito, Ward 33(4) Kolkata...................……………………………………………..................Respondent 10B, Middleton Row, 3Rd Floor, Kolkata – 700 071. Appearances By: Shri V.N. Purohit, Ar Appearing On Behalf Of The Assessee. Shri D.C. Mondal, Addl. Cit Appearing On Behalf Of The Revenue. Date Of Concluding The Hearing : May 29, 2018 Date Of Pronouncing The Order : June 20, 2018 Order This Appeal Filed By The Assessee Is Directed Against The Order Of Ld. Cit (Appeals) – 9, Kolkata Dated 25.10.2017 & The Solitary Issue Involved Therein Relates To The Addition Of Rs. 10,34,160/- Made By The Ao & Confirmed By The Ld. Cit(A) On Account Of Disallowance Of Interest Under Section 40(A)(Ia) Of The Income Tax Act, 1961. 2. At The Outset, It Is Noted That There Is A Delay Of 4 Days On The Part Of The Assessee In Filing This Appeal Before The Tribunal. In This Regard, The Assessee Has Filed An Application Seeking Condonation Of The Said Delay & Keeping In View The Reasons Given Therein, I Am Satisfied That There Is A Sufficient Cause For The Delay Of 4 Days On The Part Of The Assessee In Filing This Appeal Before The Tribunal. The Learned Dr Has Also Not Raised Any Objection In This Regard. The Said Delay Is Accordingly Condoned.

Section 194ASection 40

Ritesh Kumar Boyed, Kolkata vs. ACIT, Circle - 40, Kolkata

In the result, the appeal of the assessee is partly allowed

ITA 2327/KOL/2017[2008-09]Status: DisposedITAT Kolkata20 Jun 2018AY 2008-09

Bench: Shri P.M. Jagtap, Am] I.T.A. No. 2327/Kol/2017 Assessment Year: 2008-09 Shri Ritesh Kumar Boyed.................................………………………………………............Appellant C/O. Subash Agarwal & Associates, Siddha Gibson, 1, Gibson Lane, 2Nd Floor, Suite 213, Kolkata – 700 069. [Pan: Aeapb 7186 C] Acit Circle 40...................……………………………………………....................................Respondent 3, Govt. Place, Kolkata – 700 001. Appearances By: Shri Subash Agarwal, Advocate Appearing On Behalf Of The Assessee. Shri Robin Choudhury, Addl. Cit Appearing On Behalf Of The Revenue. Date Of Concluding The Hearing : May 28, 2018 Date Of Pronouncing The Order : June 20, 2018 Order This Appeal Filed By The Assessee Is Directed Against The Order Of Ld. Cit (Appeals) – 13, Kolkata Dated 18.07.2017. 2. The Assessee In The Present Case Is An Individual Who Is Engaged In The Business Of Dealing In Auto Parts Under The Name & Style Of His Proprietary Concern M/S. Surendra Motors. The Return Of Income For The Year Under Consideration Was Filed By Him On 29.09.2008 Declaring A Total Income Of Rs. 2,77,976/-. A Survey Under Section 133A Was Carried Out In The Business Premises Of The Assessee On 25.01.2008. As Found From The Documents Impounded During The Course Of Survey, Sales Were Recorded To The Tune Of Rs. 2,46,23,315/- Whereas Sales Reflected In The Audited Profit & Loss Account Of The Assessee Were Only To The Tune Of Rs. 2,07,65,620/-. Since This Difference Of Rs. 38,57,695/- Could Not Be Explained By The Assessee

Section 133ASection 143(3)Section 194ISection 40Section 69C

ITO, Ward-2(2), Kolkata, Asansol vs. M/S. Maa Tara Trasnport Co., Burnpur

Appeal is dismissed

ITA 2093/KOL/2014[2010-2011]Status: DisposedITAT Kolkata15 Jun 2018AY 2010-2011

Bench: Shri S.S.Godara & Dr. A.L. Sainiassessment Year : 2010-11 Income Tax Officer V/S. M/S Maa Tara Transport Co. Ward-2(2), Parmer Radhanagar Road, P.O. Building, 54, G.T. Burnpur, Burdwan-713325 Road, Asansol-04 [Pan No.Aamfm 33326 M] .. अपीलाथ" /Appellant ""यथ"/Respondent Shri B. Das, Addl. Cit-Dr अपीलाथ" क" ओर से/By Appellant Shri Barsan Chatterjee, Ar ""यथ" क" ओर से/By Respondent 07-06-2018 सुनवाई क" तार"ख/Date Of Hearing 15-06-2018 घोषणा क" तार"ख/Date Of Pronouncement आदेश /O R D E R Per S.S.Godara:- This Revenue’S Appeal For Assessment Year 2010-11 Challenges Correctness Of Commissioner Of Income Tax (Appeals)-Asansol’S Order Dated 22.09.2014, Passed In Case No.142/C.I.T.(A)/Asl/W-2(2)/Asl/13-14 Restricting Assessing Officer’S Action Disallowing Transport Charges Of₹60,68,502/- @12.5% Only Coming To This ₹7,58,562/-, In Proceedings U/S. 143(3) Of The Income Tax Act, 1961; In Short ‘The Act’. Heard Both The Parties. Case File Perused. 2. Learned Departmental Representative Vehemently Contends During The Course Of Hearing That Cit(A) Has Erred In Law As Well As On Facts In Restricting The Impugned Disallowance Vide Following Detailed Discussion:- “24. Ground 18 Is Against Disallowance Under Section 40A(Ia). The Assessing Officer Disallowed Entries Transportation Charge As Vouchers Were Not Produced & Tax Was Not Deducted Under Section 194-I. After Hearing A Notice Was Issued To Assessing Officer As Under:-

Section 143(3)Section 194Section 251Section 40Section 40a