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)

Ran Vijay Singh, Kolkata vs. DCIT, Circle-28, Kolkata

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

ITA 2223/KOL/2016[2006-07]Status: DisposedITAT Kolkata04 Apr 2018AY 2006-07

Bench: Shri P.M. Jagtap, Am & Shri S.S. Viswanethra Ravi, Jm I.T.A. No. 2223/Kol/2016 Assessment Year: 2006-07 Ran Vijay Singh...............................………………………………….......................................Appellant 2, Hide Road, Kolkata – 700 043 [Pan: Amhps 8770 J] Dcit Cir 28....……………………………………………………...............................................Respondent 54/1, Rafi Ahmed Kidwai Road, 5Th Floor, Kolkata – 700 016 Appearances By: Shri M.D. Shah, Advocate Appearing On Behalf Of The Assessee. Shri Arindam Bhattacharjee, Addl Cit Appearing On Behalf Of The Revenue. Date Of Concluding The Hearing : February 15, 2018 Date Of Pronouncing The Order : April 04 , 2018 Order Per S.S. Viswanethra Ravi, Jm This Appeal Is Preferred By The Assessee Against The Order Dated 28.03.2013 Passed By The Ld. Cit(Appeals) – Xiv, Kolkata For Assessment Year 2006-07. 2. The Learned Ar Submits That The A.O. Made Addition Of Rs. 63,16,063/- For Non Deduction Of Tds By Invoking The Provisions Of Section 40(A)(Ia) Of The Act. The Cit(A) Deleted The Addition To An Extent Of Rs. 43,77,000/- Holding That The Provisions Of Section 40(A)(Ia) Is Not Applicable As The Said Payment Paid On Account Of Rent To M/S. Kolkata Port Trust In View Of The Certificate Issued U/S 197(1) Of The Act By The Income Tax Department & Confirmed The Balance Sheet Of Rs. 19,39,066/-. The Learned Ar Relied On The Decision Of Hon’Ble High Court Of Delhi In The Case Of Ansal Land Mark Township

Section 139Section 197(1)Section 201Section 201(1)Section 40