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)

Ichha Constructions P.Ltd, Mumbai vs. DCIT CC 5(1), Mumbai

In the result, the appeal filed by the assessee is hereby ordered to be dismissed

ITA 4856/MUM/2016[2012-13]Status: DisposedITAT Mumbai14 Feb 2018AY 2012-13

Bench: Shri Rajendra, Am & Shri Amarjit Singh, Jm आयकर अपील सं/ I.T.A. No.4856Mum/2016 (निर्धारण वर्ा / Assessment Year: 2012-13) बिधम/ Ichha Construction Private Dcit, Cc-5(1) Limited Vs. Mumbai 6Th Floor, Ackruti Centre Point Central Road, Marol Midc, Andheri (E), Mumbai-400093 स्थायी लेखा सं./जीआइआर सं./Pan/Gir No. : Aaaci1277N (अपीलाथी /Appellant) .. (प्रत्यथी / Respondent) Assessee By: None Revenue By: Shri Rajat Mittal (Dr) सुनवाई की तारीख / Date Of Hearing: 07.02.2018 घोषणा की तारीख /Date Of Pronouncement: 14. 02.2018 आदेश / O R D E R Per Amarjit Singh, Jm: The Assessee Has Filed The Present Appeal Against The Order Dated 23.03.2016 Passed By The Commissioner Of Income Tax (Appeals)-53, Mumbai [Hereinafter Referred To As The “Cit(A)”] Relevant To The A.Y. 2010-11. 2. The Assessee Has Raised The Following Grounds: - “1 Being Aggrieved By The Appeal Order Of The Learned Commissioner Of Income Tax (Appeals) - 53 (Hereinafter Referred To As The "Cit (A) - 53") With Regard To The Assessment Order U/S 143 F3) Of The Act Of The Deputy Commissioner Of Income Tax

For Appellant: NoneFor Respondent: Shri Rajat Mittal (DR)
Section 142(1)Section 143Section 143(2)Section 201Section 40

Asst CIT 17(1), Mumbai vs. Dawn India, Mumbai

In the result, the appeal filed by the revenue is hereby ordered to be dismissed

ITA 4603/MUM/2016[2008-09]Status: DisposedITAT Mumbai09 Feb 2018AY 2008-09

Bench: Shri Rajendra, Am & Shri Amarjit Singh, Jm आयकर अपील सं/ I.T.A. No.4603/Mum/2016 (निर्धारण वर्ा / Assessment Year: 2008-09) Acit 17(1), R. No. 117, 1St बिधम/ M/S. Dawn India, 411/412 4Th Floor Apeejay House 13 Floor, Aayakar Bhavan, Vs. Mumbai Samachar Marg, M.K. Marg, Mumbai-400020 Fort, Mumbai-400023 स्थायी लेखा सं./जीआइआर सं./Pan/Gir No. : Aaafd2674D (अपीलाथी /Appellant) .. (प्रत्यथी / Respondent) Revenue By: Shri Rajat Mittal Assessee By: Shri Gyaneshwar Kataram सुनवाई की तारीख / Date Of Hearing: 05.02.2018 घोषणा की तारीख /Date Of Pronouncement: 09.02.2018 आदेश / O R D E R Per Amarjit Singh, Jm: The Revenue Has Filed The Present Appeal Against The Order Dated 13.04.2016 Passed By The Commissioner Of Income Tax (Appeals)-28, Mumbai [Hereinafter Referred To As The “Cit(A)”] Relevant To The Ay. 2008-09. 2. The Revenue Has Raised The Following Grounds: - 1 “On The Facts & In The Circumstances Of The Case & In Law, The Ld. Cit(A] Has Erred In Directing To Delete The Penalty Levied U/S 271(1)(C) Of The Act In Respect Of The Disallowances Of Rs,1.56 Crores Out Of The Amount Of Warehouse Charges By Invoking The Provision Of Sec 40(A)(Ia) Of The Act -Without

For Appellant: Shri Gyaneshwar KataramFor Respondent: Shri Rajat Mittal
Section 143(3)Section 14ASection 271Section 271(1)(c)Section 40