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)

Subhadra Apartment Owners Welfare Society, Bhubaneswar vs. ITO, Ward-5(4), Bhubaneswar

In the result, appeal of the assessee is partly allowed for statistical purposes

ITA 434/CTK/2017[2013-14]Status: DisposedITAT Cuttack29 Dec 2017AY 2013-14

Bench: Shri N.S.Sainiआयकर अपीऱ सं./Ita No.434/Ctk/2017 (नििाारण वषा / Assessment Year :2013-2014) Subhadra Apartment Owners Vs. Ito, Ward-5(4), Welfare Society, Flat No.102B, Bhubaneswar Subhadra Apartment, Nandan Kanan Road, Kiit, Patia, Bhubaneswar-751024 स्थायी लेखा सं./जीआइआर सं./ Pan/Gir No. : Aaeas 3848 K (अपीऱाथी /Appellant) (प्रत्यथी / Respondent) .. निर्ााररती की ओर से /Assessee By : None राजस्व की ओर से /Revenue By : Shri D.K.Pradhan, Dr सुनवाई की तारीख / Date Of Hearing : 28/12/2017 घोषणा की तारीख/Date Of Pronouncement 29/12/2017 आदेश / O R D E R This Is An Appeal Filed By The Assessee Against The Order Of The Cit(A)-2, Bhubaneswar, Dated 28.7.2017. 2. The Ar Of The Assessee Has Filed Adjournment Petition Requesting For Adjournment Of Hearing. The Reason Stated In The Adjournment Petition Was Not Found To Be A Plausible One And, Therefore, Adjournment Petition Was Rejected & The Appeal Was Disposed Off Considering The Materials Available On Record & The Submissions Of Ld. Departmental Representative. 3. Ground No.2 Of The Appeal Is Directed Against The Order Of Cit(A) Confirming The Addition Of Rs.2,58,310/- Being 10% Of The Total Expenditure. 4. Brief Facts Of The Case Are That The Ao Observed That The Assessee Failed To Furnish Bills & Vouchers For The Expenses Of Rs.25,83,099/-

For Appellant: NoneFor Respondent: Shri D.K.Pradhan, DR
Section 194CSection 40Section 44A

M/S. Om Associates, Bhubaneswar vs. ITO, Ward-2(2), Bhubaneswar

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

ITA 247/CTK/2016[2009-10]Status: DisposedITAT Cuttack28 Dec 2017AY 2009-10

Bench: Shri N.S.Saini, Am & Shri Pavan Kumar Gadale, Jm आयकर अपीऱ सं./Ita No.247/Ctk/2016 (नििाारण वषा / Assessment Year :2009-2010) M/S Om Associates, Vs. Ito, Ward-2(2), Lane-4, Pokhariput, Bhubaneswar Bhubaneswar-751020 स्थायी लेखा सं./जीआइआर सं./ Pan/Gir No. : Aaafo 8711 C (अपीऱाथी /Appellant) (प्रत्यथी / Respondent) .. निर्ााररती की ओर से /Assessee By : Shri Niranjan Panda, Ar राजस्व की ओर से /Revenue By : Shri D.K.Pradhan, Dr सुनवाई की तारीख / Date Of Hearing : 28/12/2017 घोषणा की तारीख/Date Of Pronouncement 28/12/2017 आदेश / O R D E R Per Shri N.S.Saini, Am: The Assessee Has Filed An Appeal Against The Order Of Cit(A)-1, Bhubaneswar, Dated 23.3.2016 For The Assessment Year 2009-2010. 2. In This Appeal, The Assessee Has Raised The Following Grounds :- 1. For That The Order Of The Learned C.I.T Appeal - 1, Bhubaneswar Dated 23.03.2016 Passed In Appeal No. Ita-0396/15-16 Confirming The Assessment Order Dated 21.07.2014 Passed By The Income Tax Officer, Ward-2(2), Bhubaneswar Hereinafter Referred To As Learned `A.0' Is Not Just & Legal On The Facts & In The Circumstances Of The Case. 2. For That The Learned Cit(A) Is Not Justified In Upholding The Addition To The Extent Of Rs.42,61,786/- To The Returned Income Of The Appellant Disallowing The Expenditure U/S.40(A)(Ia) Of The I.T.Act 1961 For Rs. 37,67,036/- & Rs. 7,94,750/- For Van Hire Charges & Office Rent Respectively On The Facts & In The Circumstances Of The Case. 3. For That The Learned Cit(A) Has Failed To Appreciate The Contentions Raised & Documents Submitted By The Appellant In The Course Of Assessment / Appeal Proceedings & Without Giving Reasonable Opportunity & Without Assigning Any Valid & Cogent Reasons Confirmed The Demand Vide Order Dated 21.07.2014 Passed By The Income Tax Officer, Ward-2(2), Bhubneswar.

For Appellant: Shri Niranjan Panda, ARFor Respondent: Shri D.K.Pradhan, DR
Section 40