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)

M/S. B.R. Dutta, Rampurhat, Birbhum vs. I.T.O., Ward - 3(1), Suri

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

ITA 29/KOL/2025[2014-2015]Status: DisposedITAT Kolkata13 Jun 2025AY 2014-2015

Bench: Shri Duvvuru Rl Reddym/S B R Dutta Vs Ito, Ward-3(1), Suri-731101 Shibtalla Para, Rampurhat, Birbhum-731224 Pan No. :Aahfb 7626 E (अपीलधर्थी /Appellant) .. (प्रत्यर्थी / Respondent) निर्धाररती की ओर से /Assessee By : Shri A.K.Tibrewal, Ar रधजस्व की ओर से /Revenue By : Shri Kallol Mistry, Jcit, Sr.Dr सुनवाई की तारीख / Date Of Hearing : 23/04/2025 घोषणा की तारीख/Date Of Pronouncement : 13/06/2025 आदेश / O R D E R The Present Appeal Is Directed At The Instance Of Assessee Against The Order Of Ld. Commissioner Of Income Tax (Appeals), National Faceless Appeal Centre (Nfac), Delhi Dated 08.11.2024 Passed For Assessment Year 2014-15, On The Following Grounds Of Appeal :- 1. That The Ld. Commissioner Of Income Tax (Appeals), Nfac Erred In Confirming The Disallowance Of Rs. 13,60,796 Made By Ld. Income Tax Officer, Ward 3(1), Suri Invoking The Provisions Of Section 40(A)(Ia) Of The Income Tax Act, 1961 For Failure Of The Assessee To Deduct Tax At Source On The Payments Made To Tata Capital Financial Services Limited Although The Said Tata Capital Financial Services Limited Had Declared The Receipt Of Income In Their Return Of Income & Paid Taxes Thereon. 2. That The Impugned Order Passed By Ld. Commissioner Of Income Tax (Appeals) Is Against Law & Facts Of The Case. 2. Brief Facts Of The Case Are That Assessee Was Filed Return Of Income Declaring A Total Income Of Rs.3,90,520/-. The Assessee Is A Wholesaler/Distributor Of Fertilizer, Pesticides & Maintains Regular Books Of A/Cs. Which Is Audited U/S. 44Ab Of The 1.T. Act, 1961. The Assessee Has Debited As Amount Of 13,60,796/- To The Profit & Loss A/C. For Payment Of 2

For Appellant: Shri A.K.Tibrewal, ARFor Respondent: Shri Kallol Mistry, JCIT, Sr.DR
Section 143(3)Section 194ASection 201(1)Section 40Section 44A

Bajaj Auto Limited, Mumbai vs. The Deputy Commissioner of Income-Tax, Circle 3(4), Mumbai

In the result, the grounds of appeal raised by the assessee are allowed

ITA 2786/MUM/2025[2021-22]Status: DisposedITAT Mumbai13 Jun 2025AY 2021-22

Bench: Shri Pawan Singh & Shri Prabhash Shankarbajaj Auto Limited, The Deputy Commissioner 2Nd Floor, Bajaj Bhawan, Vs. Ofincome-Tax, Officer, Circle 3(4), Room No. 421, 4Th Floor, Aayakar 226, Jamnalal Bajaj Marg, Nariman Point, Mumbai 400021 Bhavan, Maharishi Karve Road, Pan: Aadcb2923M Mumbai-400020 Appellant Respondednt Assessee Represented By Ms. Vasantiben Patel, Advocate Department Represented By Shri. Satyaprakash R. Singh, Cit-Dr. Date Of Hearing 05/06/2025 Date Of Pronouncement 13/06/2025 Order Under Section 143(3) Of The Income-Tax Act, 1961 Per Pawan Singh: 1. This Appeal By Assessee Is Directed Against Order Of Learned Cit(A)/National Faceless Appeal Centre (Nfac), Delhi Dated 13/03/2025 For Assessment Year 2021-22. The Assessee Has Raised Following Grounds Of Appeal: “Disallowance Under Section 40(A)(Ia) In Respect Of Target Discount, Consistency Discount & Cash Discount Provided To Spare Parts Dealers: Rs. 55,18,08,851: 1. On The Facts & In The Circumstances Of The Case & In Law, The Commissioner Of Income-Tax (Appeals) Erred In Upholding The Action Of The Assessing Officer In Disallowing A Sum Of Rs. 55,18,08,851 Under Section 40(A)(Ia), For Non-Deduction Of Tax At Source Under Section 194H, Computed At 30% Of The Following Discounts Provided To Spare Parts Dealers: (A) Target Discount Of Rs. 90,72,94,817; (B) Consistency Discount Of Rs. 72,72,96,107; & (C) Cash Discount Of Rs. 20,47,71,915. In Doing So, The Commissioner Of Income-Tax (Appeals) Erred In The Following Respects: 2. In Incorrectly Observing That The Appellant Has Paid Commissionto Its Dealers Under The Cover Of Sales Discounts. 3. In Observing The Appellant Is Offering Discounts On Completion Of Periodic Targets Which Is Computed As A Percentage Of Sales Turnover & Therefore Akin To Commission.

Section 143(3)Section 194HSection 40

Singareni Collieries Company Limited, Kothagudem vs. DCIT., Circle-13(1), Hyderabad

ITA 286/HYD/2024[2020-21]Status: DisposedITAT Hyderabad12 Jun 2025AY 2020-21

Bench: Shri Vijay Pal Rao, Vice- & Shri Manjunatha, G.आ.अपी.सं / Ita Nos.283, 284 & 286/Hyd/2024 (निर्धारण वर्ष/Assessment Years: 2015-16, 2016-17 & 2020-21) Singareni Collieries Vs. Acit, Circle – 1 Company Limited Khammam & Kothagudem Acit, Circle 13(1) Pan:Aaact8873F Hyderabad & आ.अपी.सं / Ita Nos.300, 301 & 308/Hyd/2024 (निर्धारण वर्ष/Assessment Years: 2015-16, 2016-17 & 2020-21) Vs. Dy. Cit, Circle 13(1) Hyderabad Singareni Collieries Company Limited Kothagudem Pan:Aaact8873F (Appellant) (Respondent) निर्धारिती द्वारा / Assessee By: Shri M.V.Anil Kumar, Advocate राजस्व द्वारा / Revenue By:: Shri B Balakrishna, Cit (Dr) सुनवाई की तारीख / Date Of Hearing: 10/06/2025 घोषणा की तारीख / Pronouncement: 12/06/2025 आदेश/Order Per Bench: These 3 Sets Of Cross Appeals Filed By The Assessee As Well As The Revenue Are Directed Against The 3 Separate Orders All Dated 30/01/2024 Of The Learned Cit (A)-Nfac Delhi, For The A.Ys 2015-16, 2016-17 & 2020-21 Respectively. The Assessee As Well As The Revenue Have Raised The Following Grounds Of Appeals For 3 A.Ys:

For Appellant: Shri M.V.Anil Kumar, AdvocateFor Respondent: : Shri B Balakrishna, CIT (DR)
Section 194Section 32ASection 37Section 40Section 40A(9)

Modgill Hosiery Exports Private Limited, Ludhiana vs. ACIT, Ludhiana

In the result, the appeal stand partly allowed

ITA 807/CHANDI/2014[2006-07]Status: DisposedITAT Chandigarh09 Jun 2025AY 2006-07

Bench: Hon’Ble Shri Laliet Kumar, Jm & Hon’Ble Shri Manoj Kumar Aggarwal, Am आयकरअपील सं. / Ita No.807/Chandi/2014 (िनधा"रणवष" / Assessment Year: 2006-07) M/S Modgill Hosiery Exports Pvt. Ltd. Acit बनाम/ Ludhiana Guru Vihar Rahon Road Circle –Iii Vs. Ludhiana. Ludhiana. "थायीलेखासं./जीआइआरसं./Pan/Gir No.Aabcm-1393-G (अपीलाथ"/Appellant) : (""थ" / Respondent) अपीलाथ"कीओरसे/ Appellant By : Shri Rishab Singla (Advocate) – Ld. Ar ""थ"कीओरसे/Respondent By : Dr Ranjit Kaur (Addl. Cit) – Ld. Sr. Dr सुनवाईकीतारीख/Date Of Hearing : 02-06-2025 घोषणाकीतारीख /Date Of Pronouncement : 09-06-2025 आदेश / O R D E R Manoj Kumar Aggarwal () 1. Aforesaid Appeal By Assessee For Assessment Year (Ay) 2006-07 Arises Out Of An Order Of Learned Commissioner Of Income Tax (Appeals), Ludhiana [Cit(A)] Dated 22-07-2014 In The Matter Of An Assessment Framed By Ld. Assessing Officer [Ao] U/S. 143(3) Of The Act On 21-08-2009 Wherein Ld. Ao Made Various Additions / Disallowances. The Ld. Cit(A) Granted Partial Relief To The Assessee. Aggrieved, The Assessee Is In Further Appeal Before Us. The Ld. Ar

For Appellant: Shri Rishab Singla (Advocate) – Ld. ARFor Respondent: Dr Ranjit Kaur (Addl. CIT) – Ld. Sr. DR
Section 133ASection 142Section 143(3)Section 36(1)(iii)Section 40