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)

Axis Carriers and Logistics Ltd, Mumbai vs. Dy Commissioner of Income Tax, 14(1)(1), Mumbai

In the result, the appeal filed by the assessee is dismissed

ITA 5846/MUM/2024[2018-19]Status: DisposedITAT Mumbai29 Jan 2025AY 2018-19

Bench: Ms. Kavitha Rajagopal, Jm & Shri. Omkareshwar Chidara, Am Axis Carriers & Logistics Ltd. Deputy Commissioner Of Income 803, B Kukreja Palace, Vallabh Baug Tax, 14(1)(1) Lane, Ghatkopar East, Mumbai – Vs. Aayakar Bhavan, Churchgate, 400075. Mumbai – 400020. Pan/Gir No. Aadca9585A (Assessee) : (Respondent) Assessee By : Shri. Rakesh Milwani Respondent By : Shri. Ram Krishn Kedia (Sr. Dr) Date Of Hearing : 06.01.2025 Date Of Pronouncement : 29.01.2025 O R D E R Per Kavitha Rajagopal, J M: This Appeal Has Been Filed By The Assessee, Challenging The Order Of The Learned Commissioner Of Income Tax (Appeals) (‘Ld. Cit(A)’ For Short), National Faceless Appeal Centre (‘Nfac’ For Short) Passed U/S.250 Of The Income Tax Act, 1961 (‘The Act'), Pertaining To The Assessment Year (‘A.Y.’ For Short) 2018-19. 2. The Assessee Has Raised The Following Grounds Of Appeal: 1. Considering The Facts & Circumstances Of The Case & In Law, It Is Submitted That Once An Order Is Passed U/S 143(3) Of The Income Tax Act, 1961 (Hereinafter, For The Sake Of Brevity, Referred To As "The Act'), The Intimation Of Processing Of Return Of Income U/S 143(1) Of The Act Ceases To Be In Force & Cannot Be Acted Upon Having Merged With Order Passed U/S 143(3) Of The Act & Therefore Additions Made While Processing Return Of Income Cease To Exist Once Order Is Passed U/S 143(3) Of The Act & The Additions Made To The Income U/S 143(1) Of The Act & Demands Raised Thereon Ought To Be Deleted. Axis Carriers & Logistics Ltd.

For Appellant: Shri. Rakesh MilwaniFor Respondent: Shri. Ram Krishn Kedia (Sr. DR)
Section 143(1)Section 143(1)(a)Section 143(3)Section 250Section 36(1)(va)

Asstt. Commissioner of Income Tax, Central Circle.1(3), Ahmedabad vs. M/S.Aaryavart Infrastructure Pvt. Ltd., Ahmedabad

In the result, appeal of the Revenue is partly allowed

ITSSA 70/AHD/2021[2017-18]Status: DisposedITAT Ahmedabad22 Jan 2025AY 2017-18

Bench: Dr. B.R.R. Kumar, Vice-Ms. Suchitra Kambleit(Ss)A No. 70/Ahd/2021 (Assessment Year: 2017-18) Deputy Commissioner Of M/S. Aaryavart Vs. Income-Tax, Infrastructure Pvt. Ltd., Central Circle-1(3), 17-A, First Floor, Pariseema Ahmedabad Complex, C.G. Road, Navrangpura, Ahmedabad-9 [Pan : Aadca 4844 Q] (Appellant) .. (Respondent) Appellant By : Shri Aseem L. Thakkar, Ar Respondent By: Shri V. Nandakumar, Cit-Dr Date Of Hearing 20.11.2024 Date Of Pronouncement 22.01.2025 O R D E R Per Dr. B.R.R. Kumar, Vice-: This Appeal Has Been Filed By The Revenue Against The Order Passed By The Learned Commissioner Of Income-Tax (Appeals)-11, Ahmedabad (Hereinafter Referred To As "Cit(A)" For Short) Dated 18.03.2021 Passed Under Section 250 Of The Income-Tax Act, 1961 [Hereinafter Referred To As "The Act" For Short], For Assessment Year (Ay) 2017-18. 2. The Brief Facts Of The Case Are That The Assessee-Company Is Engaged In Executing Government Contracts Obtained From Sardar Sarovar Narmada Nigam Ltd For Construction Of Canals, Laying Of Irrigation Pipelines Within Gujarat State, Building Of Railway Bridges At Chhota-Udaipur, Dabhoi, Gujarat. The Assessee-Company Is Also Engaged In Trading Of Building Materials Like Tmt Bars, Cement, Pipes, Grit-Kapchi Etc & Investment In Immovable Properties. The Assessee Filed Return Of Income U/S 139(1) Of It(Ss)A No. 70/Ahd/2021 Acit Vs. Aaryavart Infrastructure Pvt Ltd Asst. Year :– 2017-18 - 2–

For Appellant: Shri Aseem L. Thakkar, ARFor Respondent: Shri V. Nandakumar, CIT-DR
Section 131Section 133ASection 139(1)Section 139(5)Section 143(3)Section 244ASection 250

M/S.Coastal Energen Pvt. Ltd., Chennai vs. PCIT, (Central), Chennai-1

In the result, the appeal of the assessee is allowed

ITA 1624/CHNY/2024[2015-16]Status: DisposedITAT Chennai22 Jan 2025AY 2015-16

Bench: Shri Aby T Varkey & Shri Amitabh Shuklaआयकर अपील सं./Ita No.1624 /Chny/2024 निर्ाारण वर्ा /Assessment Years: 2015-16 M/S. Coastal Energen Private Limited, The Principal Commissioner Of Shri Radhakrishnan Dharmarajan, Income Tax, Central-1, No.31, Krishna, 1St Avenue, 100Ft Road, Chennai. Ashok Nagar, Chennai-600 083 [Pan: Aadcc0886G] (प्रत्यर्थी/Respondent) (अपीलार्थी/Appellant) अपीलार्थी की ओर से/ Assessee By : Shri Shrenik Chordia For Mr.B.Ramakrishnan,C.A प्रत्यर्थी की ओर से /Revenue By : Nilay Baran Som, Cit सुिवाई की तारीख/Date Of Hearing : 04.12.2024 घोर्णा की तारीख /Date Of Pronouncement : 22.01.2025 आदेश / O R D E R Per Amitabh Shukla, A.M : This Appeal Is Filed Against The Order Bearing Din & Order No.Itba/Rev/F/Rev5/2023-1063739847(1) Dated 31.03.2024 Of The Learned Principal Commissioner Of Income Tax [Herein After “Pcit, For The Assessment Years 2015-16. Through The Aforesaid Appeal The Assesse Has Challenged Order U/S 263 Dated 31.03.2024 Passed By Pcit, Chennai. 2.0 The Only Issue Arising From The Six Grounds Of Appeal Raised By The Assessee Is Regarding Exercise Of Revisionary Power U/S 263 By The Ld.Pcit, Chennai Vide His Order Dated 31.03.2024 Qua Order U/S 143(3)

For Appellant: Shri Shrenik Chordia for Mr.B.Ramakrishnan,C.AFor Respondent: Nilay Baran Som, CIT
Section 143(3)Section 263Section 36(1)(va)Section 40