Section 40A(ia) of the Income Tax Act

Income-tax Act, 2025: s.36

Section 40A(ia) falls under section 40A of the Income-tax Act, 1961, which corresponds to section 36 (Expenses or payments not deductible in certain circumstances) of the Income-tax Act, 2025.

Read section 36 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 40A(ia) is CTO v. Swastik Roadways (3 SCC 640), cited in 36 of the 289 judgments on BharatTax that turn on this section.

Leading authorities on Section 40A(ia)

CTO v. Swastik Roadways
3 SCC 640 · 2004 · Reported
36
citing judgments

The rigours of Section 40A(3) should not be invoked without examining the genuineness of the transactions and whether they were free from tax evasion, as the consequences for non-compliance must have a nexus to the object of preventing tax evasion.

J.K. Industries Ltd. v. CIT
18 ITD 226 · 1986 · High Court
23
citing judgments

If a company has both interest-free funds and borrowed funds, a presumption arises that investments are made from interest-free funds, unless the Assessing Officer establishes a nexus between borrowed funds and the investments.

Fakri Automobiles v. CIT
160 ITR 504 · 1986 · High Court
20
citing judgments

Payments made for purchasing stock-in-trade or raw materials are considered expenditure for the purposes of Section 40A(3) of the Income Tax Act. The Supreme Court has upheld the constitutional validity of Section 40A(3), stating its purpose is to curb black money, not restrict business freedom.

S.P. Jaiswal Estates (P.) Ltd. v. ACIT
29 Taxmann.com 221 · 2013 · ITAT
15
citing judgments

Where the Assessing Officer fails to establish a nexus between borrowed funds and advances made, a presumption arises that the advances were made out of the assessee's own interest-free funds.

Pr.CIT v. Shalimar Pettel Feeds Ltd.
453 ITR 547 · 2023 · High Court
11
citing judgments

The disallowance under Section 14A read with Rule 8D cannot exceed the exempt income earned by the assessee.

IBM India (P.) Ltd. v. Income-tax Officer (TDS) LTU, Bangalore
154 ITD 497 · 2015 · ITAT
10
citing judgments

Tax is deductible at source at the time of credit to the contractor's account or payment, whichever is earlier, and section 194C(2) applies even if the sum is credited to a suspense account.

Pr. CIT v. Shalimar Pellet Feeds Ltd.
138 Taxmann.com 124 · 2022 · High Court
7
citing judgments
Dhuri Wine v. Dy. CIT
83 Taxmann.com 20 · 2017 · Reported
4
citing judgments
Principal Commissioner of Income-tax-3 v. Swastik Construction
91 Taxmann.com 10 · 2018 · High Court
4
citing judgments
Gharmarbhai Chaudhary v. ITO
23 Taxmann.com 273 · Reported
3
citing judgments

Judgments on Section 40A(ia)

DCIT, Circle-1(1), Dehradun, Subhash Road Dehradun vs. State Infrastructure and Industrial Development Corporation of Uttarakhand Ltd., I.T. Park, Sahastradhara Road, Dehradun

In the result, the appeal of the Revenue is dismissed

ITA 233/DDN/2025[2014-15]Status: HeardITAT Dehradun10 Mar 2026AY 2014-15

Bench: Shri Mahavir Singh & Shri Manish Agarwal[Assessment Year : 2014-15] Dcit Vs State Infrastructure & Circle-1(1) Industrial Development Dehradun Corporation Of Uttarakhand- Uttarakhand Ltd., 29 Iie, Sahastradhara Road (It Park) Road, Haripuram, Dehradun, Uttarakhand Pan-Aahcs7324R Revenue Assessee Revenue By Shri Pramod Verma, Cit Dr Assessee By Shri Sahil Kala, Ca Date Of Hearing 09.03.2026 Date Of Pronouncement 10.03.2026 Order Per Manish Agarwal, Am : The Present Appeal Is Filed By Revenue Against The Order Dated 22.09.2025 Passed By Ld. Commissioner Of Income Tax (A), Nfac, Delhi [“Ld. Cit(A)”] U/S 250 Of The Income Tax Act, 1961 [“The Act”] Arising Out Of Assessment Order Dated 19.12.2016 Passed U/S 143(3) Of The Act Pertaining To Assessment Year 2014-15. 2. Heard Both The Parties At Length. The Claim Of The Assessee Was That It Had Suo-Motto Withdrew The Inadvertent Amount Of Deduction Claimed U/S 80Ia Of The Act However, The Ao Has Levied The Penalty U/S 271(1)(C) Of The Act By Ao Which Was Confirmed By Ld. Cit(A). 3. Ld. Cit (A) By Observing That Under Identical Circumstances, Penalty Levied For Ay 2011-12 Was Deleted By His Predecessor. Since The Ld. Cit(A) Has Followed The Order For Ay 2011-12 Wherein Penalty Levied Under Identical Circumstances, Was Deleted Which Facts Has Not Been Controverted By The Revenue. The Relevant Observation Of Ld. Cit(A) While Deleting The Penalty Are Reproduced As Under:-

Section 143(3)Section 250Section 271(1)Section 271(1)(c)Section 40ASection 801ASection 80I