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)

Brig. Narayan Nayak, Bhubaneswar vs. ACIT-5(1), Bhubaneswar

In the result, ITA No.30/CTK/2017 is partly allowed for

ITA 230/CTK/2019[2012-13]Status: DisposedITAT Cuttack05 Jun 2020AY 2012-13

Bench: Shri C.M. Garg, Jm & Shri L.P. Sahu, Am आयकर अपीऱ सं./Ita No.30/Ctk/2017 & आयकर अपीऱ सं./Ita No.230/Ctk/2019 (नििाारण वषा / Assessment Year :2012-2013) Brig. Narayan Nayak, Vs. Dcit, Circle-5(1), Prop: M/S Industrial Security & Bhubaneswar Allied Services, F3-F5, Id Market, Irc Village, Nayapalli, Bhubanesar-751015 स्थायी लेखा सं./Pan No. : Abapn 3373 Q (अऩीलाथी /Appellant) (प्रत्यथी / Respondent) .. ननधाारिती की ओर से /Assessee By : Shri P.K.Sahoo, Ca िाजस्व की ओर से /Revenue By : Shri Subhendu Dutta, Dr सुनवाई की तािीख / Date Of Hearing : 25/02/2020 घोषणा की तािीख/Date Of Pronouncement : 05/06/2020 आदेश / O R D E R Per L.P.Sahu, Am: The Assessee Has Filed The Above Two Appeals, One Is Against The Order Passed By The Cit(A)-2, Dated 27.10.2016 Arising Out Of The Order Passed By The Ao U/S.143(3) Of The Act & Another Is Against The Order Passed By The Cit(A)-2, Bhubaneswar, Dated 14.04.2019 Arising Out Of The Order Passed By The Ao U/S.271(1)(C) Of The Act. 2. First We Shall Take Up The Appeal Of The Assessee In Ita No.30/Ctk/2017, Wherein The Assessee Has Raised The Following Grounds :-

For Appellant: Shri P.K.Sahoo, CAFor Respondent: Shri Subhendu Dutta, DR
Section 139(1)Section 143(3)Section 271(1)(c)Section 40Section 43BSection 44A

Brig.Narayan Nayak, Bhubaneswar vs. DCIT, Circle-5(1), Bhubaneswar

In the result, ITA No.30/CTK/2017 is partly allowed for

ITA 30/CTK/2017[2012-13]Status: DisposedITAT Cuttack05 Jun 2020AY 2012-13

Bench: Shri C.M. Garg, Jm & Shri L.P. Sahu, Am आयकर अपीऱ सं./Ita No.30/Ctk/2017 & आयकर अपीऱ सं./Ita No.230/Ctk/2019 (नििाारण वषा / Assessment Year :2012-2013) Brig. Narayan Nayak, Vs. Dcit, Circle-5(1), Prop: M/S Industrial Security & Bhubaneswar Allied Services, F3-F5, Id Market, Irc Village, Nayapalli, Bhubanesar-751015 स्थायी लेखा सं./Pan No. : Abapn 3373 Q (अऩीलाथी /Appellant) (प्रत्यथी / Respondent) .. ननधाारिती की ओर से /Assessee By : Shri P.K.Sahoo, Ca िाजस्व की ओर से /Revenue By : Shri Subhendu Dutta, Dr सुनवाई की तािीख / Date Of Hearing : 25/02/2020 घोषणा की तािीख/Date Of Pronouncement : 05/06/2020 आदेश / O R D E R Per L.P.Sahu, Am: The Assessee Has Filed The Above Two Appeals, One Is Against The Order Passed By The Cit(A)-2, Dated 27.10.2016 Arising Out Of The Order Passed By The Ao U/S.143(3) Of The Act & Another Is Against The Order Passed By The Cit(A)-2, Bhubaneswar, Dated 14.04.2019 Arising Out Of The Order Passed By The Ao U/S.271(1)(C) Of The Act. 2. First We Shall Take Up The Appeal Of The Assessee In Ita No.30/Ctk/2017, Wherein The Assessee Has Raised The Following Grounds :-

For Appellant: Shri P.K.Sahoo, CAFor Respondent: Shri Subhendu Dutta, DR
Section 139(1)Section 143(3)Section 271(1)(c)Section 40Section 43BSection 44A