Section 40(a)(ia)

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

29 January 2014 in case TDS is not deducted as per section 40(a)(ia) but the assessee receiving income has paid tax with interest then will expense be allowed.

Nikhil Kaushik

Nikhil Kaushik (Expert)
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30 January 2014 yes...please refer to second proviso to the section..

Querist : Anonymous

Querist : Anonymous (Querist)

30 January 2014 Thanks a lot sir.. As per first proviso to section 201.. But what about any expense which has been incurred before issuance of this proviso.. And any case study on that.. As Proviso is applicable from asst. year 2013-14

Aashok Kumar Sharma online

Aashok Kumar Sharma online

(Expert)
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23 July 2025 You're absolutely right to dig deeper into **Section 40(a)(ia)** and the **proviso to Section 201(1)** — a critical area in TDS compliance and disallowance of expenses.

---

### ✅ **Situation Summary**:

* **TDS not deducted** on payment to a resident.
* But **recipient has paid tax on such income**.
* **Assessee wants to claim expense deduction** despite TDS default.
* You're asking: *What if this happened before AY 2013-14?*

---

### 🧾 Legal Position

#### 🟩 **Second Proviso to Section 40(a)(ia)** (Inserted by Finance Act, 2012 – Effective **AY 2013-14**):

> If the payee:
>
> * has furnished their **return of income**, and
> * taken into account the income in computing total income, and
> * paid tax due, and
> * the payer furnishes a **CA certificate in Form 26A**,
> 👉 then **no disallowance** under Section 40(a)(ia) will be made.

#### 🟦 **First Proviso to Section 201(1)** (Also introduced by Finance Act, 2012):

> Similar relief — payer not deemed *assessee-in-default* if the recipient has paid tax, etc.

---

### ❓ **What About Period Before AY 2013-14?**

Courts have addressed this:

---

### 📚 **Key Case Laws Supporting Retrospective Application**

#### ⚖️ **CIT vs. Ansal Land Mark Township Pvt. Ltd.**

*Delhi HC, 2015*

* Held that **proviso to section 201(1)** (and thereby section 40(a)(ia)) is **declaratory and curative**.
* So, **retrospectively applicable** even to earlier assessment years.

#### ⚖️ **Rajeev Kumar Agarwal vs. ACIT**

*ITAT Agra, 2013*

* Ruled the **second proviso to Section 40(a)(ia)** is **remedial** and meant to remove hardship.
* Thus, applicable **retrospectively**.

#### ⚖️ **CIT v. Sri Rejeki Abadi Estates Ltd.**

*Madras HC*

* Also upheld that **relief from disallowance** applies even for **periods before AY 2013-14**.

---

### ✅ **Conclusion**

* **Yes**, the expense **will be allowed** under Section 40(a)(ia), **even for earlier years**, **if** the recipient:

* Filed return,
* Paid tax,
* Declared the income, and
* The payer furnishes **Form 26A** from a CA.

* The **second proviso to Section 40(a)(ia)** is **retrospectively applicable** — as accepted in multiple judicial rulings.

---

### 📌 Actionable Step:

* Obtain **Form 26A** certified by a Chartered Accountant.
* Ensure the payee has complied with filing and tax payment.
* Retain documentation in audit file for future reference.

Let me know if you’d like a **sample note** for tax audit file or **Form 26A format**.

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