TaxTMI 
TaxTMI 
Disallowance U/s 40(a)(ia)
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....isallowance U/s 40(a)(ia)<br> Query (Issue) Started By: - C ChiranjeeviRaj Dated:- 23-1-2025 Last Reply Date:- 1-5-2025 Income Tax<br>Got 1 Reply<br>Income Tax<br>For A.Y 2024-2025 I am filing updated income tax return. My client has constructed a building on contract basis and it is billed as construction service without bifurcation for materials. It is a fixed asset. TDS is not deducted. What is....
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.... present position of law? Whether disallowance U/s 40(a)(ia) is applicable for this capital expenditure. If so how to be made. Reply By YAGAY andSUN: The Reply: For A.Y. 2024-25, since you're filing an Updated Return (ITR-U) and the payment is made for construction of a building (capital expenditure) on a contract basis without TDS, here's the correct legal position as per the Income Tax....
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.... Act, 1961: ✅ Issue at Hand: * Client constructed a building on contract (lumpsum billing - no bifurcation for materials/labour). * TDS not deducted u/s 194C (payment to contractor). * Expenditure is capital in nature (fixed asset). * You're filing an Updated Return u/s 139(8A). 🔍 Section 40(a)(ia) - Applicability in Capital Expenditure * Section 40(a)(ia) applies onl....
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....y to specified expenses (like contract, professional, rent, etc.) which are claimed as revenue expenditure in the Profit & Loss A/c. * Since capital expenditure (building) is not debited to the P&L A/c, but rather capitalized, Section 40(a)(ia) does not apply. ✅ CBDT Circulars & Judicial Precedents: * CBDT Circular No. 3/2008: Section 40(a)(ia) applies only to amounts "payable" and cla....
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....imed as deduction under P&L. * Judicial Precedents: * CIT v. Capital Bus Service (Delhi HC) - Capital expenditure is outside the scope of s. 40(a)(ia). * Kailash Chand Sharma v. ITO (ITAT Jaipur, 2020) - Disallowance u/s 40(a)(ia) not applicable to capitalized expenditure. 🧾 Treatment in Updated Return: Since the expense is a capital expenditure (building construction): * Section....
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.... 40(a)(ia) disallowance does NOT apply. * However, you must: * Capitalize the cost of the building (including payment to contractor). * Depreciation on building (u/s 32) will be allowed. ⚠️ TDS Default Consequences (Non-disallowance Cases): While disallowance under 40(a)(ia) may not apply, failure to deduct TDS could attract: * Interest u/s 201(1A). * Penalty u/s 271C or p....
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....rosecution u/s 276B, if proceedings are initiated. ✅ Summary: Point Position Nature of Expense Capital (Building construction) TDS deducted? No Section 40(a)(ia) applicable? ❌ No (Not debited to P&L) Any disallowance required? ❌ No Depreciation allowable? ✅ Yes, on capitalized amount Action in ITR-U Just ensure correct depreciation claim. No need to disallo....
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....w anything u/s 40(a)(ia)<br> Discussion Forum - Knowledge Sharing ....