U/S 40(a)(ia)

Query 1]

Sir, in our case disallowance of expenses has been made u/s. 40 (a) (ia) of Income Tax Act for the A.Y. 2009-10 on the only ground that a copy of form No. 15H was not filed in the office of CIT as required U/s. 197A(2). The original form No. 15H received from the creditors were filed during the assessment proceeding which is evident from the Assessment Order itself. Whether disallowance U/s. 40(a) (ia) of Interest Expenses can be made by ITO on the facts stated above? Please enlighten of the problem supported by some judicial citations.  []


  1. Various sub-sections of Section 197A require a declaration to be filed by the payee to the payer and the same is filed, the payer has no choice except to desist from deducting tax from the payment. The sub-section uses the word “shall” which leaves no choice to the payer in the matter.
  2. Unless it is proved that these forms were not in fact submitted by the payee, the payer cannot be blamed because at the time of paying the amount, payer has to rely upon the declarations filed by the payee and is not expected to embark upon an enquiry as to whether the payee in reality have no taxable income on which tax is payable.
  3. Even if the payer has delayed the filing of the declarations with the Department within the time limit specified in sub­section (2) of section 197A, it needs to be considered as a distinct omission or default for which an independent penalty u/s 272A has been prescribed.
  4. The same inferences could be drawn from the following judicial pronouncements:

  1. Surat Ahmedabad Transport (P) Ltd. V. ITO (2011) 42(II) ITCL 337(Ahd-Trib)
  2. ITO vs. Shri Chandan Gopal Shroff in ITA No. 844/Kol/2008 of Kolkata Bench vide order dated 31.07.2009.
  3. ITO vs. M/s. Ashabhai Babarbhai Patel & Co. in ITA No.2195/AHD2010 of Ahmedabad Bench vide order dated 10.12.2010.
  4. Shri Vipin P. Mehta vs. ITO in ITA No. 3317/Mum/2010 of Mumbai Bench vide order dated 20.05.2011.
  5. ITO vs. Rajesh Kr. Garg in ITA No.532/Kol/2011 of Kolkata Bench vide order dated 05.08.2011.
  6. M/s. Capital Transport Corporation -vs.- Income Tax Officer, Kolkata I.T.A No. 1753/Kol/2009.
  7. Shri Vipin P. Mehta Vs. ITO, ITA No.3317/Mum/2010, “F” Bench
  8. Valibhai Khanbhai Mankad Vs. Dy.CIT (OSD) in ITA No.2228/Ahd/2009, Ahmedabad “A” Bench.

For ease of reference, we have uploaded few of the above judgments at


Query 2]


  1. I sold a 2 BR flat at Visakhapatnam (A.P.) on 11.11.2011 for Rs. 15.30 Lakhs which I purchased on 02.11.2001 (10 years back) for Rs. 4.25 Lakhs including Registration charges (Rs. 3.75 Lakhs + Rs. 0.50 Lakhs).
  2. I booked a 4 BR flat at Jaipur (Rajasthan) in 2008 at an estimated cost of Rs. 28.50 Lakhs and paid in full in 5 installments with a loan of Rs. 18 Lakhs from HDFC and Rs.10.50 from withdrawals from GPF. The flat is expect to be hand over in 2 to 3 months time with another Rs. 8 Lakhs escalation. Total Rs. 36.50 Lakhs.
  3. Please advise me what is the amount of long term capital gain & how much capital gain tax I have to pay? []


  1. Computing LTCG:
    Cost Inflation Index (CII) for the relevant F.Y. 2001-02 & F.Y. 2011-12 are “426” & “785” respectively. The indexed cost of acquisition of the flat is Rs. 7.83 Lacs (i.e., Rs. 4.25 * 785/426). Long term capital gain shall be Rs. 7.46 Lacs. The capital gain is compute by taking Rs. 15.30 Lacs as sale consideration. If the value adopted by the Registrar for levy of stamp duty is higher than Rs. 15.30 Lacs, capital gain would be require to be compute by taking such higher value.
  2. Exemption from LTCG:
    In respect of Long Term Capital Gain arising from sale of House property, exemption can be claimed U/s 54 if the capital gain amount is invested for purchase of another residential house property within a prescribed time. The prescribed time period is
    For Purchase:
    a] One year before or
    b] two years after the date of transfer; or
    For Construction:
    Within a period of three years from the date of the transfer.


In your case, apparently, it appears that you are investing the required amount / acquiring the house property within a prescribed time period and hence we are of the opinion that you can claim an exemption u/s 54 & no capital gain tax would be payable by you.

U/S 40(a)(ia)

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