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Facts
The assessee paid rent to six different parties in cash, with each individual payment being below INR 10,000. The Assessing Officer (AO) disallowed the entire gross rent amount under Section 40A(3) of the Income Tax Act, considering it a violation. The CIT(A) upheld this disallowance.
Held
The tribunal held that Section 40A(3) applies to individual payments exceeding INR 10,000, not the aggregate of payments to multiple parties. Since each payment to individual landlords was below the prescribed limit, the disallowance made by the AO was incorrect and subsequently deleted.
Key Issues
The key legal issue was whether the disallowance under Section 40A(3) of the Income Tax Act applies to the aggregate rent paid to multiple parties or to individual payments made to each party.
Sections Cited
Section 40A(3), Section 250, Section 143(3), Section 144B
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DEHRADUN “SMC” BENCH: DEHRADUN
Before: SHRI MAHAVIR SINGH & SHRI MANISH AGARWAL
ORDER
PER MANISH AGARWAL, AM :
The present appeal is filed by assessee against the order dated 03.12.2025 by Ld. Commissioner of Income Tax (A), NFAC, Delhi [“Ld.CIT(A)”] in Appeal No.NFAC/2021-22/10363960 passed u/s 250 of the Income Tax Act, 1961 [“the Act”] arising out of assessment order dated 25.03.2024 passed u/s 143(3) r.w.s. 144B of the Act pertaining to Assessment Year 2022-23.
Heard the contentions of both the parties at length and perused the material available on record. From the perusal of the table reproduced at page 12 of Ld. CIT(A)’s order containing the party-wise details of rent paid during the previous year, it is observed that assessee had paid rent to total Six parties in cash every month and the payment made to each individual owner was below the maximum limit prescribed u/s 40A(3) of the Act of INR 10,000/-. The AO has wrongly considered the gross amount of rent paid to all the landlords as in violation of provision of section 40A(3) of the Act. Since the rent paid to each individual land owner was below INR 10,000/- on each occasion, therefore, provision of section 40A(3) are not applicable. Accordingly, no disallowance is required to be made u/s 40A(3) of the Act. In the light of above facts, we delete the disallowance made by the AO. All the grounds of appeal taken by the assessee are allowed.
In the result, the appeal of the assessee is allowed. Order pronounced in the open Court on 12.03.2026.