Section 40A(3) of the Income Tax Act

Income-tax Act, 2025: s.36

Section 40A(3) 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(3) is Godhra Electricity Co. Ltd. v. CIT (225 ITR 746), cited in 514 of the 3,278 judgments on BharatTax that turn on this section.

Leading authorities on Section 40A(3)

Godhra Electricity Co. Ltd. v. CIT
225 ITR 746 · 1997 · Supreme Court
514
citing judgments

Income is not taxable until it actually accrues or is received; hypothetical income, based on a mere claim not yet settled, is not chargeable to tax.

CIT v. Winsome Textile Industries Ltd.
319 ITR 204 · 2009 · High Court
378
citing judgments

Section 14A of the Income-tax Act, 1961, which disallows expenditure incurred in relation to exempt income, is not applicable if the assessee has not earned any exempt income in the relevant assessment year.

CIT v. Walchand & Co.
65 ITR 381 · 1967 · Supreme Court
314
citing judgments

The necessity and reasonableness of business expenditure, including the utilization of borrowed funds, must be judged from the perspective of a businessman based on commercial expediency, and cannot be dictated by revenue authorities. The onus is on the assessee to demonstrate the business purpose and commercial expediency.

Attar Singh Gurmukh Singh v. ITO
191 ITR 667 · 1991 · Supreme Court
254
citing judgments

Section 40A(3) is not absolute, and its application considers business expediency, practical difficulties, and other relevant factors, while keeping in mind its objective to curb the practice of ploughing unaccounted money into the system.

Smt. Harshila Chordia v. ITO
298 ITR 349 · 2008 · High Court
187
citing judgments

Cash receipts from customers against genuine delivery of goods or services cannot be added as unexplained cash credits under Section 68. The case also provides guidance on non-disallowance under Section 40A(3) for business payments made in specific contexts like agricultural markets.

CIT v. Banwari Lal Banshidhar
229 ITR 229 · 1998 · High Court
162
citing judgments

When the Assessing Officer rejects the books of account and computes income by applying a net profit rate, a separate disallowance under section 40A(3) for cash payments cannot be made.

Hukumchand Mills Ltd. v. CIT
63 ITR 232 · 1967 · Supreme Court
142
citing judgments

The Income Tax Appellate Tribunal (ITAT) cannot permit a new ground requiring fresh investigation of facts unless it remands the matter or requests a report from the lower appellate authority. The ITAT possesses the power to remand or remit cases back to the authorities below in appropriate circumstances.

CIT v. Alagendran Finance Ltd.
293 ITR 1 · 2007 · Supreme Court
129
citing judgments

The limitation period for initiating revision proceedings under Section 263 concerning matters not subject to reassessment begins from the date of the original assessment order, not the reassessment order. The doctrine of merger does not apply to issues not examined during reassessment proceedings.

Anupam Tele Services v. ITO
366 ITR 122 · 2014 · High Court
124
citing judgments

Section 40A(3) disallowances are not absolute; genuine and bonafide cash payments, where the payee's identity is established and business expediency is proven, fall outside its scope, as the section's purpose is to curb unaccounted money, not disallow genuine expenditure.

Palam Gas Service v. CIT
394 ITR 300 · 2017 · Supreme Court
110
citing judgments

Disallowance under Section 40(a)(ia) for non-deduction of TDS is mandatory, applying even to amounts already paid and not merely 'payable', based on a purposive construction of the provision, irrespective of the timing of payment or liability.

Judgments on Section 40A(3)

Hafiz Muhammad Sageer Qureshi, Bareilly vs. Assessing Officer, National Faceless Assessment Center (NFAC), Delhi

In the result, the appeal of the assessee is allowed for statistical purposes

ITA 680/LKW/2024[2014-15]Status: DisposedITAT Lucknow25 May 2026AY 2014-15

Bench: Sh. Sudhanshu Srivastava & Sh. Nikhil Choudharya.Y. 2014-15 Hafiz Muhammad Sageer Vs. Assessing Officer, National Qureshi, House No. 180, Azam Faceless Assessment Center Nagar, Bareilly, U.P. 243005 (Nfac) Pan: Aakpq5175C (Appellant) (Respondent) Assessee By: None Revenue By: Sh. R.K. Agarwal, Cit Dr Date Of Hearing: 05.03.2026 Date Of Pronouncement: 25.05.2026 O R D E R Per Nikhil Choudhary, A.M.: This Is An Appeal Filed By The Assessee Against The Order Of The Ld. Cit(A), Nfac Under Section 250 Of The Income Tax Act On 17.09.2024, Wherein The Ld. Cit(A) Has Dismissed The Appeal Filed By The Assessee Against The Order Of The Assessing Officer Passed Under Section 147 For The Assessment Year 2014-15, On 16.03.2022. The Grounds Of Appeal Are As Under:- “1. The Ld. Authorities Below Have Clearly Overlooked The Findings Of Various Inquiries Made By Learned Assistant Director Of Income Tax (Investigation), Bareilly In Which It Has Been Admitted & Confirmed That Appellant Assessee Worked For Principals Firms Only On Commission Basis As Commission Agents & Not On Principal To Principal Basis. 2. The Ld. Authorities Below Have Erred In Law As Well As On Facts In Treating Gross 1 Receipts From The Principals For Procurement Of Livestock As Income Of The Assessee & Added Rs. 21,24,77,977/-Under Section 40A(3) Of The Income Tax Act, 1961 Without Considering The Fact That All These Payments Were Made On Behalf Of Principal As Agent. 3. The L.D. Authorities Below Have Failed To Appreciate The Fact That The Live Stocks Were Procured From Villagers (Agriculturist) Which Is Covered By Rule 6Dd(E) Of The Income Tax Rules, 1962 & That Too In Case Of Trading In Own Account.

For Appellant: NoneFor Respondent: Sh. R.K. Agarwal, CIT DR
Section 147Section 148Section 250Section 253(3)Section 40A(3)Section 69A

G S Promotors and Developers, Panchkula vs. Income Tax Officer, Ward-1, Panchkula

The appeal stand partly allowed

ITA 310/CHANDI/2025[2017-18]Status: DisposedITAT Chandigarh14 May 2026AY 2017-18

Bench: Hon’Ble Shri Laliet Kumar, Jm & Hon’Ble Shri Manoj Kumar Aggarwal, Am आयकर अपील सं./ Ita No.310/Chandi/2025 (िनधा"रण वष" / Assessment Year: 2017-18) M/S G S Promoters & Developers Ito Ward (1) बनाम/ Vs. Sco 409, Sector – 20, Panchkula Aaykar Bhawan, Panchkula Haryana - 134112 "ायीलेखासं./जीआइआरसं./Pan/Gir No. Aahfg-8261-E (अपीलाथ"/Appellant) : (""थ" / Respondent) अपीलाथ"कीओरसे/ Appellant By : Sh. Parikshit Aggarwal (Ca) – Ld. Ar (Virtual) ""थ"कीओरसे/Respondent By : Sh. Manav Bansal (Cit) - Ld. Dr सुनवाईकीतारीख/Date Of Hearing : 11-05-2026 घोषणाकीतारीख /Date Of Pronouncement : 14-05-2026 आदेश / O R D E R Manoj Kumar Aggarwal () 1. Aforesaid Appeal By Assessee For Assessment Year (Ay) 2017-18 Arises Out Of An Order Of Learned Addl. / Joint Commissioner Of Income Tax (Appeals)-9, Mumbai [Cit(A)] Dated 26-12-2024 In The Matter Of An Assessment Framed By Ld. Assessing Officer [Ao] U/S 143(3) Of The Act On 20-12-2019. The Registry Has Noted Delay Of One Day In The Appeal Which Stands Condoned. The Assessee Is Aggrieved By Confirmation Of Disallowance U/S 40A(3) & Addition Of Rs.6.50 Lacs U/S 68. Having

For Appellant: Sh. Parikshit Aggarwal (CA) – Ld. AR (Virtual)For Respondent: Sh. Manav Bansal (CIT) - Ld. DR
Section 131Section 133(6)Section 143(3)Section 40A(3)Section 68

Somani Ginning & Pressing, Aurangabad vs. ITO WD- 1(3), Aurangabad

In the result, the appeal of the assessee is allowed for statistical purposes

ITA 1968/PUN/2025[2015-16]Status: DisposedITAT Pune06 May 2026AY 2015-16

Bench: Shri R.K. Panda & Ms. Astha Chandraआयकर अपील सं. / Ita No.1968/Pun/2025 धििाारण वर्ा / Assessment Year : 2015-16 Somani Ginning & Pressing, Income Tax Officer, Gut No. 340, Balanagar Paithan, Ward – 1(1), Aurangabad Aurangabad-431105 Vs. Pan : Aamfs9478A अपीलार्थी / Appellant प्रत्यर्थी / Respondent Assessee By : Shri Rajiv Thakkar Department By : Shri Gaurav K. Singh Date Of Hearing : 26-03-2026 Date Of 06-05-2026 Pronouncement : आदेश / Order Per Astha Chandra, Jm : The Appeal Filed By The Assessee Is Directed Against The Order Dated 02.07.2025 Of The Ld. Commissioner Of Income Tax (Appeals)/Nfac, Delhi [“Cit(A)/Nfac”] Pertaining To Assessment Year (“Ay”) 2015-16. 2. Briefly Stated The Facts Of The Case Are That The Assessee Is A Firm Having Four Partners & Engaged In The Business Of Ginning & Pressing The Cotton Along With Extracting Of Oil From Cotton Seed & Sale Of Cotton, Oils & By-Product I.E. Gad & Cake. For Ay 2015-16, The Assessee E- Filed Its Return Of Income On 24.09.2015 Declaring Total Income Of Rs.5,67,520/-. The Case Of The Assessee Was Selected For Complete Scrutiny Through Cass. Accordingly, Statutory Notice(S) Were Issued & Served Upon The Assessee In Response To Which The Assessee Submitted The Relevant Documents Through Its Authorized Representative. On Verification Of The Documents/Details Submitted By The Assessee, The Ld. Assessing Officer (“Ao”) Noted That An Amount Of Rs.9,30,71,873/- Is Paid In Cash By The Assessee To Various Cotton Growers For Purchase Of Cotton Comprising Of Payments Of Rs.37,05,462/- Below Rs.20,000/-. Thus, Total Payment To Farmers Above Rs. 20,000/- Is Rs. 8,93,66,411/- Which Is Debited To Cotton Purchase During The Relevant Ay. It Was Further Noted By The Ld. Ao That The Assessee Purchases Cotton Through Apmc. During The 2

For Appellant: Shri Rajiv ThakkarFor Respondent: Shri Gaurav K. Singh
Section 131(3)Section 143(3)Section 40A(3)