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)

Assistant Commissioner of Income Tax, Panchkula Circle, Panchkula vs. Konark Rajhans Estate Private Limited, Panchkula

In the result, the appeal of the revenue stands dismissed

ITA 805/CHANDI/2024[2011-12]Status: DisposedITAT Chandigarh13 Nov 2025AY 2011-12

Bench: Hon’Ble Shri Rajpal Yadav & Hon’Ble Shri Manoj Kumar Aggarwal, Am आयकरअपीलसं./ Ita No. 805/Chandi/2024 (िनधा"रणवष" / Assessment Year: 2011-12 Acit M/S Konark Rajhans Estate Private Limited Panchkula Circle बनाम/ Vs. Nh 73, Village Kot Extension-Ii, Sector 14, Panchkula. Panchkula. "ायीलेखासं./जीआइआरसं./Pan/Gir No. Aaeck-2405-Q (अपीलाथ"/Appellant) : (""थ" / Respondent) अपीलाथ"कीओरसे/ Appellant By : Sh. Manav Bansal (Cit) – Ld. Dr ""थ"कीओरसे/Respondent By : Sh. Parikshit Aggarwal (Ca)-Ld. Ar सुनवाईकीतारीख/Date Of Hearing : 20-08-2025 घोषणाकीतारीख /Date Of Pronouncement : 13/11/2025 आदेश / O R D E R Manoj Kumar Aggarwal () 1.1 Aforesaid Appeal By The Revenue For Assessment Year (Ay) 2011- 12 Arises Out Of An Order Of Learned Commissioner Of Income Tax (Appeals), National Faceless Appeal Centre (Nfac), Delhi [Cit(A)] Dated 27-05-2024 In The Matter Of An Assessment Framed By Ld. Assessing Officer [Ao] U/S. 143(3) R.W.S. 147 Of The Act On 29-12-2018. The Revenue Is Aggrieved By Deletion Of Twin Quantum Additions Of Rs.40.85 Lacs & Rs.707.75 Lacs As Made By Ld. Ao In The Assessment Order. The Grounds Of Appeal Read As Under: -

For Appellant: Sh. Manav Bansal (CIT) – Ld. DRFor Respondent: Sh. Parikshit Aggarwal (CA)-Ld. AR
Section 131oSection 143(3)Section 148Section 40A(3)Section 68Section 68o

Deputy Commissioner of Income Tax, Circle-1(1), Kolkata vs. Bandhan Financial Services Limited, Kolkata

In the result, the appeal of the revenue is dismissed

ITA 1139/KOL/2025[2014-15]Status: DisposedITAT Kolkata11 Nov 2025AY 2014-15

Bench: Shri Rajesh Kumar & Shri Pradip Kumar Choubeyassessment Year: 2014-15 Dcit, Circle-1(1), Kolkata..……………… ……………...……….……….……Appellant Vs. Bandhan Financial Services Ltd....………………………….......……...…..…..Respondent Dn 32 Salt Lake, Salt Lake City, Sech Bhawan, S.O Salt Lake, Kol-700091. [Pan: Aabcg0611R] Appearances By: Shri Manas Mondal, Addl. Cit-Dr, Appeared On Behalf Of The Appellant. Shri Biswanath Paul, Fca, Appeared On Behalf Of The Respondent. Date Of Concluding The Hearing : October 15, 2025 Date Of Pronouncing The Order : November 11, 2025 Order Per Pradip Kumar Choubey: This Appeal Filed By The Revenue Is Directed Against The Order Dated 11.06.2024 Of The Commissioner Of Income Tax (Appeals)-27, Kolkata [‘Cit(A)’] Passed Under Section 250 Of The Income-Tax Act, 1961 (Hereinafter Referred To As “The Act”) For The Assessment Year 2014–15. 2. The Appeal Has Been Filed By The Revenue With A Delay Of 56 Days. The Revenue Has Filed A Petition For Condonation Of The Delay. After Considering The Reasons Cited In The Petition For Condonation Of Delay, We Find That The Reasons Are Valid & Consequently, The Delay In Filing The Appeal Is Hereby Condoned & We Proceed To Dispose Of The Appeal On Merits.

Section 139Section 143(2)Section 143(3)Section 250Section 37(1)Section 40A(3)

Genesis Advertising Pvt. Ltd., Kolkata vs. A.C.I.T., CC - 4(1), Kolkata

In the result, both the appeals filed by the assessee are allowed

ITSSA 84/KOL/2025[2020-2021]Status: DisposedITAT Kolkata27 Oct 2025AY 2020-2021

Bench: Shri Rajesh Kumar & Shri Pradip Kumar Choubeyit(Ss).A Nos.83 & 84/Kol/2025 Assessment Years: 2019-20 & 2020-21 Genesis Advertising Pvt. Ltd …………..…………………………….…….……Appellant 2A, Dwarka, 7 Sarat Bose Road, Kol- 700020. [Pan: Aabcg0780D] Vs. Acit, Central Circle-4(1), Kolkata …………..………………...……...…..…..Respondent Appearances By: Shri S.K. Tulsiyan, Advocate & Jyoti Duggar, Ar, Appeared On Behalf Of The Appellant. Shri P N Barnwal, Cit-Dr, Appeared On Behalf Of The Respondent. Date Of Concluding The Hearing : October 14, 2025 Date Of Pronouncing The Order : October 27, 2025 Order Per Pradip Kumar Choubey: Both The Captioned Appeals Have Been Preferred By The Assessee For The Assessment Years 2019-20 & 2020-21 Against Separate Orders Dated 23.07.2025 & 25.07.2025 Of The Commissioner Of Income Tax (Appeals)- 27, Kolkata [Hereinafter Referred To As ‘Cit(A)’] Passed U/S 250 Of The Income Tax Act (Hereinafter Referred To As The ‘Act’) Respectively. Since, The Issues Involved In Both The Appeals Are Common & Relate To The Same Assessee, Therefore, These Appeals Have Been Heard Together & Are Being Disposed Of By This Consolidated Order. Ita No.83/Kol/25 Is Taken As Lead Case For The Sake Of Convenience & Narrations Of Facts.

Section 132(1)Section 153ASection 250Section 40A(3)

Genesis Advertising Pvt. Ltd., Kolkata vs. A.C.I.T., CC - 4(1), Kolkata

In the result, both the appeals filed by the assessee are allowed

ITSSA 83/KOL/2025[2019-2020]Status: DisposedITAT Kolkata27 Oct 2025AY 2019-2020

Bench: Shri Rajesh Kumar & Shri Pradip Kumar Choubeyit(Ss).A Nos.83 & 84/Kol/2025 Assessment Years: 2019-20 & 2020-21 Genesis Advertising Pvt. Ltd …………..…………………………….…….……Appellant 2A, Dwarka, 7 Sarat Bose Road, Kol- 700020. [Pan: Aabcg0780D] Vs. Acit, Central Circle-4(1), Kolkata …………..………………...……...…..…..Respondent Appearances By: Shri S.K. Tulsiyan, Advocate & Jyoti Duggar, Ar, Appeared On Behalf Of The Appellant. Shri P N Barnwal, Cit-Dr, Appeared On Behalf Of The Respondent. Date Of Concluding The Hearing : October 14, 2025 Date Of Pronouncing The Order : October 27, 2025 Order Per Pradip Kumar Choubey: Both The Captioned Appeals Have Been Preferred By The Assessee For The Assessment Years 2019-20 & 2020-21 Against Separate Orders Dated 23.07.2025 & 25.07.2025 Of The Commissioner Of Income Tax (Appeals)- 27, Kolkata [Hereinafter Referred To As ‘Cit(A)’] Passed U/S 250 Of The Income Tax Act (Hereinafter Referred To As The ‘Act’) Respectively. Since, The Issues Involved In Both The Appeals Are Common & Relate To The Same Assessee, Therefore, These Appeals Have Been Heard Together & Are Being Disposed Of By This Consolidated Order. Ita No.83/Kol/25 Is Taken As Lead Case For The Sake Of Convenience & Narrations Of Facts.

Section 132(1)Section 153ASection 250Section 40A(3)

Genesis Advertising Pvt. Ltd., Kolkata vs. A.C.I.T., CC - 4(1), Kolkata

In the result, both the appeals filed by the assessee are allowed

ITSSA 82/KOL/2025[2018-2019]Status: DisposedITAT Kolkata27 Oct 2025AY 2018-2019

Bench: Shri Rajesh Kumar & Shri Pradip Kumar Choubeyit(Ss).A Nos.81 & 82/Kol/2025 Assessment Years: 2016-17 & 2018-19 Genesis Advertising Pvt. Ltd …………..…………………………….…….……Appellant 2A, Dwarka, 7 Sarat Bose Road, Kol- 700020. [Pan: Aabcg0780D] Vs. Acit, Central Circle-4(1), Kolkata …………..………………...……...…..…..Respondent Appearances By: Shri S.K. Tulsiyan, Advocate & Jyoti Duggar, Ar, Appeared On Behalf Of The Appellant. Shri P N Barnwal, Cit-Dr, Appeared On Behalf Of The Respondent. Date Of Concluding The Hearing : October 14, 2025 Date Of Pronouncing The Order : October 27, 2025 Order Per Pradip Kumar Choubey: Both The Captioned Appeals Have Been Preferred By The Assessee For The Assessment Years 2016-17 & 2018-19 Against Separate Orders Dated 19.07.2025 & 22.07.2025 Of The Commissioner Of Income Tax (Appeals)- 27, Kolkata [Hereinafter Referred To As ‘Cit(A)’] Passed U/S 250 Of The Income Tax Act (Hereinafter Referred To As The ‘Act’) Respectively. Since, The Issues Involved In Both The Appeals Are Common & Relate To The Same Assessee, Therefore, These Appeals Have Been Heard Together & Are Being Disposed Of By This Consolidated Order. Ita No.81/Kol/25 Is Taken As Lead Case For The Sake Of Convenience & Narrations Of Facts.

Section 132Section 132(1)Section 143(2)Section 143(3)Section 153ASection 250Section 40A(3)

Genesis Advertising Pvt. Ltd., Kolkata vs. A.C.I.T., CC - 4(1), Kolkata

In the result, both the appeals filed by the assessee are allowed

ITSSA 81/KOL/2025[2016-2017]Status: DisposedITAT Kolkata27 Oct 2025AY 2016-2017

Bench: Shri Rajesh Kumar & Shri Pradip Kumar Choubeyit(Ss).A Nos.81 & 82/Kol/2025 Assessment Years: 2016-17 & 2018-19 Genesis Advertising Pvt. Ltd …………..…………………………….…….……Appellant 2A, Dwarka, 7 Sarat Bose Road, Kol- 700020. [Pan: Aabcg0780D] Vs. Acit, Central Circle-4(1), Kolkata …………..………………...……...…..…..Respondent Appearances By: Shri S.K. Tulsiyan, Advocate & Jyoti Duggar, Ar, Appeared On Behalf Of The Appellant. Shri P N Barnwal, Cit-Dr, Appeared On Behalf Of The Respondent. Date Of Concluding The Hearing : October 14, 2025 Date Of Pronouncing The Order : October 27, 2025 Order Per Pradip Kumar Choubey: Both The Captioned Appeals Have Been Preferred By The Assessee For The Assessment Years 2016-17 & 2018-19 Against Separate Orders Dated 19.07.2025 & 22.07.2025 Of The Commissioner Of Income Tax (Appeals)- 27, Kolkata [Hereinafter Referred To As ‘Cit(A)’] Passed U/S 250 Of The Income Tax Act (Hereinafter Referred To As The ‘Act’) Respectively. Since, The Issues Involved In Both The Appeals Are Common & Relate To The Same Assessee, Therefore, These Appeals Have Been Heard Together & Are Being Disposed Of By This Consolidated Order. Ita No.81/Kol/25 Is Taken As Lead Case For The Sake Of Convenience & Narrations Of Facts.

Section 132Section 132(1)Section 143(2)Section 143(3)Section 153ASection 250Section 40A(3)