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)

Shri Sachin Goyal, Ludhiana vs. Addl. CIT, R-VII, Ludhiana

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

ITA 1490/CHANDI/2019[2011-12]Status: DisposedITAT Chandigarh24 Mar 2025AY 2011-12

Bench: Hon’Ble Shri Rajpal Yadav & Hon’Ble Shri Manoj Kumar Aggarwal, Am 1. आयकरअपील सं. / Ita No.1489/Chandi/2019 (िनधा"रणवष" / Assessment Year: 2010-11) & 2. आयकरअपील सं. / Ita No.1490/Chandi/2019 (िनधा"रणवष" / Assessment Year: 2011-12) Shri Sachin Goyal Acit- Circle-7 बनाम/ Vs. 29/1, The Mall Ludhiana. Ludhiana 141 001 "थायीलेखासं./जीआइआरसं./Pan/Gir No. Abwpg-3117-D (अपीलाथ"/Appellant) (""थ" / Respondent) : अपीलाथ"कीओरसे/ Appellant By : S/Shri Pankaj Bhalla (Ca) & Vk Bhalla (Ca)- Ld Ars. ""थ"कीओरसे/Respondent By : Dr. Ranjit Kaur (Addl. Cit) – Ld. Sr. Dr सुनवाईकीतारीख/Date Of Hearing : 18-03-2025 घोषणाकीतारीख /Date Of Pronouncement : 24-03-2025 आदेश / O R D E R Manoj Kumar Aggarwal () 1. Aforesaid Appeals By Assessee For Assessment Years (Ay) 2010- 11 & 2011-12 Arises Out Of Separate Orders Of Learned First Appellate Authority. First, We Take Up Appeal For Ay 2010-11 Which Arises Out Of The Order Of Learned Commissioner Of Income Tax (Appeals)-3, Ludhiana [Cit(A)] Dated 20-08-2019 In The Matter Of An Assessment Framed By Ld. Assessing Officer [Ao] U/S. 143(3) Of The Act On 20-03-

For Appellant: S/Shri Pankaj Bhalla (CA) and VK BhallaFor Respondent: Dr. Ranjit Kaur (Addl. CIT) – Ld. Sr. DR
Section 143(3)Section 40A(3)Section 46A

Shri Sachin Goyal, Ludhiana vs. ACIT, C-7, Ludhiana

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

ITA 1489/CHANDI/2019[2010-11]Status: DisposedITAT Chandigarh24 Mar 2025AY 2010-11

Bench: Hon’Ble Shri Rajpal Yadav & Hon’Ble Shri Manoj Kumar Aggarwal, Am 1. आयकरअपील सं. / Ita No.1489/Chandi/2019 (िनधा"रणवष" / Assessment Year: 2010-11) & 2. आयकरअपील सं. / Ita No.1490/Chandi/2019 (िनधा"रणवष" / Assessment Year: 2011-12) Shri Sachin Goyal Acit- Circle-7 बनाम/ Vs. 29/1, The Mall Ludhiana. Ludhiana 141 001 "थायीलेखासं./जीआइआरसं./Pan/Gir No. Abwpg-3117-D (अपीलाथ"/Appellant) (""थ" / Respondent) : अपीलाथ"कीओरसे/ Appellant By : S/Shri Pankaj Bhalla (Ca) & Vk Bhalla (Ca)- Ld Ars. ""थ"कीओरसे/Respondent By : Dr. Ranjit Kaur (Addl. Cit) – Ld. Sr. Dr सुनवाईकीतारीख/Date Of Hearing : 18-03-2025 घोषणाकीतारीख /Date Of Pronouncement : 24-03-2025 आदेश / O R D E R Manoj Kumar Aggarwal () 1. Aforesaid Appeals By Assessee For Assessment Years (Ay) 2010- 11 & 2011-12 Arises Out Of Separate Orders Of Learned First Appellate Authority. First, We Take Up Appeal For Ay 2010-11 Which Arises Out Of The Order Of Learned Commissioner Of Income Tax (Appeals)-3, Ludhiana [Cit(A)] Dated 20-08-2019 In The Matter Of An Assessment Framed By Ld. Assessing Officer [Ao] U/S. 143(3) Of The Act On 20-03-

For Appellant: S/Shri Pankaj Bhalla (CA) and VK BhallaFor Respondent: Dr. Ranjit Kaur (Addl. CIT) – Ld. Sr. DR
Section 143(3)Section 40A(3)Section 46A

Airona Tiles Limited, Sabarkantha vs. The DCIT, Circle Himatnagar Presently the DCIT, Circle-2(1)(1), Ahmedabad

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

ITA 1127/AHD/2023[2016-17]Status: DisposedITAT Ahmedabad20 Mar 2025AY 2016-17

Bench: Shri Sanjay Garg & Shri Makarand V. Mahadeokarआयकर अपील सं /Ita No.1127/Ahd/2023 िनधा"रण वष" /Assessment Year : 2016-17 Airona Tiles Limited The Dcit बनाम/ Ceramic City Circle Himatnagar. V/S. At & Post : Dalpur Presently The Dcit, Kathwada Road Circle-2(1)(1) Sabarkantha – 383 120 (Gujarat) "थायी लेखा सं./Pan: Aanca 3712 D (अपीलाथ$/ Appellant) (%& यथ$/ Respondent) Assessee By : Shri Anil N. Shah & Aatish Shah Ars Revenue By : Shri Purshottam Kumar, Sr.Dr सुनवाई की तारीख/Date Of Hearing : 19 /03/2025 घोषणा की तारीख /Date Of Pronouncement: 20 /03/2025 आदेश/O R D E R Per Makarand V. Mahadeokar, Am: This Appeal Has Been Preferred By The Assessee Against The Order Dated 13.10.2022 Passed By The Commissioner Of Income Tax (Appeals), National Faceless Appeal Centre, (Nfac), Delhi [Hereinafter Referred To As “Cit(A)”], Arising Out Of The Assessment Order Dated 21.12.2018 Passed Under Section 143(3) Of The Income Tax Act, 1961 [Hereinafter Referred To As “The Act”] By Dcit/Acit, Circle Himatnagar [Hereinafter Referred To As “Ao”] For The Assessment Year (Ay) 2016-17. Airona Tiles Ltd. Vs. The Dcit, Circle Himatnagar - Presently The Dcit, Circle-2(1)(1) Asst. Year : 2016-17

For Appellant: Shri Anil N. Shah &For Respondent: Shri Purshottam Kumar, Sr.DR
Section 143(1)Section 143(2)Section 143(3)Section 36(1)(va)Section 40A(3)Section 43BSection 68

The Bank of Tokyo- Mitsubishi Limited, Kolkalta vs. ACIT, Spl. Range-3, Kolkata

In the result, appeal of the revenue is dismissed

ITA 449/KOL/2001[1997-98]Status: DisposedITAT Kolkata19 Mar 2025AY 1997-98

Bench: Shri Rajesh Kumar & Shri Pradip Kumar Choubeyआयकर अपील सं/Ita No.449/Kol/2025 (निर्धारणवर्ा/Assessment Years :2018-2019) Ito, Ward-32(1), Kolkata Vs Satish Singh, 5B/H/6, Shibtala Lane, Kolkata-700071 Pan No. :Dswps 6446 B (अपीलधर्थी /Appellant) .. (प्रत्यर्थी / Respondent) रधजस्वकीओरसे /Revenue By : Shri Sandip Sarkar, Jcit, Sr.Dr निर्धाररतीकीओरसे /Assessee By : Shri Somnath Ghosh, Advocate सुनवाई की तारीख / Date Of Hearing : 09/12/2025 घोषणा की तारीख/Date Of Pronouncement : 23.12.2025 आदेश / O R D E R Per Rajesh Kumar, Am: This Is An Appeal Filed By The Revenue Against The Order Passed By The Ld. National Faceless Appeal Centre (Nfac), Delhi, Dated 01.01.2025For The Assessment Year2018-2019. 2. The Issue Raised In The Appeal Of Revenue Is Against The Order Of Ld. Cit(A) In Admitting The Additional Evidence Without Allowing Reasonable Opportunity To The Assessing Officer As Per Provisions Of Rule 46A Of It Rules, 1962 & Second Issue Is Against The Deletion Of Addition Of Rs.2,75,17,500/- As Made By The Ao U/S.40A(3) Of The Act In Respect Of Commission & Salary Paid By The Assessee During The Year. 3. Facts In Brief Are That The Assessee Is An Individual & Filed His Return Of Income For The A.Y. 2018-19 Declaring Total Income Of Rs. 16,36,550/-On 11/06/2019, The Return Of Income Was Processed U/S 143(1) Of The Act On 25.10.2019. Subsequently, Return Of The Assessee

For Appellant: Shri Somnath Ghosh, AdvocateFor Respondent: Shri Sandip Sarkar, JCIT, Sr.DR
Section 143(1)Section 40A(3)

Income Tax Officer, Aayakar Bhawan Poorva Kol vs. Sita Ram Pareek, Burrabazar

In the result, the appeal of the assessee is allowed, whereas, the appeal of the revenue is dismissed

ITA 653/KOL/2024[2017-18]Status: DisposedITAT Kolkata11 Mar 2025AY 2017-18

Bench: Shri Rajesh Kumar & Shri Pradip Kumar Choubeyi.T.A. No.378/Kol/2024 Assessment Year: 2017-18 Sitaram Pareek………………....…………...………......................……….……Appellant Ca Anup Kumar Sanghai Sanghai & Co, Ca 21, Hemanta Basu Sarani, 2Nd Floor, Room No.204, Kolkata -1. [Pan:Alqpp5688N] Vs. Ito, Ward-36(1), Kolkata..............…..….…..….........……........……...…..…..Respondent I.T.A. No.653/Kol/2024 Assessment Year: 2017-18 Ito, Ward-36(1), Kolkata ………………....………......................……….……Appellant Vs. Sitaram Pareek..............…..….…..…..........................……........……...…..…..Respondent Ca Anup Kumar Sanghai Sanghai & Co, Ca 21, Hemanta Basu Sarani, 2Nd Floor, Room No.204, Kolkata -1. [Pan:Alqpp5688N] Appearances By: Shri Anup Sanghai, Fca, Appeared On Behalf Of The Appellant. Shri Abhijit Adhikari, Jcit, Appeared On Behalf Of The Respondent. Date Of Concluding The Hearing : March 10, 2025 Date Of Pronouncing The Order : March 11, 2025 Order Per Rajesh Kumar: The Captioned Are Cross-Appeals, One By The Assessee & The Other By The Revenue Against The Common Order Dated 29.12.2023 Of The National Faceless Appeal Centre [Hereinafter Referred To As The ‘Cit(A)’] Passed U/S 250 Of The Income Tax Act (Hereinafter Referred To As The ‘Act’). Since The Facts & Issued Involved In Both The Appeals Are Identical & Both The Appeals Are Arising Out Of The Same Order Of The Ld.

Section 143(3)Section 250Section 68

Sitaram Pareek, Kolkata vs. ITO, Ward-36(1), Kolkata

In the result, the appeal of the assessee is allowed, whereas, the appeal of the revenue is dismissed

ITA 378/KOL/2024[2017-18]Status: DisposedITAT Kolkata11 Mar 2025AY 2017-18

Bench: Shri Rajesh Kumar & Shri Pradip Kumar Choubeyi.T.A. No.378/Kol/2024 Assessment Year: 2017-18 Sitaram Pareek………………....…………...………......................……….……Appellant Ca Anup Kumar Sanghai Sanghai & Co, Ca 21, Hemanta Basu Sarani, 2Nd Floor, Room No.204, Kolkata -1. [Pan:Alqpp5688N] Vs. Ito, Ward-36(1), Kolkata..............…..….…..….........……........……...…..…..Respondent I.T.A. No.653/Kol/2024 Assessment Year: 2017-18 Ito, Ward-36(1), Kolkata ………………....………......................……….……Appellant Vs. Sitaram Pareek..............…..….…..…..........................……........……...…..…..Respondent Ca Anup Kumar Sanghai Sanghai & Co, Ca 21, Hemanta Basu Sarani, 2Nd Floor, Room No.204, Kolkata -1. [Pan:Alqpp5688N] Appearances By: Shri Anup Sanghai, Fca, Appeared On Behalf Of The Appellant. Shri Abhijit Adhikari, Jcit, Appeared On Behalf Of The Respondent. Date Of Concluding The Hearing : March 10, 2025 Date Of Pronouncing The Order : March 11, 2025 Order Per Rajesh Kumar: The Captioned Are Cross-Appeals, One By The Assessee & The Other By The Revenue Against The Common Order Dated 29.12.2023 Of The National Faceless Appeal Centre [Hereinafter Referred To As The ‘Cit(A)’] Passed U/S 250 Of The Income Tax Act (Hereinafter Referred To As The ‘Act’). Since The Facts & Issued Involved In Both The Appeals Are Identical & Both The Appeals Are Arising Out Of The Same Order Of The Ld.

Section 143(3)Section 250Section 68