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)

Nayagi Fire Works Factory, Virudhunagar vs. ACIT Virudhunagar Circle, Virudhunagar

The appeal stands partly allowed

ITA 1645/CHNY/2017[2012-13]Status: DisposedITAT Chennai07 Sept 2022AY 2012-13

Bench: Hon’Ble Shri Mahavir Singh & Hon’Ble Shri Manoj Kumar Aggarwal, Am आयकर अपील सं./ Ita No.1644/Chny/2017 (िनधा"रण वष" / Assessment Year: 2011-12) & आयकर अपील सं./ Ita No.1645/Chny/2017 (िनधा"रण वष" / Assessment Year: 2012-13) Nayagi Fire Works Factory Acit बनाम/ 4/70, Thayilpatti – 626 128, Virudhunagar Circle, Vs. Sivakasi Via, Virudhunagar District. Virudhunagar. "थायी लेखा सं./जीआइ आर सं./Pan/Gir No. Aaefn-1168-L (अपीलाथ"/Appellant) : (""थ" / Respondent) अपीलाथ" की ओरसे/ Appellant By : Shri D. Anand (Advocate) – Ld. Ar ""थ" की ओरसे/Respondent By : Shri P. Sajit Kumar (Jcit) –Ld. Dr सुनवाई की तारीख/Date Of Hearing : 29-08-2022 घोषणा की तारीख /Date Of Pronouncement : 07-09-2022 आदेश / O R D E R Manoj Kumar Aggarwal () 1. Aforesaid Appeals By Assessee For Assessment Years (Ays) 2011-12 & 2012-13 Arises Out Of The Separate Orders Of Learned First Appellate Authority. It Is Admitted Position That Facts As Well As Issues Are Pari-Materia The Same In Both The Years & Adjudication In Any One Year Shall Have Equal Application For The Other Year Also. The Appeal For Ay 2011-12 Arises Out Of The Order Of Learned Commissioner

For Appellant: Shri D. Anand (Advocate) – Ld. ARFor Respondent: Shri P. Sajit Kumar (JCIT) –Ld. DR
Section 143(3)Section 36(1)(iii)

Nayagi Fire Works Factory, Virudhunagar vs. ACIT Virudhunagar Circle, Virudhunagar

The appeal stands partly allowed

ITA 1644/CHNY/2017[2011-12]Status: DisposedITAT Chennai07 Sept 2022AY 2011-12

Bench: Hon’Ble Shri Mahavir Singh & Hon’Ble Shri Manoj Kumar Aggarwal, Am आयकर अपील सं./ Ita No.1644/Chny/2017 (िनधा"रण वष" / Assessment Year: 2011-12) & आयकर अपील सं./ Ita No.1645/Chny/2017 (िनधा"रण वष" / Assessment Year: 2012-13) Nayagi Fire Works Factory Acit बनाम/ 4/70, Thayilpatti – 626 128, Virudhunagar Circle, Vs. Sivakasi Via, Virudhunagar District. Virudhunagar. "थायी लेखा सं./जीआइ आर सं./Pan/Gir No. Aaefn-1168-L (अपीलाथ"/Appellant) : (""थ" / Respondent) अपीलाथ" की ओरसे/ Appellant By : Shri D. Anand (Advocate) – Ld. Ar ""थ" की ओरसे/Respondent By : Shri P. Sajit Kumar (Jcit) –Ld. Dr सुनवाई की तारीख/Date Of Hearing : 29-08-2022 घोषणा की तारीख /Date Of Pronouncement : 07-09-2022 आदेश / O R D E R Manoj Kumar Aggarwal () 1. Aforesaid Appeals By Assessee For Assessment Years (Ays) 2011-12 & 2012-13 Arises Out Of The Separate Orders Of Learned First Appellate Authority. It Is Admitted Position That Facts As Well As Issues Are Pari-Materia The Same In Both The Years & Adjudication In Any One Year Shall Have Equal Application For The Other Year Also. The Appeal For Ay 2011-12 Arises Out Of The Order Of Learned Commissioner

For Appellant: Shri D. Anand (Advocate) – Ld. ARFor Respondent: Shri P. Sajit Kumar (JCIT) –Ld. DR
Section 143(3)Section 36(1)(iii)

Empee Distilleries Ltd., Chennai vs. Addl. CIT Corporate Range 2(1), Chennai

In the result, the order passed by the tribunal dated 9-1-2015 insofar as it pertains to the findings recorded against the assessee is hereby quashed

ITA 2336/CHNY/2017[2010-11]Status: DisposedITAT Chennai30 Aug 2022AY 2010-11

Bench: Shri V. Durga Rao & Shri G. Manjunathaआयकर अपील सं./I.T.A. Nos. 2334, 2335 & 2336/Chny/2017 िनधा"रण वष"/Assessment Years:2008-09, 2009-10 & 2010-11 M/S. Empee Distilleries Ltd., The Assistant Commissioner Of Empee Tower, No. 59, Harris Road, Vs. Income Tax, Company Range Ii, Pudupet, Chennai 600 002. Chennai Presently Corporate [Pan:Aaace1687N] Circle 2(1), Chennai 600 034. (अपीलाथ"/Appellant) (""थ"/Respondent) अपीलाथ" की ओर से / Appellant By : Shri S. Sridhar, Advocate ""थ" की ओर से/Respondent By : Shri Raveendra Benakatti, Jcit सुनवाई की तारीख/ Date Of Hearing : 05.07.2022 घोषणा की तारीख /Date Of Pronouncement : 30.08.2022 आदेश /O R D E R Per V. Durga Rao: These Three Appeals Filed By The Assessee Are Directed Against The Common Order Of The Ld. Commissioner Of Income Tax (Appeals) 9, Dated 28.07.2017, Relevant To The Assessment Years 2008-09, 2009-10 & 2010-11. Since The Facts Are Identical & Common Issues Have Been Raised, All The Appeals Were Heard Together & Are Being Disposed Of By This Common Order For The Sake Of Brevity. The Assessee Has Raised The Following Common Grounds: 1. The Common Order Of The Commissioner Of Income Tax (Appeals) 9, Chennai Dated 28.07.2017 In I.T.A.No.20/2010-11/Cit(A)-9 For The Above

For Appellant: Shri S. Sridhar, AdvocateFor Respondent: Shri Raveendra Benakatti, JCIT
Section 14ASection 37(1)Section 40Section 40ASection 40A(3)

Empee Distilleries Ltd., Chennai vs. Addl. CIT Corporate Range 2(1), Chennai

In the result, the order passed by the tribunal dated 9-1-2015 insofar as it pertains to the findings recorded against the assessee is hereby quashed

ITA 2335/CHNY/2017[2009-10]Status: DisposedITAT Chennai30 Aug 2022AY 2009-10

Bench: Shri V. Durga Rao & Shri G. Manjunathaआयकर अपील सं./I.T.A. Nos. 2334, 2335 & 2336/Chny/2017 िनधा"रण वष"/Assessment Years:2008-09, 2009-10 & 2010-11 M/S. Empee Distilleries Ltd., The Assistant Commissioner Of Empee Tower, No. 59, Harris Road, Vs. Income Tax, Company Range Ii, Pudupet, Chennai 600 002. Chennai Presently Corporate [Pan:Aaace1687N] Circle 2(1), Chennai 600 034. (अपीलाथ"/Appellant) (""थ"/Respondent) अपीलाथ" की ओर से / Appellant By : Shri S. Sridhar, Advocate ""थ" की ओर से/Respondent By : Shri Raveendra Benakatti, Jcit सुनवाई की तारीख/ Date Of Hearing : 05.07.2022 घोषणा की तारीख /Date Of Pronouncement : 30.08.2022 आदेश /O R D E R Per V. Durga Rao: These Three Appeals Filed By The Assessee Are Directed Against The Common Order Of The Ld. Commissioner Of Income Tax (Appeals) 9, Dated 28.07.2017, Relevant To The Assessment Years 2008-09, 2009-10 & 2010-11. Since The Facts Are Identical & Common Issues Have Been Raised, All The Appeals Were Heard Together & Are Being Disposed Of By This Common Order For The Sake Of Brevity. The Assessee Has Raised The Following Common Grounds: 1. The Common Order Of The Commissioner Of Income Tax (Appeals) 9, Chennai Dated 28.07.2017 In I.T.A.No.20/2010-11/Cit(A)-9 For The Above

For Appellant: Shri S. Sridhar, AdvocateFor Respondent: Shri Raveendra Benakatti, JCIT
Section 14ASection 37(1)Section 40Section 40ASection 40A(3)

Empee Distilleries Ltd., Chennai vs. Addl. CIT Corporate Range 2(1), Chennai

In the result, the order passed by the tribunal dated 9-1-2015 insofar as it pertains to the findings recorded against the assessee is hereby quashed

ITA 2334/CHNY/2017[2008-09]Status: DisposedITAT Chennai30 Aug 2022AY 2008-09

Bench: Shri V. Durga Rao & Shri G. Manjunathaआयकर अपील सं./I.T.A. Nos. 2334, 2335 & 2336/Chny/2017 िनधा"रण वष"/Assessment Years:2008-09, 2009-10 & 2010-11 M/S. Empee Distilleries Ltd., The Assistant Commissioner Of Empee Tower, No. 59, Harris Road, Vs. Income Tax, Company Range Ii, Pudupet, Chennai 600 002. Chennai Presently Corporate [Pan:Aaace1687N] Circle 2(1), Chennai 600 034. (अपीलाथ"/Appellant) (""थ"/Respondent) अपीलाथ" की ओर से / Appellant By : Shri S. Sridhar, Advocate ""थ" की ओर से/Respondent By : Shri Raveendra Benakatti, Jcit सुनवाई की तारीख/ Date Of Hearing : 05.07.2022 घोषणा की तारीख /Date Of Pronouncement : 30.08.2022 आदेश /O R D E R Per V. Durga Rao: These Three Appeals Filed By The Assessee Are Directed Against The Common Order Of The Ld. Commissioner Of Income Tax (Appeals) 9, Dated 28.07.2017, Relevant To The Assessment Years 2008-09, 2009-10 & 2010-11. Since The Facts Are Identical & Common Issues Have Been Raised, All The Appeals Were Heard Together & Are Being Disposed Of By This Common Order For The Sake Of Brevity. The Assessee Has Raised The Following Common Grounds: 1. The Common Order Of The Commissioner Of Income Tax (Appeals) 9, Chennai Dated 28.07.2017 In I.T.A.No.20/2010-11/Cit(A)-9 For The Above

For Appellant: Shri S. Sridhar, AdvocateFor Respondent: Shri Raveendra Benakatti, JCIT
Section 14ASection 37(1)Section 40Section 40ASection 40A(3)