Section 40A(3) Addition Quashed as Department Failed to Prove Single-Day Violation

Maya Devi Suhalka Vs ITO (ITAT Jodhpur)

The appeal before the ITAT Jodhpur arose from the order of the National Faceless Appeal Centre dated 30.10.2025 for AY 2020-21, wherein the addition of ₹2,40,000 under Section 40A(3) of the Income Tax Act was confirmed on account of alleged cash payment of rent.

The assessee, an individual engaged in the retail sale of IMFL and beer, had obtained a liquor licence from the Rajasthan State Excise Department for FY 2019-20. The rented premises used for the business were taken on monthly rent of ₹10,000. The assessee furnished the rent ledger showing that cash payments of ₹10,000 were made on different dates throughout the financial year, aggregating to ₹2,40,000. According to the assessee, no payment exceeding ₹10,000 was made to the landlord on any single day, and therefore Section 40A(3) was not attracted.

The Department, however, alleged that the entire rent amount of ₹2,40,000 had been paid in one instance in violation of Section 40A(3). The Tribunal noted that no corroborative documentary evidence had been produced by the Department to establish that any cash payment exceeding ₹10,000 had been made on a single day. It further observed that the assessee had maintained regular books of account and cash books, which were subject to mandatory audit, and no discrepancy or defect had been pointed out in those records.