ITAT Jodhpur Quashes ₹2,40,000 Addition Under Section 40A(3) — Department Fails to Prove Single-Day Cash Payment Violation

Case Overview

Case Name: Maya Devi Suhalka Vs ITO (ITAT Jodhpur)
Assessment Year: 2020-21
Forum: Income Tax Appellate Tribunal, Jodhpur
Order Date: 03/06/2026
Issue Involved: Disallowance under Section 40A(3) of the Income Tax Act, 1961 on account of alleged cash rent payments

Background of the Dispute

The present matter came up before the Income Tax Appellate Tribunal, Jodhpur, as a challenge to the order passed by the National Faceless Appeal Centre (NFAC), Delhi, dated 30.10.2025, pertaining to Assessment Year 2020-21. The core grievance of the assessee revolved around the confirmation of a disallowance of ₹2,40,000 under Section 40A(3) of the Income Tax Act, 1961, which had been made on the ground that rent was allegedly paid in cash in violation of the prescribed limit.

The assessee, Ms. Maya Devi Suhalka, is an individual operating a retail liquor business dealing in IMFL and beer. She had secured a liquor licence from the Rajasthan State Excise Department for FY 2019-20 for her shop situated at Udaipur. The said shop premises were taken on rent at a rate of ₹10,000 per month, and throughout the financial year, rent payments were made in cash to the landlord, Prem Kumar, on different dates.

The Assessee's Position Before the Tribunal

The Authorised Representative (AR) of the assessee contended that the Assessing Officer had made the disallowance under Section 40A(3) without properly examining or appreciating the documentary evidence placed on record. The following key arguments were advanced:

  • Separate payment dates: The assessee had made cash payments of ₹10,000 on distinct dates spread across the financial year, and no single payment on any given day exceeded ₹10,000.
  • Rent ledger as proof: A detailed rent account ledger was placed before the Tribunal covering the period 1st April 2019 to 31st March 2020, clearly reflecting 24 individual entries, each for ₹10,000, made on different dates.
  • **No violation of Section 40A(3)😗* Since the threshold under Section 40A(3) is triggered only when payment to a person on a single day in cash (other than by account payee cheque or bank draft) exceeds ₹20,000, no infraction was committed.
  • Addition based on mere suspicion: The disallowance was sustained purely on surmise, without any tangible contrary evidence to rebut the assessee's documented claim.

Rent Ledger Presented Before the Tribunal

The assessee placed on record the following Rent Account Ledger — Maya Devi Suhalka Rent A/C Ledger Account, 1 Apr 2019 to 31-Mar-2020: