Applicability of sec 40a(3)

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

09 December 2011 A person having trading business & he purchase good from party and pay them in cash above Rs 20000 per day/party. whesther it attract above sec.

Kapil Arora

Kapil Arora (Expert)
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09 December 2011 Yes Section 40A(3) is attracted here!

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Hari Beldona

Hari Beldona (Expert)
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09 December 2011 To overcome the splitting of payments to the same person made during a day as referred above and to increase the efficacy of the provision, the amendment seeks to substitute the present provision to provide that where a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, exceeds twenty thousand rupees, the disallowance of such expenditure shall be made under the proposed sub-section (3) of section 40A or the payment shall be deemed to be the profits and gains of business or profession under the proposed sub-section (3A) of section 40A,as the case may be.

To illustrate with an example, let us assume a taxpayer has incurred an expenditure of Rs 40,000/-. The taxpayer makes separate payments of Rs 15,000/-, Rs 16,000/- and Rs 9,000/- all by cash, to the person concerned in a single day. The aggregate amount of payment made to a person in a day, in this case, is Rs 40,000/-. Since, the aggregate payment by cash exceeds Rs 20,000/-,Rs. 40,000/- will not be allowed as a deduction in computing the total income of the taxpayer in accordance with the proposed amendment.

From the above we can conclude the above section is attracted

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