40(a)(3)
This query is : Resolved
08 November 2011
Employees of company have gone abroad for business meeting purpose where they stayed in the hotel and paid for the Hotel Accommodation in foreign currency (US$) at the time of checkout.
Practically, it was not possible for them to pay the hotel bill by any other mode.
Now although the equivalent amount in Indian Rupees is more than Rs. 20,000, but the employee had no other method, practically, to pay the bill..and the amount is paid in foreign currency....
Auditors seek to disallow this u/s 40(A)(3).....
Is this expenditure disallowable or allowable??
if allowable, can anyone please refer any Section in the Act, Rules or case law....
Practically, it was not possible for them to pay the hotel bill by any other mode.
Now although the equivalent amount in Indian Rupees is more than Rs. 20,000, but the employee had no other method, practically, to pay the bill..and the amount is paid in foreign currency....
Auditors seek to disallow this u/s 40(A)(3).....
Is this expenditure disallowable or allowable??
if allowable, can anyone please refer any Section in the Act, Rules or case law....
08 November 2011
The expenses stated above cannot be disallowed u/s 40(A)(3. Please check Income Tax Rules-6DD (a) Subrule(m)where it is mentioned that if payment made in foreign currency through Authorised agent or money changer, then, it is not taxable u/s 40A(3)even though it exceeds equivalent Rs.20,000/-.
08 November 2011
First of all, if you go the Income Tax website and check Rule 6DD, there is no such subrule m
Subrule (l) ssys "where the payment is made by an authorised dealer or a money changer against purchase of foreign currency or travellers cheques in the normal course of his business"
which means if money changer is buying US$ and giving you Rupees or buying Rupees and giving you US$.....and this is only for persons into this business....
My question is completely different....
Subrule (l) ssys "where the payment is made by an authorised dealer or a money changer against purchase of foreign currency or travellers cheques in the normal course of his business"
which means if money changer is buying US$ and giving you Rupees or buying Rupees and giving you US$.....and this is only for persons into this business....
My question is completely different....
09 November 2011
The question definitely does not pertain to money changer exemption.
However I am afraid there is no specific exemption available to ur case from setion 40A(3.
Prima facie, auditors' action is correct as payment is made in excess of20000. Still application may be made explaining the facts of the case.
However I am afraid there is no specific exemption available to ur case from setion 40A(3.
Prima facie, auditors' action is correct as payment is made in excess of20000. Still application may be made explaining the facts of the case.
09 November 2011
I would not discuss more on legal aspects and interpretation of Act as the same has been done at length. Apart from that, I would suggest you to look at the materiality of the transaction as well. If the amount involved is less, you can definitely take the allowability. If the amount involved is higher, than I would suggest that you should discuss the pros & corns of the transaction with ur auditor itself. It might be possible that he is asking to disallow base on some past experience.
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10 November 2011
As far as i am concerned sec 40(A)(3) is not applicable to such query and the total expenditure will be allowed.
10 November 2011
Can u please explain in detail, why 40 A (3) is not applicable here?
10 November 2011
Sorry sanjana, the answer is not the same as the question is asked for.
After careful understand the case,it can be said that:
the intention of the legislature in Rule 6DD of IT, is to allow cash payment in all those cases where cheque payment is impossible practically. As you pointed out in the question it is not practicable for you to pay there in cheque. Hence, in the absence of proper rullings,the benefit of doubt goes to the assessee and thus, it should not be disallowed.
But again it is a debatable issue.
After careful understand the case,it can be said that:
the intention of the legislature in Rule 6DD of IT, is to allow cash payment in all those cases where cheque payment is impossible practically. As you pointed out in the question it is not practicable for you to pay there in cheque. Hence, in the absence of proper rullings,the benefit of doubt goes to the assessee and thus, it should not be disallowed.
But again it is a debatable issue.
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