Cash payment above 20,000/-

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

31 March 2012 Under Section 40A(3)(a) cash payment to a party cannot exceed Rs. 20,000/- while as per circular no. 34, dated 5-3-1970 the provisions of this section do not apply to payment towards purchase of capital assets. Do the provisions apply to payments made for purchase of materials towards construction of Capital Assets? Eg. Can a person pay Rs. 50,000/- in cash to a party in a single day for purchase of stones for construction of his Plant.

CA Dileep Surya Kumar

CA Dileep Surya Kumar (Expert)
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31 March 2012 Even if you purchase the material for constructing a capital asset, it should be in capital nature only not of an expense.

Here expense for the period means the benefit of which will accrue that particular period and that should be allowed under income tax act.

therefore , purchase of material not of an expense, hence I can say provisions of section 40A(3) will not applicable.