30 October 2009
If the expenditure towards purchase of materials in respect of which a payment or aggregate of payments made to a person in a day, other wise than by an account payee cheque drawn on a bank or account payee bank draft, exceeds Rs 20000/-, the whole of such expenditure shall not be allowed as a deduction towards business expenditure. This is governed by section 40A (3) of The Income tax Act,1961.
I agree about this provision but my question is that " In a trading business all purchase except business expenditure are paid in cash so please suggest me that this type of cash purchase of material for selling purpose are allowable or not if all this purchases are made with original bills
This is expected that all purchase to be made against original bills. Even after that, all payments exceeding Rs. 20,000, including for "Purchase in trading business" is to be made by account payee cheque only. If any expenses/purchase above 20000 paid in cash then that will be disallowed for income Tax purpose.
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