disallowance for expenditure in cash
This query is : Resolved
27 June 2010
ABC & co. purchases goods from XYZ ltd. on various dates as below:
10-05-10: 15000
14-05-10: 8000
25-05-10: 12000
04-06-10: 18000
on 18-06-10, it makes a payment of Rs.27000 in cash to XYZ ltd.;
further, it makes a payment of Rs.26000 through account payee cheque on 21-06-10.
Would amount paid of Rs.27000 shall be dis-allowed u/s 40A(3) of income tax act.
10-05-10: 15000
14-05-10: 8000
25-05-10: 12000
04-06-10: 18000
on 18-06-10, it makes a payment of Rs.27000 in cash to XYZ ltd.;
further, it makes a payment of Rs.26000 through account payee cheque on 21-06-10.
Would amount paid of Rs.27000 shall be dis-allowed u/s 40A(3) of income tax act.
27 June 2010
YES, IT WILL BE DISALLOWED U/S 40A(3) OF IT ACT.
28 June 2010
but as per an illustration given in notes of Vinod Gupta Sir, the disallowance shall be only if expense as well as payment exceeds Rs.20000.
28 June 2010
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
According to the law the same amount will be disallowed.
According to the law the same amount will be disallowed.
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28 June 2010
thanks:
what will be consequence in following cases
1. if advance paid on 04-05-10 Rs.36000 in cash, later on goods purchased on 15-05-10 amounting Rs.30000 and amount adjusted against advance of Rs.36000.
2. if advance paid on 04-05-10 Rs.36000 in cash, later on goods purchased on 15-05-10 amounting Rs.18000 and amount adjusted against advance of Rs.36000.
what will be consequence in following cases
1. if advance paid on 04-05-10 Rs.36000 in cash, later on goods purchased on 15-05-10 amounting Rs.30000 and amount adjusted against advance of Rs.36000.
2. if advance paid on 04-05-10 Rs.36000 in cash, later on goods purchased on 15-05-10 amounting Rs.18000 and amount adjusted against advance of Rs.36000.
28 June 2010
Difinately Rs.27000/- full amount will be disallowed
28 June 2010
I am not agree with Mr. Sanat Payne.
Disallowance u/s 40A(3) occured when any expenditure of Rs. 20,000 or more is paid in cash.
In the above examples of Anshu Agrawal none of the expenditure is equal to or more than 20,000 but only the payment made is more than 20,000 . Hence disallowance u/s 40A(3) is not attracted.
Vinod Gupta sir's book is correct in this context.
Disallowance u/s 40A(3) occured when any expenditure of Rs. 20,000 or more is paid in cash.
In the above examples of Anshu Agrawal none of the expenditure is equal to or more than 20,000 but only the payment made is more than 20,000 . Hence disallowance u/s 40A(3) is not attracted.
Vinod Gupta sir's book is correct in this context.
28 June 2010
i think it is a confusing point, please post more replies...
28 June 2010
There is no point of confusion Anshu. Whenever we talk about expenditure it is always against a bill. Although Section 40A(3) is refering towards payment or payments but that is against each bill. I have gone through lot of books for this point and everywhere the answer was same. Both the bill and the amount of payment should exceed Rs. 20,000 for disallowance u/s 40A(3).
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28 June 2010
but in Bangar's Direct Tax Book, it is as per opinion of other repliers of this query.
28 June 2010
i think wholle amount will be disallowe.
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29 June 2010
the reply from institute towards this matter is as below:
"Dear Student,
As per section 40A(3), where the assessee incurs any expenditure in respect of which a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque or account payee bank draft, exceeds Rs.20,000, no deduction shall be allowed in respect of such expenditure.
On the issue of whether section 40A(3) would be attracted in respect of cash payment exceeding Rs.20,000 to a person where the individual bills drawn on the same person do not exceed Rs.20,000, but the expenditure as a whole exceeds Rs.20,000, there have been divergent views.
It appears that the legislative intent of introducing this provision is to prevent the practice of splitting up of an expenditure by raising separate invoices of value not exceeding Rs.20,000 each. Therefore, since the invoices are in respect of the same expenditure, and the payment exceeds Rs.20,000 in a day, the provisions of section 40A(3) would be attracted. "
"Dear Student,
As per section 40A(3), where the assessee incurs any expenditure in respect of which a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque or account payee bank draft, exceeds Rs.20,000, no deduction shall be allowed in respect of such expenditure.
On the issue of whether section 40A(3) would be attracted in respect of cash payment exceeding Rs.20,000 to a person where the individual bills drawn on the same person do not exceed Rs.20,000, but the expenditure as a whole exceeds Rs.20,000, there have been divergent views.
It appears that the legislative intent of introducing this provision is to prevent the practice of splitting up of an expenditure by raising separate invoices of value not exceeding Rs.20,000 each. Therefore, since the invoices are in respect of the same expenditure, and the payment exceeds Rs.20,000 in a day, the provisions of section 40A(3) would be attracted. "
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30 June 2010
It should be the allowable expenses because.
As per Sec. 40A(3), both Expenditure as well as payment should exceed Rs. 20000 for the Applicablity of Sec.
For this u can Read Sec. 40A(3) given below.
It is stated in Sec. 40A(3) that expenditure involving payments for goods or services, not Expenditure involving Payments.
From Income Tax Department Site:
Section 40A(3)
Scope of disallowance of cash payments under section 40A(3) - Section 40A(3) applies to all categories of expenditure involving payments for goods or services, which is deductible in computing the taxable income. It does not apply to loan transactions or to payments made by commission agents (arhatiyas) for goods received by them for sale on commission or consignment basis. It does apply to payments made for goods purchased on credit. Hundi transactions entered into in connection with the advancing of loans or the repaying of loans are outside the scope of section 40A(3). Payments made to the grower or producer of agricultural products are excluded from the operation of section 40A(3) even where these have been subjected to some processing by him. Payments, made in towns having banking facilities for purchase of goods from villager whose village does not have banking facilities are not excluded from the requirement in section 40A(3).—Press Note : Dated 2-5-1969, issued by Ministry of Finance.
The word ‘expenditure’ in section 40A(3) covers expenditure of all categories including that on purchase of goods and merchandise as also payment for services. The payments made in advancing loans and returning the principal amount of borrowed moneys are not covered by these provisions of section 40A(3).—Letter : F. No. 1(22)/69-TPL (Pt.), dated 18-4-1969.
As per Sec. 40A(3), both Expenditure as well as payment should exceed Rs. 20000 for the Applicablity of Sec.
For this u can Read Sec. 40A(3) given below.
It is stated in Sec. 40A(3) that expenditure involving payments for goods or services, not Expenditure involving Payments.
From Income Tax Department Site:
Section 40A(3)
Scope of disallowance of cash payments under section 40A(3) - Section 40A(3) applies to all categories of expenditure involving payments for goods or services, which is deductible in computing the taxable income. It does not apply to loan transactions or to payments made by commission agents (arhatiyas) for goods received by them for sale on commission or consignment basis. It does apply to payments made for goods purchased on credit. Hundi transactions entered into in connection with the advancing of loans or the repaying of loans are outside the scope of section 40A(3). Payments made to the grower or producer of agricultural products are excluded from the operation of section 40A(3) even where these have been subjected to some processing by him. Payments, made in towns having banking facilities for purchase of goods from villager whose village does not have banking facilities are not excluded from the requirement in section 40A(3).—Press Note : Dated 2-5-1969, issued by Ministry of Finance.
The word ‘expenditure’ in section 40A(3) covers expenditure of all categories including that on purchase of goods and merchandise as also payment for services. The payments made in advancing loans and returning the principal amount of borrowed moneys are not covered by these provisions of section 40A(3).—Letter : F. No. 1(22)/69-TPL (Pt.), dated 18-4-1969.
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