Payment by debtor to creditor on our behalf
This query is : Resolved
04 September 2013
can a debtor of the client make payment to the creditor of the client directly and debit our account for the same. are provision of sec 40A(3)applicable and its implication
04 September 2013
Yes it can be done.
Book adjustments are not covered in 40A(3).
Book adjustments are not covered in 40A(3).
04 September 2013
can you please provide me the exact extract from the act where it written
05 September 2013
55(e) where the payment is made by way of adjustment against the amount of any liability incurred by the payee for any goods supplied or services rendered by the assessee to such payee .
05 September 2013
the debtor creditor adjustment you are
talking is between the assessee and his creditor. i want to ask A debtor of B assesseee makes payment to C creditor of B and debit B's account in his books. whether provision of sec 40A(3) applies.
talking is between the assessee and his creditor. i want to ask A debtor of B assesseee makes payment to C creditor of B and debit B's account in his books. whether provision of sec 40A(3) applies.
09 August 2024
Section 40A(3) of the Income Tax Act, 1961, deals with the disallowance of expenses in certain cases where payments are made in cash and exceed a specified limit. Here’s a detailed explanation of how this provision works and its implications in the context of your query:
### **Section 40A(3) Overview:**
**Section 40A(3)** states that any expenditure incurred in cash exceeding ₹10,000 (or such other amount as may be specified) in a single day will be disallowed and not allowed as a deduction while computing the income of the taxpayer.
**Key Points:**
1. **Applicability**: This section applies to payments made by the taxpayer to any person in cash exceeding the specified limit.
2. **Disallowance**: If the payment exceeds ₹10,000 and is made in cash, it will be disallowed as an expense under this section.
### **Debtor-Creditor Adjustment:**
In the scenario where a debtor of the client (let's call them "Debtor") makes a payment directly to the creditor of the client (let's call them "Creditor") and then debits the client's account, the implications of Section 40A(3) would be as follows:
1. **Nature of Transaction**:
- **Debtor’s Payment**: The debtor is paying directly to the creditor.
- **Client’s Account**: The client’s account is debited by the amount of payment made by the debtor.
2. **Implications for Section 40A(3)**:
- **Direct Payment**: Since the payment is being made directly by the debtor to the creditor, it is not a cash payment made by the client.
- **Cash Payment Rule**: Section 40A(3) deals specifically with cash payments made by the taxpayer. In this case, the client is not making the cash payment; hence, Section 40A(3) does not apply directly to this transaction.
### **Extract from the Act**:
**Section 40A(3)** (as per the Income Tax Act, 1961):
- **(3)** Where the assessee incurs any expenditure in respect of which payment has been made in cash exceeding ten thousand rupees or such other amount as may be prescribed, no deduction shall be allowed in respect of such expenditure unless the payment is made by a crossed cheque or draft or through a bank account.
**Clarification**:
- This provision specifies that if the payment for an expense is made in cash exceeding the prescribed limit, it is disallowed unless it is made through a crossed cheque or draft or through a bank account.
- It applies to payments made by the taxpayer themselves, not to payments made by third parties on behalf of the taxpayer.
### **Conclusion**:
In your scenario, the provision of Section 40A(3) is **not applicable** because:
- The debtor is making the payment directly to the creditor.
- The client (assessee) is not making a cash payment but rather having their account debited based on the debtor's payment to the creditor.
Thus, Section 40A(3) does not apply to the situation where a debtor makes a direct payment to a creditor and the client's account is debited for that payment.
### **Section 40A(3) Overview:**
**Section 40A(3)** states that any expenditure incurred in cash exceeding ₹10,000 (or such other amount as may be specified) in a single day will be disallowed and not allowed as a deduction while computing the income of the taxpayer.
**Key Points:**
1. **Applicability**: This section applies to payments made by the taxpayer to any person in cash exceeding the specified limit.
2. **Disallowance**: If the payment exceeds ₹10,000 and is made in cash, it will be disallowed as an expense under this section.
### **Debtor-Creditor Adjustment:**
In the scenario where a debtor of the client (let's call them "Debtor") makes a payment directly to the creditor of the client (let's call them "Creditor") and then debits the client's account, the implications of Section 40A(3) would be as follows:
1. **Nature of Transaction**:
- **Debtor’s Payment**: The debtor is paying directly to the creditor.
- **Client’s Account**: The client’s account is debited by the amount of payment made by the debtor.
2. **Implications for Section 40A(3)**:
- **Direct Payment**: Since the payment is being made directly by the debtor to the creditor, it is not a cash payment made by the client.
- **Cash Payment Rule**: Section 40A(3) deals specifically with cash payments made by the taxpayer. In this case, the client is not making the cash payment; hence, Section 40A(3) does not apply directly to this transaction.
### **Extract from the Act**:
**Section 40A(3)** (as per the Income Tax Act, 1961):
- **(3)** Where the assessee incurs any expenditure in respect of which payment has been made in cash exceeding ten thousand rupees or such other amount as may be prescribed, no deduction shall be allowed in respect of such expenditure unless the payment is made by a crossed cheque or draft or through a bank account.
**Clarification**:
- This provision specifies that if the payment for an expense is made in cash exceeding the prescribed limit, it is disallowed unless it is made through a crossed cheque or draft or through a bank account.
- It applies to payments made by the taxpayer themselves, not to payments made by third parties on behalf of the taxpayer.
### **Conclusion**:
In your scenario, the provision of Section 40A(3) is **not applicable** because:
- The debtor is making the payment directly to the creditor.
- The client (assessee) is not making a cash payment but rather having their account debited based on the debtor's payment to the creditor.
Thus, Section 40A(3) does not apply to the situation where a debtor makes a direct payment to a creditor and the client's account is debited for that payment.
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