Quary regarding sec. 40A(3) & Sec. 269SS

This query is : Resolved

Baldev Sharma (Querist)
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11 June 2009 I am a businessman.I purchase goods from calcutta, chenai, delhi, banglore payment of purchased bills are made by sroff(Financer) to the relevant parties by cheques and thereafter the same is repaid by me to the sroff (financer) by cheque after 10 to 15 days with interest.

Now my auditor raising a query that the above amount will be treated as loan which is not accepted by account payees cheque and hence the transaction is against the provision of Income Tax Law i.e. section 269SS.

The second query reised by the auditor is that the payment to the parties against purchased is not by account payee cheque which is also against the provision of Income Tax Laws i.e. section 40A(3)

Kindly give me the solution about the above queries and let me know whether the auditors view is correct or not

Late CA Sampat Jain

Late CA Sampat Jain (Expert)
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11 June 2009 Section 269SS says that loan or deposit of money to be accepted by account payee cheque.Like section 269T there is no further condition that the cheque should be issued in the name of borrower. As such account payee cheque issued in the name of third party at the request of borrower will be a valid compliance of section 269SS.

Similarly payment by account payee cheque for purchases isssued in the name of third party is no violation of section 40(A)(3). The only condition is payment must be made by account payee cheque.

Ratan Sharma

Ratan Sharma (Expert)
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11 June 2009 Agreed with Sampat.

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Aditya Maheshwari

Aditya Maheshwari (Expert)
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11 June 2009 The above is also know as bill discounting where the financer charges some interest or commission on the bills discounted. Bills discounting is very common in India. The said is not covered under the provisions of 269SS as final payment is by cheque only and no cash is involved. Journal entry passed in the books cannot be treated as cash paid for purchase. In the end it is paid by cheque only to the financer.