Sec 40(a) 3

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

05 August 2011 if payment made to transporters more than 35000/- rs in a day .
suppose there is two bills which are less than 35000/- 1=23000 2 23000 the payment is made on same day
whether it allowable or not?

CMA. CS. Sanjay Gupta

CMA. CS. Sanjay Gupta (Expert)
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05 August 2011 Not Allowable as the payment made in a day is exceeding Rs 35000/-

Section 40A(3) is an anti tax-evasion measure. By requiring payments to be made by an account payee instrument, it is possible to verify the genuineness of the transaction thereby mitigating the risk of evasion.Person are splitting a particular high value payment to a person into several cash payments, each below Rs.20,000/-. This splitting is also resorted to for payments made in the course of a single day.Courts have also held that the statutory limit in section 40A(3) applies to payment made to a party at one time and not to the aggregate of the payments made to a party in the course of the day as recorded in the cash book.According to the judicial opinion, the words used are ‘in a sum’, i.e., single sum.Therefore, irrespective of any number of transactions, where the amount does not exceed the prescribed amount in each transaction,the rigours of section 40A(3) will not apply.

To overcome the splitting of payments (AS GIVEN ABOVE)to the same person made during a day as referred above and to increase the efficacy of the provision, an amendment was made through Finance act 2008 and after 01.04.2008, 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.