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40 A (3)

K B K (CA final, CWA Final) (53 Points)

29 December 2009

Hi..

Can anyone clarify the provisions of 40 A (3).

1. Payment made to a person for a single bill of rs.30000 on two different dates(just like advance)?

2.Paymnet made to single person on a single day of Rs.30000 represented by two bills of Rs.15000 each.?

3.Paymnet of salary to a single staff for more than 20000?

Pls clarify .

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11 Replies

Amir (Learner) (4016 Points)
Replied 29 December 2009

In the case of Aloo Supply Company, it was held that BOTH ONE POINT EXPENDITURE AND ONE POINT PAYMENT SHOULD EXCEED 20,000 to attract Sec 40 A(3)...

This means that if Payment against SINGLE BILL during A SAME DAY AT DIFFERENT POINT OF TIMES NOT EXCEEDING 20,000 IS MADE THEN IT WILL NOT ATTRACT Sec 40A(3)

(say on 29th December one payment of 15,000 at 1:00 PM followed by another payment of 15,000 AT 2:00 pm)

BUT THE SPECIFIC AMENDMENT MADE BY FINANCE ACT 2008 BY ADDING THE WORDS "IN A DAY" has partially overruled the Judgement of Supreme Court in the case of Aloo Supply Company

regarding ur queries:-

THE ANSWERS ARE BASED ON THE PREASSUMPTION THAT THE CASES ARE NOT COVERED UNDER RULE 6DD i:e Exceptions to Sec 40 A(3)

1) Sec 40A(3) WILL NOT BE ATTRACTED IF EITHER OF THE PAYMENT DOES NOT EXCEED 20,000/-

2) Sec 40A(3) WILL NOT BE ATTRACTED IF EITHER OF THE BILL DOES NOT EXCEED 20,000/-

3) Sec 40A(3) WILL BE ATTRACTED IN THIS CASE.

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shailendra (C.A. FINAL) (189 Points)
Replied 29 December 2009

CASE I

Advance is not covered u/s 40A(3), only expenditure is to be seen. If expenditure is more than 20000 then it will not be allowed.

CASE II

Payment should be made against a single bill. If it is against different bills, as in the present case, then it will be allowed.

CASE III

This section also applies to payment of salary to staff.

@ CA. $ahar$h @ (Student) (338 Points)
Replied 29 December 2009

Case 1 - expenditure wont be disallowed.

Case 2 and 3 - expenditure will be disallowed

in case 1since the payments are made in two diferrent dates the expenditure wont be disallowed.

but in case 2 and 3 since the payments are made in 1 day (irrespective whether paid in 2 or three different cheques) and also by other than account payee cheques. so they will be disallowed.

Shashi Bhushan (Learner, Jalandhar) (996 Points)
Replied 29 December 2009

agree with first reply

CA Amit Kumar (C.A., CWA Final) (251 Points)
Replied 29 December 2009

Case-I - Sec 40 A (3) will not be applicable if either of the payment does not exceed Rs. 20,000.00

Case-II- Sec 40A (3) will not be attarcted as payment is made against two separate bills.

Case-III- Sec 40A (3) will be attracted in this cse as each payment is exceed Rs. 20,000.00

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NARENDER PAWAR (CA final Student) (337 Points)
Replied 30 December 2009

(1) section 40A (3) shall not be aplicable in first case because payament has been made different dates so expenditure is allowed.

(2) sec. 40A(3) shall not be applicable because payment is made against seprate bills so expenditure is allowed.

(3) sec. 40A(3) shall be applicable in this case because payment is exceeding rs. 20000/- to a particular person during a single day.

ketan (Practice) (44 Points)
Replied 30 December 2009

totally agrred yar............

Hareesh H Sharma (Cleared IPCC..now article) (894 Points)
Replied 02 January 2010

Dear Amir sir,

u said that if we pay 15000 each at two times in a day then it wont attract 40 A 3 right...but for the same example u gave my IPCC text book says the whole amt will be disallowed as it exceeds 20000 in aggregate...Plz clear ma doubts with regard to that aspect...

And if u can plz help me out please go to this site https://www.bcasonline.org

in that check out the 19th or so page in recent case laws..there is a case on march 09 which i think has same doubt with regard to 40 A 3

Disallowance u/s. 40A( 3) is applicable for each payment and not for the aggregate of the various payments made to same party during one day: The Assessee’s plea against the disallowance u/s. 40A(3) was that each payment was below, Rs.20,000/-, and, therefore, Sec. 40A(3) is not applicable. However, as per the A.O., since the payment of one day exceeded Rs. 20,000/-, therefore, Sec. 40A( 3) was applicable.

this was the short descriptttion abt the case...i wud really appreciate it if u can gimme further details abt this case

And

https://www.simpletaxindia.org/2008/03/budget-changes-missed-by-u-40a3-cash.html

Refer this also

Amir (Learner) (4016 Points)
Replied 03 January 2010

Dear Hareesh,

IF PAYMENTS OF 15,000 IS MADE TWICE IN A DAY FOR A SINGLE BILL, THEN SEC 40 A(3) WILL BE ATTRACTED.

IF PARMENT OF 15,000 IS MADE TWICE IN A DAY FOR TWO BILL (EACH LESS THEN 20,000), THE SEC 40 A(3) WILL NOT BE ATTRACTED...(BEFORE THE AMENDMENT MADE BY FINANCE ACT 2008, THIS CASE WOULD ALSO NOT ATTRACTED SEC 40 A(3)

I HOPE THIS CLARIFIES UR DOUBT...

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Hareesh H Sharma (Cleared IPCC..now article) (894 Points)
Replied 04 January 2010

Tanx sir...so u mean it depends upon the bills...right...If so wouldnt it be possible to split all the payments into numerous bills to defeat the sections use...Am not yet into articles..so dunno the practical side of things..so just wanted to clarify...

And if possible can u please get me the details of the case too...which i quoted in the earlier post..I think the case is Shanti Ram Mehta vs Assistant CIT (2009)