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Allowance of expenditure exceeding rs 20000/-

CA Sunil Kumar Dudeja (Student) (135 Points)

16 December 2013

Dear Friends

I have an urgent query regarding the purchase expenses allowed u/s 40A(3),Assessee having a business of outdoor catering of events, marriages etc,he purchases vegetables,mlik,spices & other conumables in cash of exceeding Rs 20000/- in a single day to single person,whether such expenses are allowed or not or added in income of PGBP?

My another question is whether purchase of Fixed Assets in cash of exceeding Rs 20000/- is allowable or not?

Thanks in advance

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16 Replies

Harendra Kumar (Tax Advisor ) (1326 Points)
Replied 16 December 2013

In my view Expenses is not allowed exceed Rs. 20000/- in cash or Fixed asstes also purchase exced Rs. 20000/-

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Hojefa (Ca final) (178 Points)
Replied 16 December 2013

Dear,

1.As per sec 40A (3), Any Expense incurred, of which AGGREGATE payment made to a person (Single) Exceeding Rs.20000, whole of expenses will be disallowed.

2. Expense suggest only Revenue Expense not Capital.

3.Hence, In ur case >20000 paid for purchase will be disallowed and will be added in PGBP income while Payment made for Fixed assets would not have any effect though > 20000 in cash because its a Cap Exps.

4. Logic:- Revenue Exp (Purchase) we need to get deduction for reduction in N.P but

by purchasing Fix assets no effect in Profit or say in tax.Hence no restriction in >20000.paym in cash.

Hojefa (Ca final) (178 Points)
Replied 16 December 2013

Expense > 20000 for single day.(I miss in def above).

CA. Kuldeep Singhi (Entrepreneur) (424 Points)
Replied 16 December 2013

Purchases of milk etc exceeding 20000 in a single day attracts 40a(3) & will be disallowed but purchase of assets is not covered u/s 40a(3) since it is capital expenditure & not revenue expenditure.

GAURAV SHRAWAGI (NAGPUR) (394 Points)
Replied 16 December 2013

1) PLZ REFER RULE 6DD. IF CASE FALLS IN RULE 6DD THEN ALLOWED 2) F.A. PURCHASED IN CASH (>20000) IS ALLOWED. DEPRECIATION ON SUCH F.A. IS ALSO ALLOWED

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NARESH NAIDU (Student) (56 Points)
Replied 16 December 2013

In regards to Revenue expenditure , exeeds rs20,000 paid by cash . that particular expenditure is not allowed . Hence Such expenditure is added to PGBP INCOME. In similar eventhough expenditure exceeds rs20,000 paid by Cheque, that should be allowed as expenditure. In regards to Capital expenditure whether paid by cash or cheque , any other mode and exceeds rs20000 or not. That particular entire expenditure is allowed i.e No restriction is there.

gaurav bharati (Executive officer) (21 Points)
Replied 16 December 2013

Expensea of revenue nature exceeding d above mentioned limit i.e. 20,000 will v disallowed.

Swami Ayyappa Nuli (TAX ADVISOR & CONSULTANT AT G.S.T SUVIDHA CENTER) (1372 Points)
Replied 16 December 2013

Depreciation will not be allowed for Income tax computation purposes if fixed asset is purchased in cash in excess of rs20000

aarav (student) (26 Points)
Replied 16 December 2013

Plz ask that particular person to give separate bills and any of the bill does nt exced rs 20k.

Mohammed jaweed (Manager) (22 Points)
Replied 17 December 2013

If fixed assets or any component which make the fixed assets operational is puchased in cash exceeding 20k, whether depreciation not allowed as it is puchased in cash. Pls suggest.

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Lakshmish Kant (Chartered Accountant) (45 Points)
Replied 17 December 2013

For your query regarding disallowance of revenue expenditures exceeding Rs. 20,000, kindly refer the Rule 6DD also. Further, there are a number of cases where the Hon'ble ITAT/Courts have given relief under the facts & circumstances of the case which are identical to your case. So you can get relief at the stage of appellate proceedings.

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Neha Jain (accountant) (57 Points)
Replied 17 December 2013

Cash purchase of revenue item is disallow and cash purchase if fixed assets is allow as per AS

CA Vanamala Phani Kumar (Proprietor of M/s Vanamala and Co) (972 Points)
Replied 17 December 2013

Rule 6DD (f)

where the payment is made for the purchase of—

(i) agricultural or forest produce ; or

(ii) the produce of animal husbandry (including hides and skins) or dairy or poultry farming ; or

(iii) fish or fish products ; or

(iv) the products of horticulture or apiculture,

to the cultivator, grower or producer of such articles, produce or products;

(Guest)

Originally posted by : PHANI KUMAR VANAMALA
	Rule 6DD (f) where the payment is made for the purchase of— (i) agricultural or forest produce ; or (ii) the produce of animal husbandry (including hides and skins) or dairy or poultry farming ; or (iii) fish or fish products ; or (iv) the products of horticulture or apiculture, to the cultivator, grower or producer of such articles, produce or products;

This is applicable only when payment is made to cultivator, grower or producer of such articles, produce or products directly and not to the retailer.

If proper banking facilities are available in that area then the assessee should convince the retailer to accept cheques considering the business he gives him regularly.

Fixed assets are not covered under RS 20000/- limit.