Ad Free CAclubindia and Daily Updates on your Mobile. Subscribe Now!

Cash directly deposited into bank a/c of creditor?

Shamita (Learner) (410 Points)

10 February 2010

Our firm has deposited cash more than Rs. 20,000 directly into the bank account of the creditor in other city.

Whether it is permissible under Income Tax Act.

What will be the entry in our books?

Reply
Follow
Share

26 Replies

Aditya Maheshwari (CA in Practice) (35867 Points)
Replied 10 February 2010

The enrty in the books will be

Creditor A/c Dr XXXX

to Cash A/c XXXX

Since the above payment will be above Rs. 20,000/- in cash the same will be disallowable

Upgrade to CAclubindia Pro. Subscribe Now!

Aditya Maheshwari (CA in Practice) (35867 Points)
Replied 10 February 2010

Here is the detailed discussion

/experts/cash-deposit-by-debtors-to-creditors-308645.asp

1 Like

Amir (Learner) (4016 Points)
Replied 10 February 2010

Dear Shamita,

If the above payment is for the purposes of Capital/Fixed asset then "Ur company is absolutely safe"

Now if it is for services/other then capital goods - I tell you Rule 6DD which list out the exemptions/exceptions to Sec 40A(3) says that "It will not apply in case payment is made to a Bank"

Wait, this clause means where amount is directly paid to the Bank & not on behalf of a person to a Banker...

SINCE U WOULD OBVIOUSLY RECORD THIS AS A CASH TRANSACTION IN UR BOOKS - TECHNICALLY SPEAKING "IT SHOULD BE DISSALLOWED"

Plz Ignore folloing comments as other members have righty suggested that it will be dissallowed.

But, I feel Sec 40A(3), will not be attraced -

Reason -

The whole purpose of Sec 40A(3) is to break the mechanism of traill less transsactions, & this transactions has very much established the trail what was required.

1 Like

Max Payne (employed) (2574 Points)
Replied 10 February 2010

Dear Amir,

the disallowance will be there, cos the rule 6DD envisages payment made to the entities mentioned,

not to an account of a person maintained therein.

Aditya sir has quoted the correct case for the same in that link

https://www.thehindubusinessline.com/mentor/2008/06/30/stories/2008063050251200.htm

1 Like

@Kals@ (CA Final) (87 Points)
Replied 10 February 2010

it is just like u gave 20000 to your creditor and creditor deposited in to bank .

It will be disallowable.

1 Like

Upgrade to CAclubindia Pro. Subscribe Now!

Shamita (Learner) (410 Points)
Replied 11 February 2010

This payment is for the WRAP Audit and payment is being made to Moody International. I think this shouldn't be disallowed as this entry will be recorded by Moody Int. in their bank a/c and we have also deducted TDS on it @ 10% for payment of fee.

Amir (Learner) (4016 Points)
Replied 11 February 2010

Dear Shamita,

Plz go through the link reffered by friend G.K., the expenses will be dissallowed & the fact that u have deducted TDS on the payment will not make the non compliance of 40A(3) good...

nishant monani (ARTICLE ASSITANT) (68 Points)
Replied 11 February 2010

Hi Shamita,

I agree with Amir. The disallowance will be attracted u/s 40 (A) (3), your case is not covered under any exemptions mentioned in rule 6 DD. For better understanding refer the enrire Rule 6DD. Your doubts will be cleared.

manish (Article Assitant) (358 Points)
Replied 11 February 2010

yes, there is problem and not allowable, because the mode of payment is cash and more than 20,000.

Max Payne (employed) (2574 Points)
Replied 11 February 2010

Originally posted by : Shamita
	This payment is for the WRAP Audit and payment is being made to Moody International. I think this shouldn't be disallowed as this entry will be recorded by Moody Int. in their bank a/c and we have also deducted TDS on it @ 10% for payment of fee.

Dear shamita Madam, your position that the payment is fully traceable since (a) the payment is made into an account, and (b) you have deducted TDS, will not hold good before any authority.

40A is a section that opens with the non-obstante clause, and overrides the provisions of section 40(a), and any other section which allows you to claim deduction for this expense.

It is very much disallowed by the Act itself.

Upgrade to CAclubindia Pro. Subscribe Now!

CA Ankit Totla (Practicing Chartered Accountant) (469 Points)
Replied 11 February 2010

Originally posted by : Aditya Maheshwari
	The enrty in the books will be Creditor A/c Dr XXXX to Cash A/c XXXX Since the above payment will be above Rs. 20,000/- in cash the same will be disallowable

but aditya... is thr any clause for the allowance as the payment is routed throguh a bank which seems 2 b authentic..?

Aditya Maheshwari (CA in Practice) (35867 Points)
Replied 11 February 2010

Originally posted by : ankit
	Originally posted by : Aditya Maheshwari The enrty in the books will be Creditor A/c Dr XXXX to Cash A/c XXXX Since the above payment will be above Rs. 20,000/- in cash the same will be disallowable but aditya... is thr any clause for the allowance as the payment is routed throguh a bank which seems 2 b authentic..?

Dear Ankit

The debtor has in fact paid cash to the creditor. It does not make any difference if the same is deposited in the bank account of the creditor. So the same is disallowable. You can also refer to the K. Abus case for further assisstance.