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cash payment exceed Rs 20000

CA lakshmikanth (Chartered Accountant) (238 Points)

06 February 2010

Dear all

If cash paid in excess of rs 20000/- of some party ( like pavan constructions) and again next day paid rs 20000/-

is it dissallowed

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33 Replies

Anumanchipalli Sathikonda (Tax Consultant) (1559 Points)
Replied 06 February 2010

Mr.Lakshmikanth

Sub-section (3) of section 40A has been substitued with a new subsection by Finance Act, 2008 w.e.f 1.4.2009. As per the new subsection the entire amount will be disallowed. Be careful. The Orissa High Court's judgment in the case of Aloo Supply Company will not come to the rescue of the assesee now.

Best Wishes

Sathikonda

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CA. Rajesh P. Ahir (In Service @ PSU) (687 Points)
Replied 06 February 2010

Dear Laxmikanth , The Provioned for Disallowance is as

Payment in Excess of Rs. 20000 in a Day to a same Party against same Bill by means other than account payee cheque or Draft.

in your case it will not be disallowed.

Amir (Learner) (4016 Points)
Replied 06 February 2010

Dear Lakshmikanth,

If both these payments relates to single bill/invoice then entire amount (including the payment of rs. 20,000) will be dissallowed,

Whereas if these payments are for different bill/invoice then, only first one will be dissallowed(i:e in excess of Rs. 20,000)

CA lakshmikanth (Chartered Accountant) (238 Points)
Replied 06 February 2010

dear sir

please tell me details about sub section (3) of section 40A

i have no time to refer the book

regards:

CA. Rajesh P. Ahir (In Service @ PSU) (687 Points)
Replied 06 February 2010

Respected Sathikonda Sir,

If the Payment is made in Installements 20000 one day and 20000 on another day than it will not be coverd under 40A.

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CA. Rajesh P. Ahir (In Service @ PSU) (687 Points)
Replied 06 February 2010

Amir, it the Payment is on Different days How it can cover the Last Payment which is less than 20000(Same Bill). The provision is regarding payment in a day.

Amir (Learner) (4016 Points)
Replied 06 February 2010

Dear Sathikonda,

With due respect I think the amendment has only partially overruled the judjement of Aloo Supply Co 1:e in terms of one time payment, the remaning part of the judjement i:e "in terms of one time expenditure" still holds good............

Ur comments are requested.............

CA. Rajesh P. Ahir (In Service @ PSU) (687 Points)
Replied 06 February 2010

So the last Payment of Rs20,000 will not be disallowed.

Amir (Learner) (4016 Points)
Replied 06 February 2010

Dear Rajesh,

U r rite that payment in excess of Rs. 20,000 should not be made in day, now if made then what is the consequence - Sec 40A(3)

"such expenditure will be dissallowed........."

what u r saying would be rite if sec 40A(3) has said "such payment will be dissallowed........"

I think it is clear that entire expenditure will be dissallowed in respect of which payment in excess of Rs. 20,000 is made incontravention of Sec 40A(3)

Max Payne (employed) (2569 Points)
Replied 06 February 2010

Dear Amir bhai,

Please see ur PM..... one doubt...

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Max Payne (employed) (2569 Points)
Replied 06 February 2010

Dear Lakshmikanth,

Pls see the book, the information given by forum members here is very general..... and answers are made on assumption of the person reading the question...

For eg, here's my assumption that you are paying the money for acquiring a capital asset, like CONSTRUCTING an office..... No disallowance wil be attracted under 40A(3), since there is simply "NO EXPENDITURE", for which you are claiming deduction.. {pls, its settled that depreciable assets and depreciation are not covered under 40A(3)}

Again unless the aggregate payments exceed 20,000 in a day, there is no disallowance.... so second case anyway no disallowance u/s 40A(3) even if it is for a deductible expense..........

DEEPAK KUMAR (Student B. Com CA (IPCC) CS(Final) Dip- Computer SC ) (76 Points)
Replied 06 February 2010

Hello Mr.Lakshmikanth,

rules 6DD however prescribes the cases and circustances in which payment in excess of rs 20000/- may be made otherwise than by an account payee cheque or an account payee draft without atracting the disallowance. so just look rule 6DD everything u will understood.

CA lakshmikanth (Chartered Accountant) (238 Points)
Replied 06 February 2010

thanks G.K

but finance act 2009 change in exemption limit of u\s 40 A but what amount exactly i don't know

Amir (Learner) (4016 Points)
Replied 06 February 2010

Dear G.K.

Ya u rite that 40A(3) is not applicable on Capital expenditure,

but brother "what u r saying that next day payment of rs. 20,000 will be allowed even if it is in respect of same bill for whom last day cash payment exceeds rs 20,000????