Cash transaction

Mr.Pratik Sharma

Your question is not clear.  Anyhow assuming that your question is pointed to the provisions of section 40A(3) of Income-tax Act, 1961 I will try answer.

* Yes. If the payment is made towards any expenditure claimed as deduction under the provisions of sections 30 to 37.

*No. If the payment is made towards cost of acquisition of any property which is not an expenditure under the above sections. Example purchase of a motor cycle for the purpose of business.  Depreciation u/s 32 can be claimed on the said motor cycle.

*No.  If the payment is made towards any donation.  Donations is not an expenditure under the sections 30 to 37.

To have clear idea regarding disallowance of the expenses u/s 40A(3), please study the provisions of Rule 6DD of Income-tax Rules, 1962 also.

Best Wishes

Sathikonda

Further to what Sathikonda has stated in case the sm of Rs. 50000. is paid during a year but not on a single day but in instalments of less than Rs. 20000.00 per day shall not be disallowed even for expenses referred to in section 30 to 37 of the Act.

As per Sec 40A(3), cash payment of Rs.50000 can be made to single person in a single day t/w expenditure but if the payment is made against more than one bill of which each bill not exceeding Rs.20000. 

Mr.Pratik Sharma, Mr.C.P.Chug and Mr.Sivanagesh

An amendmend has been made to section 40A(3) in the Finance Act, 2007 which has come into force with effect form 1-04-2007.  As per the said amendment aggregate payments exceeding Rs.20,000/- even for different bills is paid in a day to a person the said payments are disallowed.

Earlier to the amendment there was a judgment of Orisssa High Court - CIT Vs. Aloo Supply Co., [1980] 120 ITR 680 (Ori).  In the said judgement it was held that even aggregate payment exceeds the specified limit it is allowable if the payment is made to different bills.

Now the above case law will not be helpful because of the amendment brought into the section with effect from 01.04.2007.

Best Wishes

Sathikonda

TOTALLY AGREE WITH MR. SATHIKONDA.

RIGHT SAID ABOVE.....

yes its depend on the bill amt in a day not year. 

I am with  MR. SATHIKONDA.

MR. SATHIKONDA totally agreed

Its True Cash Payment above Rs.20,000/- must be pay by cheque  / po / dd to avoid penalty.... . IN my view all expenses above Rs.20,000/- must be pay by cheque am i Right ?

Mr.Mahendra Kantilal Tita

There is no penalty for payment of expenses exceeding Rs.20,000/- in cash.  The entire expenditure will be disallowed i.e. that expenditure is not allowed to be deducted from the income earned to arrive the net profit.

Best Wishes

Sathikonda