Dissallowance u/s 40a3

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Hello, Please Solve the Query. Mr. X Purchased Material of Rs. 15000 on 01/01/2015, Rs. 16000 on 02/01/2015, & Rs.17000 on 03/01/2015 and Make a payment of these bills on 04/01/2015 Total Amounting Rs.48000 in cash. Is this Transaction is Disallowed in Sec. 40a3.
Replies (2)
No,disallowance is only for expenses not for purchase payments..

NO, 48000 payment will not be diallowed u/s 40A(3) .

since , although your payment is exceeding 20000 but your expenditure is not exceeding rs 20000. and for diallowance u/s 40A(3) both the payment as well as your expenditure should exceed rs 20,000.

HOWEVER , i diagree with Mr JASPAL SINGH , that 40A(3) does not cover purchase payment .

since SUPMEMECOURT case of Attar Singh Gurmukh Singh v. ITO [1991] has clearly said word "expenditure" in 40A(3) also covers purchase of sock in trade also .

 

"Section 40A(3) refers to the expenditure incurred by the assessee in respect of which payment is made. It means that all outgoings are brought under the word “expenditure” for the purpose of the section. The expenditure for purchasing stock-in-trade is one of such outgoings. The value of the stock-in-trade has to be taken into account while determining the gross profits under section 28 on principles of commercial accounting. The payments made for purchases would also be covered by the word “expenditure” and such payments can be disallowed if they are made in cash in the sums exceeding the amount specified under section 40A(3) "


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