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Does this attract 40a(3)

Dipjyoti Majumdar (CA in service & CS. dipmaj@ rediffmail.com ) (3468 Points)

31 December 2013

Friends

If a company deposits cash say Rs 50,000 directly to the bank account of the payee for purchase of raw materials will this attract section 40A(3).

Regards,

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5 Replies

Bhavin J. M. Dedhia (Chartered Accountant) (47 Points)
Replied 31 December 2013

Dear D. Majumdar,

Direct deposit in to the account of the seller involves two transaction - (i) payment (in cash) and (ii) deposit into bank account (on behalf of seller).

As per the provisions of sec. 40A(3), no deduction shall be allowed of the expenses in respect of which the payment/s is/are made "otherwise than by an account payee cheque or account payee bank draft".

Thus since the payment is made in cash (otherwise than by account payee cheque/bank draft) therefore the provisions of sec. 40A(3) will get attracted as the payment made is of amount exceeding Rs.20,000/-.

Regards.

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Prabhakar (practicing chartered accountant) (91 Points)
Replied 01 January 2014

Company deposits directly in the account of the payee in bank for purchase of raw materials in such case 40A(3) will not apply CA Prabhakar Latkan

Rajesh Jain (Proprietor) (40 Points)
Replied 02 January 2014

Sec 40A(3) is attracted, as payment is made violating the norms stipulated there in, as correctly interpreted by Mr.Bhavin.

CA Pallav Singhania (IT System Auditor) (33262 Points)
Replied 02 January 2014

As the payment is made by directly depositing {instead of using drafr, cheque, debit card, credit card} will violate the rules attached in section 40a{3}...