CA Sahil Singla.. (Service Tax ) (3746 Points)
05 March 2011
M. N. JHA
(CA)
(8316 Points)
Replied 05 March 2011
CA Sahil Singla..
(Service Tax )
(3746 Points)
Replied 05 March 2011
Sir
The co. has not paid any trasportation charges. But it has purchased the truck...a capital asset !...plz luk after the question again
sanjeev
(student CA CS)
(295 Points)
Replied 05 March 2011
kanagaraj
(CHARTERED ACCOUNTANT)
(793 Points)
Replied 05 March 2011
Dear Sahil
In your case since the asset was only purchased, section 40 A(3) shall not be come in force. you may argue with your AO as above and you will succeed.
regards
AVIJIT
(CA FINALIST)
(370 Points)
Replied 05 March 2011
The thing Sanjeev and Jha are talking about are the expenses. That section is applied on expenses and not on assets. How can an Asset be disallowed. So there will be no problem regarding this provided the company is not engaged in business of buying and selling trucks and I don't remember any case law on this.
CA Sahil Singla..
(Service Tax )
(3746 Points)
Replied 05 March 2011
U S Sharma
(glidor@gmail.com)
(21063 Points)
Replied 05 March 2011
| Originally posted by : sahil singla.. | ||
 |
SIr The Co. Purchased a truck & remitted amount exceeding Rs. 20000 on a Single Day against one bill.please tell me whether such action on the part of Co. will lead to any Disallowance Under IT Act,1961....there is already a lot of debate on this issue...plz provide some case law on above issue...if any |
 |
for buying an asset u can pay the whole price in cash, without fear, it has no relation to disallowance.
transactions relating to expenses only can be disallowed, not the purchase or goods or asset.
U S Sharma
(glidor@gmail.com)
(21063 Points)
Replied 05 March 2011
by disallowing the cash payment towards the aquisition of capital asset what change the AO can make?
can he roll back the capital asset to cash form?
in land / building registration office 90% transactions are done in hard cash currencies, so as per your clarification and mere IT mis-interpretation, such registrations are called back and land would be returned back?
say if AO disallow the payment then what the change would appear in the return / balance sheet? if its expenditure then it should be taxed, but when the capital asset is bought with TAX PAID money, how they can disallow it?
U S Sharma
(glidor@gmail.com)
(21063 Points)
Replied 05 March 2011
capital asset is purchased with the TAX paid money, and it does not relate to any deduction as business expenditure, so how one can disallow the payment when its not asked for any allowance?
M. N. JHA
(CA)
(8316 Points)
Replied 05 March 2011
Amounts not deductible in respect of expenditure exceeding Rs. 20,000† [Sec. 40A(3)] * - If an assessee incurs any expenditure in respect of which payment in excess of Rs. 20,000 is made otherwise than by a crossed cheque or crossed bank draft, 20 per cent of such expenditure will be disallowed as expenditure. Rule 6DD, however, prescribes the cases and circumstances in which payment in excess of Rs. 20,000 may be made otherwise than by a crossed cheque or crossed bank draft without attracting the disallowance. Even payment made for purchase of goods falls within the expression “expenditure” occurring in this section.
49.3-1 EXCEPTIONS - Rule 6DD prescribes the following circumstances under which no disallowance will be made of the expenditure even if the payment exceeding Rs. 20,000 is made otherwise than by a crossed cheque or demand draft :
Payment made to banking and other credit institutions, such as the Reserve Bank of India commercial banks in the public and private sectors, co-operative banks or land mortgage, banks, primary credit/agricultural credit societies, Life Insurance Corporation of India, Industrial Finance Corporation of India, Industrial Development Bank of India, State Financial Corporations, etc. [rule 6DD(a)].
Payment made to Government (both Central and State Governments), if under the rules framed by it, such payment is required to be made in legal tender, such as a payment of direct taxes, customs duty, excise, railway freight, sales tax, etc. [rule 6DD(b)].
Payment required to be made in cash under a contract entered into before April 1, 1969 [rule 6DD(c)].
Payment through the banking system, e.g., letters of credit, mail or telegraphic transfer, book adjustment in the same bank or between one bank and another and bills of exchange including hundies made payable to a bank [rule 6DD(d)].
Payment made by book adjustment by an assessee in the account of the payee against money due to the assessee for any goods supplied or services rendered by him to the payee [rule 6DD(e)].
Payment to a cultivator, grower or producer in respect of the purchase of agricultural or forest produce or product of animal husbandry (including hides and skins) or dairy or poultry farming or fish or fish products or products of horticulture or apiculture (even if these products have been subjected to some processing provided the processing has been done by the cultivator, grower or the producer of the product) [rule 6DD(f)].
Payment made to a producer in respect of the purchase of the products manufactured or processed without the aid of power in a cottage industry [rule 6DD(g)].
Payment made to a person who ordinarily resides or carries on business in a village not served by any bank [rule 6DD(h)], [if, however, the payment is made in a town having banking facilities to a villager whose village has no bank, the exemption from the operation of section 40A(3) will not be available—Press Note dated May 8, 1969].
Payment of terminal benefits, such as gratuity, retrenchment compensation, etc., in respect of employees drawing salary not exceeding Rs. 7,500 per year in the year of retirement, etc., or in the preceding year [rule 6DD(i)].
Payment made by an assessee by way of salary to his employee after deducting the income-tax from salary in accordance with the provisions of section 192 and when such employee —
a] is temporarily posted for a continuous period of 15 days or more in a place other than his normal place of duty or on a ship ; and
b] does not maintain any account in any bank at such place or ship [rule 6DD(j)]1.
Payment required to be made on a day on which the banks were closed either on account of holiday or strike [rule 6DD(k)].
Payment made by any person to his agent who is required to make payment in cash for goods or services on behalf of such person [rule 6DD(l)].
49.3-2 SCOPE OF SECTION 40A(3) -The following points should be considered to understand the scope of section 40A(3)—
1. If an assessee makes payments at different times during the day and he has no idea that he has to pay to the same person on more than one occasion, he cannot be subjected to the statutory provision of section 40A(3), unless any one payment exceeds Rs. 20,000.
2. If an assessee makes payment of two different bills (none of them exceeds Rs. 20,000) at the same time in cash or by bearer cheque, section 40A(3) is not applicable even if the aggregate payment is more than Rs. 20,000. This is because of the fact that section 40A(3) is applicable only in respect of an “expenditure” which is excess of Rs. 20,000. In other words unless the amount of the bill and the amount payment exceed Rs. 20,000, section 40A(3) is not applicable.
3. Where the assessee made payment over Rs. 20,000 at a time, partly by crossed cheque and partly in cash to some parties but the payment in cash alone at one time did not exceed Rs. 20,000, section 40A(3) is not attracted.
4. Provision of section 40A(3) does not apply in respect of an expenditure which is not to be claimed as deduction under sections 30 to 37. For instance, if an assessee gives donation in cash, section 40A(3) is not applicable, since donation is not deductible under sections 30 to 37.
5. Section 40A(3) is not applicable if an assessee purchases a capital asset.
REPLY UR VIEW.....
M. N. JHA
(CA)
(8316 Points)
Replied 05 March 2011
CA Arindam Dey
(Chartered Accountant)
(117 Points)
Replied 06 March 2011
@*CS Siddharth Bumb. *
(B.Com, CA Final, CS )
(5270 Points)
Replied 06 March 2011
payment which is debited to Profit and Loss a/c such amount should be less than 20000/35000 (whichever is applicable) in yoour case though you pay whole truck amount in cash then it will be treated as allowable expenditure....
what experts says??? am i right, if wrong then clarify me???
thank you...
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