Arunashree ( Finance Manager) (117 Points)
09 March 2010Pl tell whether sec 40(A)3 is applicable to the following :
1). Salaries to staff
2). Loans/Advance to staff
3). Advance towards salary to staff
4). Advance for expense to be incurred(Can we give advances towards expenses to our branches in excess of Rs.20000/-)
aditya paliwal
(Business)
(31 Points)
Replied 09 March 2010
yes sec 40A(3) is applicable on all of the above. As it is applicable on any payment in excess of 20000
CA Dhiraj Ramchandani
(CA, M. com)
(10823 Points)
Replied 09 March 2010
Yup in all the cases...
All such expenses, if exceeds 20000, should be paid by cheque or else disallowed
llllVICTORllll
(Internal Auditor)
(511 Points)
Replied 09 March 2010
i think cash can be given to branches(provided payment to branches are not claimed as an expense in HO books), as its just internal transfer,but cash expenses paid by them should be less than 20,000or through crossed, and all above said above 20,000 should not be through cash or open cheque
M.D.Ram
(CA Student)
(123 Points)
Replied 09 March 2010
Section 40A(3) of the Income Tax Act, 1961 reads as follows
"Where the assessee incurs any expenditure in respect of which a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, exceeds twenty thousand rupees, no deduction shall be allowed in respect of such expenditure"
By considering the above detailed contents of Section 40A(3), please find below the responses to the query raised by you:
Query
Salaries to staff :
Loans/Advance to staff
Advance towards salary to staff
Advance for expense to be incurred(Can we give advances towards expenses to our branches in excess of Rs.20000/-)
Hope the same clarifies.
M.D.Ram
(CA Student)
(123 Points)
Replied 09 March 2010
Dear Naidu,
Please find attached documents containing the responses to the queries raised by you.
Hope the same clarifies.
Sharad Suman Das
(art)
(141 Points)
Replied 09 March 2010
40A(3) applies to all the expenditure except those which are laid down in rilu 6 DD
in your case
1) Loans/Advance to staff if repayable will not come under the scope of this section as it is not an expenditure
2)Advance for expense to be incurred(for giving advances to branch)will not come under the scope of this section as here only transfer of funds are taking place but actual expenditure is not happening(SUBSTANCE OVER FORM)
EXCEPT THIS ALL THE TRANSACTION MENTIONED BY U WILL COME UNDER THE SCOPE OF THIS SECTION
Saravanabhava P S
(Tax Consultant)
(24 Points)
Replied 09 March 2010
Dear Naidu,
section 40A(3) applies to expenditures claimed u/s 30 to 37 including advances made for such expenditure. To be more simple 40A(3) apllies only to the expenditure shown in P& L A/c. In your query only Salary payment and advances to salary or expenses will attract sec 40A(3). Loan to staff or Branch advance will not attract 40A(3).
Arunashree
( Finance Manager)
(117 Points)
Replied 09 March 2010
Just read this paragraph:
Acceptance, repayment
"Acceptance of loan or deposit of Rs 20,000 or more otherwise than by an account-payee crossed cheque or draft is liable for penalty — which is equal to the sum accepted".
Similarly, repayment of such loan or deposit otherwise than by account-payee crossed cheque or draft is liable for penalty equal to the amount repaid.
Acceptance of advance money for supplies to be made when refunded otherwise than by account-payee crossed cheque or draft whether liable for penalty was debated recently in the Chaubey Overseas Corpn. vs CIT (2008) 170 Taxman 9 (All.) case.
The assessee argued that the amount received as advance for supplies is a trade deposit but the court held that the Section covers every kind of deposit, be it trade deposit or business deposit or deposit as such.
Pl give ur Opinions
Sharad Suman Das
(art)
(141 Points)
Replied 09 March 2010
the word 'expenditure' in section 40A(3) covers all categories including that on purchase of goods and merchandise as also payment for services.the payment made in advancing loans and returning the principle amount of borrowed moneysare not covered by thse provision of section 40A(3).-Letter : F. No. 1(22)/69-TPL (Pt.), dated 18/04/1969
Hareesh H Sharma
(Cleared IPCC..now article)
(894 Points)
Replied 09 March 2010
dear Wanishree naidu sir
i guess its sec 269 that deals wit loans not 40 a 3
CA Priya
(CS Final)
(1049 Points)
Replied 09 March 2010
Its applicable for all yer........... Cheeeers.......
manish
(Article Assitant)
(358 Points)
Replied 10 March 2010
if the payment is made in excess of 20,000 then the mode of payment should be by a/c payee cheque otherewise it will disallowable
CA Shekhar A. Maheshwari
(job)
(46 Points)
Replied 10 March 2010
Dear Friends,
Rule 6DD exempts payment made to the government in cash. I request you to provide me with the definition of government as meant in the said Rule 6DD and what does it includes. Also whether it includes...
1. BMC or any Local Authority
2. Bharat Petroleum ( a govt. undertaking or PSU)
Please help as soon as possible
Thanks & Regds.
Shekhar
CMA BK Harichandan
(SERVICE)
(15 Points)
Replied 10 March 2010
Section 40A(3) of the Income Tax Act, 1961 reads as follows
"Where the assessee incurs any expenditure in respect of which a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, exceeds twenty thousand rupees, no deduction shall be allowed in respect of such expenditure".
Hence provisions of section 40A(3) applies to all the expenditure except those which are laid down in Rule-6 DD.
In your case:
1) Loans/Advance to staff if repayable will not come under the scope of this section as this is not an expenditure which can be claimed u/s 30 to 37 as a charge against profit, hence provisions of section 40A(3) will not be applicable.
2)Advance for expense to be incurred (for giving advances to branch) will not also come under the scope of this section as here only transfer of funds are taking place but actual expenditure is not happening, hence provisions of section 40A(3) will also not be applicable.
In all other cases, will be applicable, as such.
CMA. BK Harichandan.
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