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Sec 40A(3)

Naga Praveen (Chartered Accountant) (304 Points)

22 December 2010

As per Sec 40A(3), 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.

My query is that where a person makes payment of two different bills(none of them exceeds Rs 20000) in cash on a same day but the total exceeds Rs 20000 whether Sec 40A(3) is applicable in that case and all the payments will be disaloowed.

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33 Replies

SANYAM ARORA (“It's hard to beat a person who never gives up.”) (20173 Points)
Replied 22 December 2010

IF THE PAYMENT IS TO BE MADE TO THE SAME PERSON,ALL WILL BE ALLOWED

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Nithin Chettoor (Assistant Manager) (388 Points)
Replied 22 December 2010

Can you tell against what kind of supplies/ services are these payments made? The circumstances under which disallowance under sec.40 A(3) is not attracted is mentioned under Rule 6DD of INcome tax rules. The applicable part for your query is reproduced below:

(e) where the payment is made by way of adjustment against the amount of any liability incurred by the payee for any goods supplied or services rendered by the assessee to such payee ;

37(f) where the payment is made for the purchase of—

(i) agricultural or forest produce ; or

(ii) the produce of animal husbandry (including hides and skins) or dairy or poultry farming ; or

(iii) fish or fish products ; or

(iv) the products of horticulture or apiculture,

to the cultivator, grower or producer of such articles, produce or products;

(g) where the payment is made for the purchase of the products manufactured or processed without the aid of power in a cottage industry, to the producer of such products;

(h) where the payment is made in a village or town, which on the date of such payment is not served by any bank, to any person who ordinarily resides, or is carrying on any business, profession or vocation, in any such village or town;

(l) where the payment is made by any person to his agent who is required to make payment in cash for goods or services on behalf of such person.]]

Thanks

Nithin Chettoor

CA.Varun Ranjan (partner) (61 Points)
Replied 22 December 2010

allowed

Naga Praveen (Chartered Accountant) (304 Points)
Replied 22 December 2010

Are there any legal decisions applicable to the cases which i mentioned above?

Bhavik Damani (Student) (67 Points)
Replied 22 December 2010

If the payment is made in a SINGLE DAY exceeds Rs. 20,000/- whether saperately or in combined to a single party,then entire expenditure will be disallowed. It is clearly mentioned u/s sec40A(3) that 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 if payment is made of 2 saperate bill exceeds Rs. 20,000/- will be disallowed.

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NITIN BHATIA (CA FINAL) (188 Points)
Replied 22 December 2010

section 40a(3) is no applicable in that case because if we pay to a person cash which is exceed Rs.20000 and these amount related to 2 or more bill than expenses will not disallowed

Example

1 bill amount:- 19000

2 bill amount:- 17000

total 36000

if u pay to a party these amount than this will no disallowed

regards

NITIN BHATIA

Bhavik Damani (Student) (67 Points)
Replied 22 December 2010

Nitin you are correct if these 2 bils are for 2 different expenditure.

that is to say,

if bill 1 is for Stationary Exp & bill 2 For Electric Exp. then both will be allowed as an expenditure as neither of these 2 expenses exceeds Rs. 20,000/-

But if Bill 1 and Bill 2 are for same expenditure

that is to say,

both the bill are for stationary exp then entire stationary will be disallowed.

Sec 40A(3) clearly mentioned the word 'IN A DAY' as i marked above.