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Section 40A (3)

CA Hemang Shah (PRACTICE) (658 Points)

13 June 2011

this section is apply only if an expenditure incurred above20000. It means if we purchase goods worth7000 in a day 3 times and we pay cash 21000 then it is fully allowed. But if we purchase goods 3 times in a day worth15000, 18000 and 27000 then if we pay said amount70000 in a day then only 27000is disallowed bcoz section 40 A (3) apply only if an expenditure over and above20000. This is my view. Plz comment this if i m incorrect. Or send me msg on 919601392989 if u like that.

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8 Replies

mukul mehra (B.com MBA-HR ADLL CS-Final LLb TCP) (591 Points)
Replied 14 June 2011

Person are splitting a particular high value payment to a person into several cash payments, each below Rs.20,000/-. This splitting is also resorted to for payments made in the course of a single day.

Courts have also held that the statutory limit in section 40A(3) applies to payment made to a party at one time and not to the aggregate of the payments made to a party in the course of the day as recorded in the cash book.

According to the judicial opinion, the words used are ‘in a sum’, i.e., single sum.Therefore, irrespective of any number of transactions, where the amount does not exceed the prescribed amount in each transaction,the rigours of section 40A(3) will not apply

so for your answer you are correct because in a single transaction it should not exceed rs 20000 but not in a whole day so 7000 split in three wont attract this section

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CA ADITYA SHARMA (CA IN PRACTICE ) (16719 Points)
Replied 14 June 2011

this section mainly deals rs. 20000 cash payment to aparticular person. if you have made three payments to a particular person say 7000 each. than aggregate amt. will exceed 20000 . hence it will be disallowed

Vijay (Adamo Studio) (2112 Points)
Replied 14 June 2011

The cluse here is the payment should not exceed rs 20000 in a day of a bill or an aggregate of the bills paid to a party

So eventhough 3 pur of 7000 but if the payment is made in aday to the same party in cash the expense is disallowed

In singhania it is mentioned wrongly as per bill but its per party refer bare act.

CA Nitin Wadhwani (Chartered Accountant) (4469 Points)
Replied 14 June 2011

Yes. It will be disallowed. Support - Mischief Rule of Interpretation of Law.

CA shiva kumar (executive) (29 Points)
Replied 14 June 2011

As per provisions of Sec 40 A(3) any payment made in cash over and above 20000/- in a single day and to a single person irrespective of nature of transaction whether it could be expenditure of revenue nature or payment made to purchases will be disallowed.

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Viren (Chartered Accountant) (137 Points)
Replied 14 June 2011

Originally posted by : CA shiva kumar
	As per provisions of Sec 40 A(3) any payment made in cash over and above 20000/- in a single day and to a single person irrespective of nature of transaction whether it could be expenditure of revenue nature or payment made to purchases will be disallowed.

Agree but also read with Rule 6DD which will provide the exception to the above provision.

In the Context of Purachse if agreegate payment in cash to a single person/entity in one day exceed 20000, then the whole amount of expenditure is disaalowed by virtue of Sec 40A(3).

Max Payne (employed) (2574 Points)
Replied 14 June 2011

Originally posted by : hemang shah
	this section is apply only if an expenditure incurred above20000. It means if we purchase goods worth7000 in a day 3 times and we pay cash 21000 then it is fully allowed. But if we purchase goods 3 times in a day worth15000, 18000 and 27000 then if we pay said amount70000 in a day then only 27000is disallowed bcoz section 40 A (3) apply only if an expenditure over and above20000. This is my view. Plz comment this if i m incorrect. Or send me msg on 919601392989 if u like that.

Yes, you are spot on.

Where the assessee incurs any expenditure IN RELATION TO WHICH the aggregate payments exceed Rs.20,000 in a day, no deduction shall be allowed in respect of such expenditure.

Payments are considered in aggregate,

Expenditure is still considered one transaction at a time.

Unless both the individual expenditure and the aggregate payments are above Rs.20,000/- you need not disallow the same.

Adoption of mischief rule - that is not required because a tax statute is to be understood using literal construction first. Mischief rule is to be adopted only if you still cant get the meaning of the law... Practically, I may say otherwise to raise audit points... but this is the correct legal position.

suresh (article) (247 Points)
Replied 18 June 2011

Sec 40A (3) applies when the single payment in one day exceeding amount of 20000 in cash but if payment is splited in three payment of amount of 7000 then disallowance of payment of that amount can not be attracted.