Section 40A(3) of Income tax Act, 1961 read as follows
Section 40A(3) Where an 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.
Case 1
Mr. A purchases Material X from Mr. Sridhar for Rs. 19000 for his ABC business on 01.04.2011 and also purchases Material Y from Mr. Sridhar for Rs. 18000 for his DEF business on the same date. Mr. A is keeping separate books of account for ABC business and DEF business. Now Mr. A wants to pay Mr. Sridhar Rs. 37000 (Rs. 18000 + Rs. 19000) on 01.04.2011 by cash. Can Mr. A claim the Rs. 37000 as expenditure?
Case 2
Mr. A purchases Material X from Mr. Sridhar for Rs. 19000 for his ABC business on 01.04.2011 (Credit purchase) and also purchases Material Y from Mr. Sridhar for Rs. 18000 for the same business on the next day ie., 02.04.2011. Now Mr. A wants to pay Mr. Sridhar Rs. 37000 (Rs. 18000 + Rs. 19000) on 02.04.2011 by cash. Can Mr. A claim the Rs. 37000 as expenditure?
Case 3
Mr. A purchases Material X from Mr. Sridhar for Rs. 30000 for his ABC business on 01.04.2011 (Credit purchase). Mr. A gives Mr. Sridhar Rs. 20000 on 01.04.2011 by cash and gives Rs. 10000 on the next day. Can Mr. A claim the Rs. 30000 as expenditure?
Case 4
Mr. A purchases Material X for Rs. 45000 (Credit purchase) on 01.04.2011 from Mr. Sridhar. Mr. A pays the consideration of Rs. 45000 by cash of Rs. 25000 on 05.04.2011 and by account payee DD of Rs. 20000 on 05.04.2011. Now can Mr. A claim Rs. 20000 (DD value)?
In my opinion – for the Case 4
NO DEDUCITON shall be allowed in respect of any expenditure in respect of which a payment or aggregate of payments made to a person in single day exceeds Rs. 20000 by cash.
Expenditure in respect of which Mr. A seeks deduction – Cost of Material of R.s 45000.
Expenditure in respect of which Mr. A had paid Rs. 25000 by cash – Cost of Material of Rs. 45000.
Expenditure in respect of which NO DEDUCTION shall be allowed as per the provision – Cost of Material of Rs. 45000.
NO DEDUCTION means Re. 0 Deduction.
Since Mr. A. has paid Rs. 25000 by cash in respect of the above expenditure, Mr. A can claim Rs. 0 as deduction in respect of the above expenditure, notwithstanding he might having paid Rs. 20000 by account payee bank draft. Do you agree with me? If not, tell me the correct answer with your explanation.
By,
Sridharan R.
Salem.
CAclubindia
