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Will loan given attract 40(a)(3) ?

Merina (Student) (310 Points)

11 April 2013

Hi friends, I am doing the audit of a construction company. The company ha given a lot of amount as loan to its various directors, cutomers and some others. Many of them are above 20,000 and was paid in cash. As it is not an expense, will it attract section 40(A)(3) which relate to cash payment above 20,000.

Kindly reply

Regards

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6 Replies

Dintakurthi Tirumala (CA FINAL) (15994 Points)
Replied 11 April 2013

Yes, section 40A(3) will not attracts but section 269SS and 269T may attract. So please observe according to the section and provisions of 269SS & 269T view also.

OM SAI SRI SAI JAI JAI SAI

3 Like

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MOHIT MATHURAN (STUDENT) (334 Points)
Replied 11 April 2013

Section 40A(3) does not apply to loan transactions : Press Note : Dated 2-5-1969, issued by Ministry of Finance.

However the implication of sections 269SS & 269T along wid section 271 D must be consider

2 Like

CA MANOJ (CA, MBA, B.Com) (141 Points)
Replied 11 April 2013

in cases where advance given to suppliers then sec 40A(3) will attract if the bill amount is also above Rs.20000/-

2 Like

Ganeshbabu K (Audit and Tax Advisory) (48564 Points)
Replied 11 April 2013

Applicability of Sec.40(A)3 So as per circular,

Disallowance under sec 40(A)3 for the payment made in the cash exceedin Rs.20,000 (35000 for payment of goods and carriage ) attracted only incase of revenue expenditure .

in simple words it will applicable only to p&l items and not ot balance sheet

Please find attached

Attached File : 831581 1162212 cir.pdf downloaded: 230 times

2 Like

Gilchrist Sarathi (Assisstant (Audit & Accounts)) (75 Points)
Replied 22 April 2013

Dear All,

I have a doubt in above discussion… As Merina Madam said the construction company has given many loans Rs.20000 in single payment.

But I have found some Exceptions would be given for the payments those are given below:

Payment to Specified payee Rule 6DD(a

Payment to Government Rule 6DD(b)

Payment by certain modesRule 6DD(c)

Adjustment in books Rule 6DD(d)

Purchase of certain products Rule 6DD(e

Cottage industry Rule 6DD(f)

No bank service Rule 6DD(g)

Terminal benefit to employee - Rule 6DD(h)

Temporary posting of employee - Rule 6DD(i)

Bank closed - Rule 6DD(j)

Payment to agent Rule 6DD(k)

Foreign currency Rule 6DD(l)

As I was thinking any payment which exceeds Rs.20000 in cash on single payment except for bank transactions (like deposit, loan repayment).

But now I am able to understand that the 40A (3) would disallow Cash payment more than Rs.20000 only in respect of payment made towards meet the expenditure.

I have listed above exceptions to show that in respect loans given which exceeds Rs.20000 in cash is not found.

If 40A (3) only to restrict expenditure paid in cash more than Rs.20000 what about the other transactions ( Except the payment which are given Exceptions).

Can I make payment more than 20000 in cash to buy an assets, To settle Creditors.

If any of my understanding is not correct, kindly advise me.

Thanks in advance