Sectin 40a(3) (Audit)

This query is : Resolved

Manish Singh

( Author )
04 February 2013

1. Whether purchase & sale transaction is covered in ambit of section 40a(3)?
2. Whether purchase & sale of fixed assets is also covered in 40a(3) & if covered, then, how we treat it when payment is made more than 20000 in cash for the purchase of fixed assets?

Dintakurthi Tirumala

( Expert )
04 February 2013

1) For purchases attracts section 40A(3) in case the single invoice on the day is exceeding Rs.20000. I.e For purchase of goods value of each invoice is important for section 40A(3) and for cumulative amount of invoices doesn't attracts.

2) For purchase of fixed assets section 40A(3) doesn't appears. But according to the taxman's(author singania) it will apply for fixed assets also but remaining all says not attracts for fixed assests. As well as by logical thinking 40A(3) not attracts to fixed assets because 40A(3) relates to only for revenue expenses and it's dissallowance so not apply for capital expenditure.

In case of any attraction of section 40A(3) it will be disallow as expenditure at the time of computation of taxable income and tax liability. To overcome this try to is any way to split the transaction to overcome the section 40A(3) disallow.

OM SAI SRI SAI JAI JAI SAI

CA Prashant Gupta

( Expert )
04 February 2013

40A(3) applies on purchase. As sale is not expense so can't be disallowed. you can't pay a single bill of more than 20000 in one payment.
purchase and sale of fixed asset is not covered in this. only Mr. Singania says but in practical there is no case. So you can take advantage of it.
so purchase of fixed asset can be paid in cash
but if this is purchase of material then no bill must be more than 20000.