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40(A)(3)

(Guest)

Dear Friends,

Exceptions to 40(A)(3) says that more than `20,000/- can be paid in cash if the banks are closed on account of holiday or strike. If in this case, can we pay to our creditors on Sundays more than `20,000/- without any dis-allowance?

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7 Replies

Abhijeet Vasant Lande. (Chartered Accountant) (46 Points)
Replied 09 August 2010

I think we can make such payments on Sundays.

Please refer below mention Case Law it in relations to 269SS & T. iI think u can get some hints from it.

Cash Transaction made on Sunday. No penalty could be imposed in such a case.- ITO v. Narsing Ram Ashok Kumar[1993] 47 ITD 38(Pat

CA. BIJENDER KR. BANSAL (ACA, B.COM) (8143 Points)
Replied 09 August 2010

EXCEPTION TO SECTION 40 (A)(3):The provisions of this section are subject to exceptions as provided in Rule 6DD of the Income-tax Rules, 1962.

I.E IN BELOW CASE , PAYMENT IN CASH EXCEEDING RS. 20000/- IS NOT DISALLOWED.

Payment to Specified payee Rule 6DD(a)- Where the payment is made to

(i) Reserve Bank of India or any banking company as defined in section 5(c) of Banking Regulation Act, 1949;
(ii) State Bank of India or any subsidiary bank as defined in section 2 of SBI (Subsidiary Banks) Act, 1959;
(iii) any co-operative bank or land mortgage bank;
(iv) any primary agricultural credit society or any primary credit society as defined under section 56 of the Banking Regulation Act, 1949;
(v) Life Insurance Corporation of India.

· Payment to Government Rule 6DD(b)- Where payment is made to the Government and, under the rules framed by it, such payment is required to be made in legal tender.

· Payment by certain modesRule 6DD(c) - Where the payment is made by

(i) any letter of credit arrangements through a bank;
(ii) a mail or telegraphic transfer through a bank;
(iii) a book adjustment from any account in a bank to any other account in that or any other bank;
(iv) a bill of exchange made payable only to a bank;
(v) the use of electronic clearing system through a bank account;
(vi) a credit card;
(vii) a debit card.
Note: “Bank” means any bank, banking company or society referred to in #(i) to (iv) of rule 6DD(a) and includes any bank [not being a banking company as defined in section 5(c) of the Banking Regulation Act, 1949], whether incorporated or not, which is established outside India.

· Adjustment in books Rule 6DD(d)- 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.

· Purchase of certain productsRule 6DD(e):Where the payment is made for the purchase of -

(i) agricultural or forest produce; or
(ii) the produce of animal husbandry (including livestock, meat, 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.

· Cottage industry Rule 6DD(f)- 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.

· No bank service Rule 6DD(g) - 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.

Note: “Bank” means any bank, banking company or society referred to in #(i) to (iv) of rule 6DD(a) and includes any bank [not being a banking company as defined in section 5(c) of the Banking Regulation Act, 1949], whether incorporated or not, which is established outside India.

· Terminal benefit to employee - Rule 6DD(h) Where any payment is made to an employee of the assessee or the heir of any such employee, on or in connection with the retirement, retrenchment, resignation, discharge or death of such employee, on account of gratuity, retrenchment compensation or similar terminal benefit and the aggregate of such sums payable to the employee or his heir does not exceed Rs. 50,000.

· Temporary posting of employee - Rule 6DD(i) Where the payment is made by an assessee by way of salary to his employee after deducting the income-tax from salary as per section 192, and when such employee

(i) is temporarily posted for a continuous period of 15 days or more in a place other than his normal place of duty or on a ship; and
(ii) does not maintain any account in any bank at such place or ship.

· Bank closed - Rule 6DD(j) Where the payment was required to be made on a day on which the banks were closed either on account of holiday or strike.

· Payment to agent Rule 6DD(k)- 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.

· Foreign currency Rule 6DD(l)- Where the payment is made by an authorised dealer or a money changer against purchase of foreign currency or travellers cheques in the normal course of his business. Note: “Authorised dealer” or “money changer” means a person authorised as an authorised dealer or a money changer to deal in foreign currency or foreign exchange under any law for the time being in force

****. Exemption from disallowance is not available

on payment for purchase of livestock, meat,hides and skins from a person who is not proved to be the producer of these goods and is only a trader, broker or any other middleman, by whatever name called [Circular No. 4/ 2006, dated 29-3-2006 (14 CAPJ 201)]
Any person, by whatever name called, who buys animals from the farmers, slaughters them and then sells the raw meat carcasses to the meat processing factories or to the traders/retail outlets is considered as producer of livestock and meat.
Exemption is available subject to furnishing of
- (i) declaration from person receiving payment that he is a producer of meat;
- (ii) confirmation that payment, otherwise than by account payee cheque/draft, was made on his insistence; and
- (iii) a further confirmation from a veterinary doctor certifying that person specified in the certificate is a producer of meat and that slaughtering was done under his supervision [Circular No. 8/2006, dated 6-10-2006 (16 CAPJ 381)].

Sagar Zankhariya (Audit Assist.) (278 Points)
Replied 09 August 2010

@ CA Bijender Sir

Thanks for Sharing

CA Gaurav Rastogi (Finance & Account Officer) (189 Points)
Replied 09 August 2010

I think, If your case falls under scritiny, then you must be able to prove that the payment was required to be made immediately and that delay in payment had caused loss to the creditor. Then only your payment would be allowed. Better not to go by Literal Interpretation.

(Guest)

Dear Friends,

Thanks a lot for your support. Can you tell me whether there is any case law on this context. Have you seen any such payments made only on sundays? I feel people can take lot of advantage of this provision.

abhishek (Job) (132 Points)
Replied 12 August 2010

Payment in cash exceeding 20000 is not disallowed

Bank closed rule 6DD(j) Where the payment was required to be made on a day on which the banks were closed either on account of holiday or strike.

C.A Tinu Sood (Proprietor) (25 Points)
Replied 12 August 2010

Dear all,

I agree with Gaurav. We know how we tackle Income tax cases under scrutiny. We have to take the books with us to let them know about recent ammendments. In this case it would be difficult to make them believe that non payment would cause harm to the creditor, unless exceptional case, which can be documented in case asked by the authorities.

So be very cautious in payemts for cash. It has to be documented along with proper proofs.