If one deposits cash in bank account of his supplier (remote place) directly in his city, more than Rs.20,000/-, on a single day is it covered by section 40 A (3). Secondly, what is Electronic clearing system (ECS) ?

Dear,

U need to check this one out in the Rule 6DD ( this will answer your first Question)

Second one is about ECS - Dear this is used by many people now a days

e.g. u can made ECS for the Purpose of Your Monthly bills of Electricity, Gas, Telephone Etc. - just u need to fill a ECS ka Form for the same - these bills will then be paid automatically from your bank Account.

U can create SIP in mutual Funds - fill the SIP ka Form & the same will be paid Automatically from your bank account.

Sunil

It is not covered by 40A(3).

ECS is a system whereby you can transfer amount from your account to other parties account without writing cheque. You have just to inform Bank about amount and details of transferee. 

ECS (Electronic Clearing System) Under which a person provide his bank standing instruction by providing him duly filled form with on blank singned crossed cheque in order to deduct certain fixed amount from your bank a/c and remit it to the agency/person to whom favour ECS Facility is endorsed, under ECS a fixed range of date of clearing is provided for clearing

i  dnt think ur case shud attract sec 40A(3)

it will attract disallowance u/s 40A(3)........ as payment have been made by means other than account payee cheque/draft........... even though in other's bank directly.......

and as far as ECS is concerned......... all above comments are right and will be helpful for you........

dear friend

if the remote place is a kind of place where banking facility are not easilly available. then it should not attract sec.40A(3). otherwise it will be disallowed under the aforesaid saction.( in this case i think it will be allowed)

as far as ECS is concerned i agree with above friends.

regards

tarun rustagi

IT WILL ATTRACT DISALLOWANCE UNDER SEC.40 A(3). THE REASON WHY CASH DEPOSIT IN THE SUPPLIER  A/C IS DISALLOWED IS THE REVENUE (IT DEPT) HAS TO MONITOR THE FUND MOVEMENTS FROM ONE PERSON TO ANOTHER PERSON TO CHECK TAX EVASION.  

IN U R CASE, THE  REVENUE CANNOT ASCERTAIN AS TO WHO HAS DEPOSITED THE MONEY.  HE HIMSELF CAN DEPOSIT.....EVEN I TOO CAN DEPOSIT IN HIS NAME.... SINCE THERE IS NO PROOF FOR THE DEPT. AS WHO HAS DEPOSITED / PAID  THE MONEY....THE DEPT WANTS EVERYONE TO USE THE BANKING SYSTEM TO TRACE THE PAYER / BUYER AND RECEIVER / SELLER.....DEALING IN  TRANSACTIONS ABOVE RS. 20000....

Simply if the said transaction is covered by any of the circumstances prescribed under Rule 6DD of the Income Tax Rules, No disallowance of the expenditure for the purchase made from the supplier shall be made u/s 40A(3).

Otherwise 100% disallowance shall be attracted under the abovementioned section.

ECS - agree with already explained by others.

U need to check this one out in the Rule 6DD  

in case of ECS - Dear this is used by many people now a days

e.g. u can made ECS for the Purpose of Your Monthly bills of Electricity, Gas, Telephone Etc. - just u need to fill a ECS ka Form for the same - these bills will then be paid automatically from your bank Account.

U can create SIP in mutual Funds - fill the SIP ka Form & the same will be paid Automatically from your bank account.