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Sec 40 a 3 - disallowance of advance to employee

15 February 2013

What are disallowance implications u/s 40 A 3 in following case-

Advance of Rs.60000 paid to employee in cash on 2 apr. 2012. Employee pays that cash to hotel for accomodation charges of guests on 4th april 2012.

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9 Replies

CA Neil Ganatra (Partner - Gautam Joshi & Co.) (871 Points)
Replied 15 February 2013

It will be disallowed.

1 Like

Kunal Narwadkar (Article) (34 Points)
Replied 18 February 2013

Sir, what if payment of adavance Rs. 60000 to employee is spread over 4 days. i.e. 15000 per day & then he makes a full payment of Rs. 60000 to Hotel?.

Dipjyoti Majumdar (CA in service & CS. dipmaj@ rediffmail.com ) (3468 Points)
Replied 18 February 2013

Very good question, Kunal. I shall give an answer, so I am keping this tagged.

Regards,

1 Like

CS,CA F,Numrologi TusharSampat (CS CA F Numerologist Astrologer Graphologist Face reader Vastu Expert) (85930 Points)
Replied 18 February 2013

What is the tax implication if on 1 single day follwing payments are made to diffrent person bt debited to 1 single a/c transport chg a/c.

1)15000 2)14000 3) 15000 Total 44000 (Since limit for disallownace for plying or hiring goods carriage is Rs 35,000) but its made to diff person on 1 single day and also debited n entry booked on 1 single day?

ans soon as its urgent.

Kunal Narwadkar (Article) (34 Points)
Replied 18 February 2013

Mr. Tushar,

Disallowance u/s 40 A 3 is for payment above specified limit to SAME PERSON in one single day. payment to diffrent persons in single day is not disallowed. Hence in your case expense will not be disallowed.

CS,CA F,Numrologi TusharSampat (CS CA F Numerologist Astrologer Graphologist Face reader Vastu Expert) (85930 Points)
Replied 18 February 2013

Originally posted by : Kunal Narwadkar
	Mr. Tushar, Disallowance u/s 40 A 3 is for payment above specified limit to SAME PERSON in one single day. payment to diffrent persons in single day is not disallowed. Hence in your case expense will not be disallowed.

I agree with ur views bt my question is ITO can always argue that since its paid on 1 day for name sake amount is divided in 3 and falsely shown as paid to 3 different person (though in reality its paid) as its debited to same a/c on same day..then how to prove that as when cash payment is made no supporting documents are available as evidence to argue against this argument of assessing officer.

Kunal Narwadkar (Article) (34 Points)
Replied 18 February 2013

In case of unavaliability of supportings ITO will surely Disallow the expense. You should have the acknowledged lorry receipt & bill of Transporter as supporting

Dipjyoti Majumdar (CA in service & CS. dipmaj@ rediffmail.com ) (3468 Points)
Replied 20 February 2013

Kunal

Coming to your original query, my view is if you give advance to your staff @ 15,000/- each in 4 different days aggregating to 60,000 and then after some days the staff makes a payment of 60,000/- in cash to hotel for accommodation, section 40A(3) is not applicable.

Better you pass accounting entries accordingly, like advance to cash and adjust the advance with hotel expenses.

Regards,