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Section 40a(3): disallowance of cash payment exceeding rs.20

Nutan Kumar (Article assistant) (58 Points)

01 June 2013

Sir

An company is paid a cash advance to a contractor more than 20000/- in a single day. Expenses are journalised on later dates upon submitting the bills. Wether these expenses are disllaowed u/s. 40A(3) of IT Act.??

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5 Replies

Rahul Jalan (Chartered Accountant) (121 Points)
Replied 01 June 2013

Yes, it shall be disallowed under sec 40A(3A) and not 40A(3) in the previous year in which expense is debited...

1 Like

Pawan Mittal (CA Final) (702 Points)
Replied 01 June 2013

YES, I agree with Mr. Rahul Jalan. Payment will be disallowed u/s 40(A)(3A).

(Guest)

Originally posted by : Pawan Mittal
	YES, I agree with Mr. Rahul Jalan. Payment will be disallowed u/s 40(A)(3A).

Mihir Manohar (CA Final - Article Assistant) (474 Points)
Replied 03 June 2013

Hmm thats true that the corcerned expense is disallowed. But how the contractor will make expenses if he hasn't given any advance... and why he would come different days to collect the advance???

M V S N SHARMA (GENERAL MANAGER ACCOUNTS) (26 Points)
Replied 05 September 2013

Payment of advance is not an expenditure. When the expenditure is booked by a journal entry supported by a proper bill, no dis allowance under 40A(3) can be made.

Extract of rule 6DD e is given below.

Rule 6DD e) 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.

In order to avoid complications the liability for the expenditure to be created before the payment is made.

M V S N SHARMA