04 November 2007
Income Tax Act disallows single cash payment of more than Rs. 20000 if paid in cash. Please clarify whether they are single or in multiple vouchers.
04 November 2007
Sec 40 A(3) disallows the payment exceed 20000/towards expenses if it is not made in a/c pay.che or a/c payee draft.
Though you term it has advance,it relate to expenses.Here I would like to add that if the payment is relate to capital expenditure it will not be disallowed.If it is revenue expenditure it will be disallowed in both the cases.
If the payment is more than 20000/single or multiple voucher does,t a matter.If for many vouchers,a single payment is exceed 20000/disallowance will be made.
Limit applies to payment to a party at one time - The statutory limit of Rs. 10,000 applies to payment made to a party at one time and not to the aggregate of the payments made to a party in the course of the day as recorded in the cash book. The word ‘sum’ in section 40A(3) is used only to indicate an amount of money and does not refer to the totality of the expenditure. - CIT v. Aloo Supply Co. [1980] 121 ITR 680 (Ori.).
Limit applies to cash portion of payment - Where the payment was made partly in cash and partly by way of post-dated cheques, section 40A(3) will apply only if the cash payment exceeded the prescribed limit - H.A. Nek Mohd. & Sons v. CIT [1982] 135 ITR 501 (All.).
Limit applies to all items in a bill, and not to individual items - Section 40A(3) concentrates on the size of the payment and the manner of the payment. If different items are included in a single bill, it would not be right to dissect the bill and find out whether each item of expenditure is above Rs. 10,000; the proper way is to read the entries in a wholesome fashion - Addl. CIT v. Shree Shanmuga Gunny Stores [1984] 146 ITR 600 (Mad.).
Limit applies to each transaction - The words used are ‘in a sum’, i.e., single sum. Therefore, irrespective of any number of transactions, where the amount does not exceed the above amount in each transaction, the rigours of section 40A(3) will not apply - CIT v. Triveniprasad Pannalal [1997] 94 Taxman 381 (MP)./CIT v. Kothari Sanitation & Tiles (P.) Ltd. [2006] 282 ITR 117 (Mad.).
Scope of disallowance of cash payments under section 40A(3) - Section 40A(3) applies to all categories of expenditure involving payments for goods or services, which is deductible in computing the taxable income. It does not apply to loan transactions or to payments made by commission agents (arhatiyas) for goods received by them for sale on commission or consignment basis. It does apply to payments made for goods purchased on credit. Hundi transactions entered into in connection with the advancing of loans or the repaying of loans are outside the scope of section 40A(3). Payments made to the grower or producer of agricultural products are excluded from the operation of section 40A(3) even where these have been subjected to some processing by him. Payments, made in towns having banking facilities for purchase of goods from villager whose village does not have banking facilities are not excluded from the requirement in section 40A(3).—Press Note : Dated 2-5-1969, issued by Ministry of Finance.
The word ‘expenditure’ in section 40A(3) covers expenditure of all categories including that on purchase of goods and merchandise as also payment for services. The payments made in advancing loans and returning the principal amount of borrowed moneys are not covered by these provisions of section 40A(3).—Letter : F. No. 1(22)/69-TPL (Pt.), dated 18-4-1969.
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