40a(3)

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CA JAYESH RELKAR (Querist)
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17 September 2013 Purchase Rs. 200,000 payment mande in cash Rs. 2,00,000. Does section 40A(3) invoked??

40A(3) says "any expenditure"......
Does purchase falls within the ambit of "any expenditure.

CA Pallav Singhania

CA Pallav Singhania (Expert)
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17 September 2013 If you purchase goods for cash exceeding Rs 20000 it will be disallowed and the addition will be made.

No disallowance will be made in such a case where the goods are capital goods since no deduction of capital goods is taken from the Profits of the assessee.

CA JAYESH RELKAR

CA JAYESH RELKAR (Querist)
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17 September 2013 are you sure Aryan? because our client has made cash payment of Rs. 4,30,000 for purchase.... is there any case law or cicular or notification in this regard??

Nikhil Kaushik

Nikhil Kaushik (Expert)
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17 September 2013 Dear Jayesh,

The act is clear on this disallowance? Just answer this question, IS PURCHASE AN EXPENSE? If the answer is yes, then payment for more than Rs 20000 in cash would attract disallowance unless the case is covered under the proviso thereto.

Sanket

Sanket (Expert)
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17 September 2013 No it will not be disaalowed as you have paid the amount for the purchase of Goods.

And you should have cash memo for the goods purchased.

CA JAYESH RELKAR

CA JAYESH RELKAR (Querist)
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17 September 2013 once aain thanks Nikhil. But after few minutes after asking question one case law comes to my notice which says it is disallowed and purchase also falls within the ambit of section 40A(3). Plz check the following case law.

Relevant case law : Attar Singh Gurmukh Singh (supreme court)

CA Pallav Singhania

CA Pallav Singhania (Expert)
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17 September 2013 At Jayesh,

Thanks for the Case Law,

Best Wishes...

Nikhil Kaushik

Nikhil Kaushik (Expert)
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17 September 2013 Sanket Bhai.

Please refer to the case law referred to by Jayesh.

And please note that any expense hitting the P&L account is covered under 40a3

CA Pallav Singhania

CA Pallav Singhania (Expert)
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17 September 2013 Agree with Nikhil Kaushik ji..

The assessees in these appeals have made payments in cash exceeding a sum of Rs. 2,500 for some of the purchases of stock-in-trade. The payments are not allowed as deductions in the computation of income under the head "Profits and gains of business". The payments are held to be in contravention of the terms of section 40A(3) of the Income-tax Act, 1961, read with rule 6DD of the Income-tax Rules, 1962. The assessees have appealed to this court challenging the disallowance.

Two questions arise for consideration in these appeals : (i) the validity of section 40A(3) of the Act; and (ii) the applicability of Section 40A(3) to payments made for acquiring stock-in-trade.

CA JAYESH RELKAR

CA JAYESH RELKAR (Querist)
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17 September 2013 thanks to all of you for participating in this debate... I am greatful to all of you.

Ganeshbabu K

Ganeshbabu K (Expert)
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17 September 2013 It would be better to refer Rule 6DD Exceptions before disallowing if any of exception applies we can allow the expenditure

https://www.simpletaxindia.net/2009/12/payment-exceeding-20000-40a3-exceptions.html

Nikhil Kaushik

Nikhil Kaushik (Expert)
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17 September 2013 Ganesh ji

absolutely.

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