amendment in section 40A(3)

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rachit jain

rachit jain (Querist)
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25 March 2009 Please explain recent amendment in sec 40A(3)with example

CA LOKESH KASAT, FCA, M.Com

CA LOKESH KASAT, FCA, M.Com (Expert)
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25 March 2009 Payment made in a day otherwise then by account payee cheque will be disallowed.

Ex. Bill No. 4123: amounting Rs.34,000.

You apid 18,000 on 25/3/09 at 10:00 am and balance 16,000 on 25/3/09 at 4:00 pm.
Although payment made at a time is less then 20,000 for single bill but in a day for single bill exceeding Rs.20,000. therefore complete payment will be disallowed.

ICSI ICAI ICWAI

ICSI ICAI ICWAI (Expert)
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26 March 2009 Hi

Is it not true that payment in the previous year will also be disallowed??

Taranjit Singh

Taranjit Singh (Expert)
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26 March 2009 Hello dear,
According to the judicial opinion, 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 prescribed amount in each transaction,the rigours of section 40A(3) will not apply.

To overcome the splitting of payments to the same person made during a day as referred above and to increase the efficacy of the provision, the amendment seeks to substitute the present provision to provide that where a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, exceeds twenty thousand rupees, the disallowance of such expenditure shall be made under the proposed sub-section (3) of section 40A or the payment shall be deemed to be the profits and gains of business or profession under the proposed sub-section (3A) of section 40A,as the case may be.

To illustrate with an example, let us assume a taxpayer has incurred an expenditure of Rs 40,000/-. The taxpayer makes separate payments of Rs 15,000/-, Rs 16,000/- and Rs 9,000/- all by cash, to the person concerned in a single day. The aggregate amount of payment made to a person in a day, in this case, is Rs 40,000/-. Since, the aggregate payment by cash exceeds Rs 20,000/-,Rs. 40,000/- will not be allowed as a deduction in computing the total income of the taxpayer in accordance with the proposed amendment.

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