Avoidance of disllowance u/s 40A(3)

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Abhishek (Querist)
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12 October 2007 What if i make the following planning to avoid disallowance u/s 40A(3)???

Instead of crediting cash I credit the expense to any of my employee's account and then pay him cash in instalments of less than Rs.20,000???

CMA Gul S

CMA Gul S (Expert)
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12 October 2007 Hi Abhishek,

this would Not Acceptable, This would be questionable and trapped. So please avoid such trx

Abhishek

Abhishek (Querist)
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12 October 2007 but how can it be tracked and why is it not acceptable??....

R.V.RAO

R.V.RAO (Expert)
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12 October 2007 IF YOU HAVE EXHAUSTED THE EXCEPTIONS UNDER RULE 6DD,THERE IS NOTHING PRIMA FACIE WRONG IF WE CREDIT EMPLOYEES ACCOUNT AND SETTLE THE CREDIT BY PART PAYMENTS, IF EMPLOYYES CAN WAIT TO RECEIVE PIECE MEAL PAYMENTS.
BUT THE BOTTOMLINE IS A WARNING THAT SUCH CONTINUOUS PRACTICES IF ANY NOTICED BY ASSESSING OFFICER IN SCRUTINY MAY LAND THE ASSESSEE IN TROUBLE.
HOWEVER YOU MAY EXPLORE IF EMPLOYEES CAN GET EACH DIFFERENT BILL FOR BELOW RS. 20000, TO SOLVE YOUR PROBLEM.
40A (3) IS NOT ATTRACTED IF A SINGLE PAYMENT ABOVE RS. 20000 IS SETTLED PARTLY IN CASH AND BALANCE IN CHEQUE IF THE CASH ALONE DOES NOT EXCEED RS. 20000.
40A(3) does not apply when we dont claim a deduction under any sec between 30 to 37
like say donation etc...
after disallowences under other sections like say SEC 40 A(2),only on the balance amount (if it exceeds RS. 20000,then only) DISALLOWANCE AS PER 40A(3) WILL TAKE PLACE.
R.V.RAO

CMA Gul S

CMA Gul S (Expert)
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12 October 2007 Hi Abhishek,

to be specific to your question, how can that be tracked. you would maintain the books with payment to the same person 2-3 times in cash during the financial year and that also would not be under the head Salary or any admissible Expenses.

Also i would agree with Mr Rao's statement that the employee would not wait long for the full settlement and looking into you accouts it would easily be tracked

Abhishek

Abhishek (Querist)
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12 October 2007 I mentioned employees just for an example....rather i would be crediting some X person...

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