Cash above 20000 deposited into suppliers bank account

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Merina (Querist)
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16 April 2013 Hi the company I am auditing is running construction business. For meeting expenditure sometimes they deposit money into the suppliers/ clients bank account directly (above Rs 20,000). Will such expenditure come under 40(A)(3) and get disallowed or is it ok to continue so? Kindly reply...

CA Vikas Acharya

CA Vikas Acharya (Expert)
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16 April 2013 yes disallowed as there written any means other than account payee cheque drawn on a bank or account payee bank draft.
hence disallowed

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deepa

deepa (Expert)
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16 April 2013 Yes, totally agree with CA Vikas Acharya.As section 40A(3) of Income tax act clearly mentions that the payment made above Rs.20000/- in respect any expense by any mode otherwise than by an account payee cheque drawn on bank or account payee bank draft shall be diasllowed.

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Merina

Merina (Querist)
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16 April 2013 Thanks experts. But I have also read in many places that internet fund transfer is also allowable(Not cash deposit).

CA Vikas Acharya

CA Vikas Acharya (Expert)
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16 April 2013 Miss, internet fund transfer reflects in your bank account, therefore allowed.
but directly deposit to there account will not reflect in your bank account, and scope of manipulation increased therefore, not allowed.

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Merina

Merina (Querist)
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16 April 2013 Yes I just wanted to add that (fund transfer) to the list you have mentioned - account payee cheque drawn on a bank or account payee bank draft. Thanks

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MAHENDRA KUMAR BAGRECHA

MAHENDRA KUMAR BAGRECHA (Expert)
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16 April 2013 Hi,

Please refer CIT Vs. Venkatadhri Constructions 213 taxman 180(madras)(mag) where it was held that cash payment into payee's a/c is not as good as payment by account payee cheque as required u/d 40A(3).

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