03 January 2010
Whose point of view are you talking about... If creditors receive cash no disallowance to him. If debtors deposit cash then disallowed in debtors hand as payment of more than rs. 20000 by cash
04 January 2010
If payment towards any expenditure exceeds Rs 20,000, it must be by means of account-payee crossed cheque or draft. If not, the entire expenditure is not eligible for deduction.
The monetary limit of Rs 20,000 is prescribed in Section 40A(3) and there are certain exceptions to the disallowance, which are mentioned in Rule 6 DD.
Cash payment by the buyer into the bank account of the supplier of merchandise does not fall within the exception and, hence, liable for disallowance. In the K. Abdu & Co vs ITO (2008 170 Taxman 297 Kerala) case, cash payment into the bank account of the supplier was held as breach of Section 40A(3) and liable for disallowance.
Bangalore Tribunal in Sri Renukeswara Rice Mills Vs Income-Tax Officer (reported in 93 ITD 263 - 278 ITR 77
Its Allowed.
The whole purpose of Sec 40A(3) is to break the mechanism of traill less transsactions, & this transactions has very much established the trail what was required.
CAclubindia
