Cash Deposit by Debtors to Creditors

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This query is : Resolved

Murtaza I Bhagat (Querist)

03 January 2010 Disallowed or not if any Debtors is depositing cash above Rs.20,000/- into Creditors bank A/c

Thanks in advance

Aditya Maheshwari

Aditya Maheshwari (Expert)

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

CA Nitin Wadhwani

CA Nitin Wadhwani (Expert)

04 January 2010 Since it is through banking channels it would not be disallowed.

Aditya Maheshwari

Aditya Maheshwari (Expert)

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.

Murtaza I Bhagat

Murtaza I Bhagat (Querist)

08 January 2010 thanks all of your for your cooperation.

CA Ayush Agarwal

CA Ayush Agarwal (Expert)

16 February 2013 Pls Refer The Case:-

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.

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