20 May 2009
one of my client purchases made around 35 lakhs. Payment made in cheque around 18 lakhs balance amount he paid in cash in every month spilting cash payment less then 20,000/- amount. U/S 40A(3) Attract or not. there is no cash payment towards expenses. All purchases billing maount b/w range 50,000 to 1,50,000/-
20 May 2009
Section 40A(3) will not be applicable, as in ur case, payment in cash has been made less than Rs. 20,000/- in every month. For ur clear reference,Check out this case- Aloo Supply Co.(1980) 121 ITR 680(Ori.) More than one payment in single day: when a person makes various payments at different times during a day to the same person( Note:this has to be proved) and each of such payment is below Rs. 20,000/-, Section 40A(3) is not applicable, even if the aggregat of such payments exceeeds Rs. 20,000/-,no disallowance can be made under this section.
21 May 2009
Please note that Section 40A(3) was amended & is in force from AY starting from 01-04-09. Now if you make payments in excess of 20,000/- to any person in a perticular day in cash against various invoices (below 20K) this section will attract.
Please read amended section
The following sub-sections (3) and (3A) shall be substituted for sub-section (3) of section 40A by the Finance Act, 2008, w.e.f. 1-4-2009 :
(3) Where the assessee incurs any expenditure in respect of which a payment or aggregate of payments made to a person in a day, otherwise than by an account payeee cheque drawn on a bank or account payeee bank draft, exceeds twenty thousand rupees, no deduction shall be allowed in respect of such expenditure.
(3A) Where an allowance has been made in the assessment for any year in respect of any liability incurred by the assessee for any expenditure and subsequently during any previous year (hereinafter referred to as subsequent year) the assessee makes payment in respect thereof, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, the payment so made shall be deemed to be the profits and gains of business or profession and accordingly chargeable to income-tax as income of the subsequent year if the payment or aggregate of payments made to a person in a day, exceeds twenty thousand rupees:
Provided that no disallowance shall be made and no payment shall be deemed to be the profits and gains of business or profession under sub-section (3) and this sub-section 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, in such cases and under such circumstances as may be prescribed, having regard to the nature and extent of banking facilities available, considerations of business expediency and other relevant factors.
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