Cash payment Sec. 40 A

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Sikander Singh (Querist)

11 February 2011
What are the limits for making cash payments for expenses in FY 2010-11. This would be applicable for purchase of Raw Material or not?
Let me explain:-
Assume party doing business in fruit purchase & sale. They pay 10 Lacs to a party for the purchase of fruits in local market in cash. In this case 40 A(3) applicable? This payment dissallowed?

Kumar Babu.G

Kumar Babu.G (Expert)

11 February 2011 Since purchase of raw material is a direct expenditure and is allowed as a deduction under Income Tax Act,limit under section 40A(3) is applicable to that

Sikander Singh

Sikander Singh (Querist)

11 February 2011 Let me explain:-
Assume party doing business in fruit purchase & sale. They pay 10 Lacs to a party for the purchase of fruits in local market in cash. In this case 40 A(3) applicable? This payment dissallowed?

CA. Lohith Jagadeesh

CA. Lohith Jagadeesh (Expert)

12 February 2011 Hi
I Slightly Disagree with Expert Mr.Kumar

Sec 40A(3)

Normal Business Expenditure = Rs. 20000/-
Payment made for plying, hiring or leasing goods carriages = Rs. 35000/-

Though its a business expenditure, Rule 6DD read with Notification No: 97/2008 dated 10/10/2008 needs to be analysed in detail.

Rule 6DD & Notification

It says among other things
"payments made to agricultural or forest, or produce of Animal Husbandry, or Dairy or Poultry or Fish or Fish Products, or products of Horticulture, Apiculture , to a CULTIVATOR, GROWER, PRODUCER OF SUCH PRODUCTS"

SUMMARY

If the payments is made to "CULTIVATOR, GROWER, PRODUCER OF SUCH PRODUCTS" then Sec 40A(3) may not be applicable & there will not be any Disallowance.

However if the Payments are made to local market Vendors who are NOT "CULTIVATOR, GROWER, PRODUCER OF SUCH PRODUCTS" then
Sec 40A(3) may be attracted & therefore Disawllowance.

Hope i have resolved the issue,

For further clarifactions, pls Join my Community "Lo Aca" & feel free to post any issues. Will answer to the best of my abilities.

THANK YOU

Regards
CA. LOHITH. J
B.Com,ACA,CS,(ICWA),SAPM Hons,ITF Hons

Sikander Singh

Sikander Singh (Querist)

14 February 2011 yeah u r right Mr. lohith. thnx

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