21 September 2011
Dear Sir My query is if person purchased dd in cash of more than 20000/- in favour of one party and entry is routed through cash book by party a/c dr and cash a/c cr whether is it allowed. or disallowed u/s 40A(3)
Sec.40A(3) speaks about mode of payment and not about entries in Book. if the payment is made through by A/c Payee DD than it will be allowed. to play safe game it is suggested to route this transaction (in Books) from bank Account.
21 September 2011
Although you have made the payment by an account payee DD, however in the books of account you have credited cash account. This is a violation of Section 40A(3).
21 September 2011
I think the node of payment is only important. What if the purchaser of DD has purchased it by directly depositing cash in the bank(maybe not his regular bank but bank of creditor). Then the entry in books would be to Debit Creditor, Debit bank Charges and Credit Cash. In such a case, the Assessee should maintain the counterfoil of the DD application and also the xerox of the DD itself to prove that the payment is made by crossed DD only.
22 September 2011
i think the object of legislature if fulfilled in the given problem so it will be allowed. entry in the BOOKS
XYZ Bank A/c Dr XXXX Bank charges Dr XX To Cash A/c XXXX Payment of Cash for DD
Creditor A/c Dr XXXX To XYZ Bank A/c XXXX Payment by DD
NOTE: even when you do not maintain an account with bank than also you can bring that bank in to your Books for recording the correct effect of transaction.
CAclubindia
