Dd purchased in cash - whether allowed u/s 40a(3)

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ram gurbani (Querist)
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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)

rgds,

CA. Rajesh P. Ahir

CA. Rajesh P. Ahir (Expert)
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21 September 2011 Dear Ram,

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.

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ram gurbani

ram gurbani (Querist)
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21 September 2011 DD is purchased in cash of more than rs. 20,000 whether allowed.

CA Siddhartha Bhardwaj

CA Siddhartha Bhardwaj (Expert)
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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).

Rajagopalakrishnan R

Rajagopalakrishnan R (Expert)
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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.

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CA. Rajesh P. Ahir

CA. Rajesh P. Ahir (Expert)
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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.

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