Disallowance of expenses in excess of 20000 in cash in a day

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Mohan Singh (Querist)
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17 May 2017 If an assessee make payment to bank in cash in excess of 20000 to make a DD in favour of creditors for an expense

Is there any consequences as per Section 40 A(3) i.e this expense is allowed or not ???

CA Altamush Zafar

CA Altamush Zafar (Expert)
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17 May 2017 Giving bank 20000 for DD of same is not an expense. Its conversion of one form of money to another. The payment to creditor of 20000 will be allowed in income tax. This limit has been reduced to 10000 by finance act 2017

Mohan Singh

Mohan Singh (Querist)
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17 May 2017 Dear Sir

If it is just conversion of money than why in Income tax act, the word Account payee demand draft is mention???

Why they not use the word Demand draft only??

CA Altamush Zafar

CA Altamush Zafar (Expert)
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17 May 2017 Are there any demand drafts issued by bank which can be bearer instruments??

Mohan Singh

Mohan Singh (Querist)
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18 May 2017 It is possible,
If DD is not account payee or crossed than it means it is bearer

But as per RBI NotificationDD in excess of 20000 must be crossed

CA Altamush Zafar

CA Altamush Zafar (Expert)
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18 May 2017 Personally i have never seen bearer drafts as account payee is already printed on drafts and while applying fir DD you have to tell the name of the payee.

CA Altamush Zafar

CA Altamush Zafar (Expert)
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18 May 2017 Anyway the purpose of the clause is to discourage large payments in cash therefore if you pay through bank your expense will be allowable. Bearer instruments are rare practically.

Mohan Singh

Mohan Singh (Querist)
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18 May 2017 Thanks sir

For giving your valuable time and for your suggestion

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