Is 40a(3) applies for advance
This query is : Resolved
24 October 2013
HELLO, I am in a tax audit of a private company, this company had paid more than 20000 as ADVANCE for travelling to foreign in foreign currency, than this 40a(3) applies?? and also advance is not an expense, so can you please help me
Nikhil Kaushik
(Expert)
24 October 2013
On first look it should not. But if you really see, you have paid in advance for expenses to be borne on a later date which will hit your P&L. So be prudent while deciding on such matters.
24 October 2013
40A(3) doesn't attract.
Courtesy:- 'Issues on tax audit' and ICAI publication.
Courtesy:- 'Issues on tax audit' and ICAI publication.
24 October 2013
Advance if are converted to exp later and is debited to profit and loss a/c in foriegn currency still will not be attracting sec 40A(3).
Nikhil Kaushik
(Expert)
24 October 2013
Well, I prefer to follow judgments of the courts instead of ICAI publications which often land the assessee in soup later on.
Please refer to the following judgments wherein advances (for revenue expenditure) were disallowed:
Kejriwal Iron Stores v. CIT [1988] 169 ITR 12 (Raj.)
Nathalal Jethalal.vs Commissioner Of Income Tax. 99 ITR 757
Vijay Kumar Ajit Kumar. vs Commissioner Of Income Tax. 191 ITR 391
In Vijay Kumar, while ruling in favour of the revenue, it was held that "Whether the payment is made prior to delivery of goods or after delivery of the goods, it is payment in cash and it is payment of consideration for the goods."
Please refer to the following judgments wherein advances (for revenue expenditure) were disallowed:
Kejriwal Iron Stores v. CIT [1988] 169 ITR 12 (Raj.)
Nathalal Jethalal.vs Commissioner Of Income Tax. 99 ITR 757
Vijay Kumar Ajit Kumar. vs Commissioner Of Income Tax. 191 ITR 391
In Vijay Kumar, while ruling in favour of the revenue, it was held that "Whether the payment is made prior to delivery of goods or after delivery of the goods, it is payment in cash and it is payment of consideration for the goods."
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