Payment to creditors

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

25 June 2011 Sir, I attended one hearing for the Asst. year 2009-10, last week, in one of my client case, wherein there was purchases of Rs.1 crore, and creditors for the same was 95 lac, as the 5 lac was paid during the year itself by chq. the repayment to the above creditors took place in the year 2009-10, wherein the assessee has paid some amount in cash,

Now my query is whether the ITO disallow such payments for purchase or not?

The cash payment to creditor were made in the year 2009-10, but the scrutiny is for the asst. year 2009-10

pl clarify

CA PARAS BAFNA

CA PARAS BAFNA (Expert)
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26 June 2011 The reason for disallowance of any expenditure U/s 40A(3) is cash payment exceeding Rs 20000/ - on a single day.

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In my view, against any expenditure, if cash payment exceeding 20000/- in a single day is found to be made, even if such payment is made in a subsequent year, the expenditure can be disallowed in the year in which the expenditure is incurred.

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The point of time when it is allowed or not becomes secondary specifically when the section itself does not have any mention for the point of time. In the absence of such prescription generally understood meaning of "payment" has to be taken. In general sense payment is made at a future date.

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So, in the absence of any clause related with the payment's point of time, it should be understood at the expenditure's point of time.

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