Sec 40A(3)

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This discussion clarifies Section 40A(3) of the Income Tax Act concerning cash payments. Generally, payments exceeding Rs. 10,000 in a single day, made in cash, are disallowed unless specific exceptions under Rule 6DD apply. This includes payments for hardware and petrol. Mobile purchases paid for in cash may not be disallowed under this section, but depreciation won't be claimable. Expenses charged to the profit and loss account are covered by these rules, which now also apply to charitable institutions.

Krishna Joshi

Krishna Joshi (Querist)

25 August 2020 Q1. A manufacturing company paid above rs 10000 in a single day to a creditors against a single invoice for hardware purchased (stores & spares) . is is disallowed u/s 40A(3) or not.

Q2. Payment made for Rs 12000 in cash in a single day for purchase of petrol to a single person is it disallowed.

Q3. Payment made Rs 15000 in cash for purchase of a mobile , is it disallowed.

Q4 . what expenses should be consider for sec 40A(3

Please reply.

CA Ankith Jain

CA Ankith Jain (Expert)

26 August 2020 Yes, all the expenses mentioned in Q1, Q2 are disallowed. However, you need not disallow purchase of mobile if it was treated as fixed asset.

PARAS CHHAJED

PARAS CHHAJED

(Expert)

26 August 2020 Section 40A(3) and 40A(3A) - Any payment made otherwise than by Account Payee Cheque/ bank Draft or through electronic transfer except as provided under Rule 6DD in excess of Rs.10000 in a day (All payments to be aggregated) to a person against any expenditure
or to a creditor is disallowed in full and accordingly the issues in Q1 and Q2, the sum paid shall be liable to be disallowed.
As far as Q3 is concerned there will be no disallowance u/s 40A(3) but no depreciation shall be allowed on such asset as payment there for has been made in cash.

Reply to Q4 - Any expenditure, purchase etc. which is charged to profit and loss account shall be covered.

The rigours of s. 40A(3) / 40A93A) are now applicable to charitable. Institutions as well.

Krishna Joshi

Krishna Joshi (Querist)

26 August 2020 Thank You.
I have a another question
Q. Paid to a contractor in cash rs 10000 in a day for labour charges for a single invoice of rs 65000/- whole payments are made in cash as rs 10000 in a day in different days . is it allowed expense

please reply

PARAS CHHAJED

PARAS CHHAJED

(Expert)

26 August 2020 Yes. It is allowable as there is no payment exceeding Rs.10,000 in aggregate in a day.

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