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Section 40a(3)

This query is : Resolved 

Suppose on 11/03/2013 assessee purchased goods from X ltd as stated below;
Bill no. Amt
101 10,000
102 15,000
103 10,000
and amt paid on the same day for all bills in CASH
i.e.,11/03/2013.whether it is allowed or disallowed as per sec.40A(3)

Assuming you made all payments in cash, the amounts would be disallowed u/s 40A(3)

but bill will be less than 20,000

For the purchases of goods if the bill amount doesn't exceeded more than Rs 20000 then section 40A(3) doesn't attracts. So for your case no disallow u/s 40A(3) if it is cash purchases.

In case on this day it is credit purchase and on the next or any day after purchase you make total amount of Rs.35000 payment by cash then section 40A(3) disallow attracts.

OM SAI SRI SAI JAI JAI SAI

Thus section 40A(3) exempted to the cash purchases where the single bill doesn't exceeded Rs.20000.

OM SAI SRI SAI JAI JAI SAI

"Where the assessee incurs any expenditure in respect of which a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, exceeds twenty thousand rupees, no deduction shall be allowed in respect of such expenditure."

The inclusion of words "Aggregate of payments made to a person in a day" makes it apparent that even if payments pertain to multiple invoices, if payment exceeds 20,000 in a day, the same would be disallowed.

Yes, that condition is applicable for the payment. But the above case is cash purchases for cash purchases section 40A(3) doesn't attracts if the single bill doesn't exceeded Rs.20000.
Sir, CA Suraj Lakhotia saying about the payment of expenditure. But the case is cash purchases Please go through the section 40A(3) it gives clarification regarding the cash purchases.

OM SAI SRI SAI JAI JAI SAI

@ Dintakurthi,

Cash Purchase is also an expenditure.

I could not understand what you meant when you say " 40A(3) gives clarification regarding cash purchases"

as per sec 40A(3) payment made include "all payments" and any type of "expenditure" made in a day hence sec40A(3) attracts and CA Suraj Lakhotia sir is right.

Hai to all,

As per the Taxman's reconer(book) Under the scope of section 40A(3) the following provision is there:

If any assessee makes payment of two different bills(none of them exceeds Rs.20000(in the case of payment for Plying,hiring or leasing goods carriages w.e.f 1-10-2009 Rs.35000)) at the same time in cash or by bearer or crossed cheque, section 40A(3) is not applicable even if the aggregate payment is more than Rs.20,000(35,000 for some case said above). This is because of the fact that section 40A(3) is applicable only in respect of any "expenditure" which is in excess of Rs.20,000(35,000). In other words,for applicability of section 40A(3) both the payment and amount of bill(or expenditure) alone at one time doesn not exceed Rs.20,000(35,000) section 40A(3) is not attracted.

Based on the above provision and explanation i supporting the query in our case section 40A(3) doesn't attracts to our query. Based on this provision for some of our clients we didn't consider 40A(3) payment while making tax audit for the cash bills doesn't exceeded Rs.20000 for one bill but aggregate of cash bills on that day exceeded Rs.20,000.

So if i am wrong please support your answer with any provision or explanation or case law or etc.... because of i have to correct my self and update my knowledge and has to improve my profession.

Thank you,

OM SAI SRI SAI JAI JAI SAI

https://www.caclubindia.com/experts/disallowance-for-expenditure-in-cash-419035.asp#.UT8zlTBgd8U

I have tried searching online and have landed on this link. There are no doubt different views on this topic.


Read the last but one reply on the discussion where the author has posted a reply received from ICAI

I interpret it this way -

"incurs any expenditure" - it does not specify expenditure in one transaction or one bill. Expenditure are broad heads appearing in Profit and Loss account of a business. Salary is an expenditure and so are purchases.

Thus where an expenditure is incurred (in this case purchases) in respect of which payments exceed 20,000 in a day, 40A(3) would be attracted.

Sir, You said link case relates to the credit purchases first made and later that paid through cash. I.e amount paid to creditor in such case i also agree to apply of section 40A(3).

But our case is cash purchases in a single day with different bills but no bill exceeded Rs.20000. But you said case is credit purchases as well as on different dates but cash paid by more than Rs.20000 on a single day for that case section 40A(3) applies i also agree with that.
But what i am saying is if cash purchases in a single day exceeding Rs.20000 with different bills but no bill amount doesn't exceeded Rs.20000 in such case section 40A(3) doesn't applicable that is i am saying. Please compare the question at the link provided by you and the question at our case and then analise and understand the difference and cases and answer me with comparision of provision said by the taxman's book i said above my reply.
Sir, i am not arguing with you just i requiring clarification and confirmation and differentiation of situations and correct solution with proper support.
I am sorry if i hurt you, and please excuse me if i making problem to you.

OM SAI SRI SAI JAI JAI SAI

Dintakurthi,

There is nothing like being hurt. Its a professional forum and a professional discussion. There can be differences of opinion.

40A(3) does not differentiate between cash expenditure or credit expenditure.

But according to the taxman's book it saying section 40A(3) doesn't apply to the cash purchases if a single bill doesn't exceeded Rs.20,000/- So the explanation to the section 40A(3) as per the taxaman's book may be wrong.

OM SAI SRI SAI JAI JAI SAI

As mentioned in the link above (reply from ICAI), there are divergent views on this.

Is any case laws in your knowledge regarding on this query because of different view then we have to base any case law. If you have any case law please provide me.

OM SAI SRI SAI JAI JAI SAI

if its not relate to purchase and its reltate to other bill {i.e.,repair)& same query as above?
then it will be allowed or disallowed as per sec40(a)

The word used in section 40A(3) is expenditure. So the above discussion would be applicable for all expenditure

if bill dated on 13/03/2013 amt Rs15000 & on 15/03/2013 amt Rs 15000 & payment made on 17/03/2013 (i.e.,Rs30000) then it would be allowed or disallowed as per sec40A(3)

Should be disallowed. As a precaution it is always better to make payments by cheque



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