section 40A(3)
This query is : Resolved
19 May 2009
Section 40A (3)
The provisions of the section will apply if
Condition: 1
The assesse has incurred an expenditure which is otherwise deductible under the provisions of the Act for computing the income under the head Business/Profession Income. The amount incurred Exceeds Rs.20000/-
Condition: 2
The payment for the above mentioned expenditure (or part thereof) Exceeds Rs.20000/-
Condition: 3
The payment mentioned in (ii) above has been made otherwise than through an account payee cheque or account payee bank draft
Query: Accordingly if the assesse has incurred an expenditure on printing and stationery to Raj Stationers vide Bill No.1 Rs.18000,Vide B.No.15000.The assesse has cleared the above payments amounting to Rs.33000/- in cash in a single day .Whether provisions of Sec 40 A(3) applies to the above mentioned case ?
Solution: No, section 40A (3) does not apply in the above case.
The same view is supported by the author singhania in taxmann publication and another author in bharath series student guide to income tax.
Whether there is any notification or circular supporting the above view or contrary to the above view?
Please help me urgent, thanks in advance ?
The provisions of the section will apply if
Condition: 1
The assesse has incurred an expenditure which is otherwise deductible under the provisions of the Act for computing the income under the head Business/Profession Income. The amount incurred Exceeds Rs.20000/-
Condition: 2
The payment for the above mentioned expenditure (or part thereof) Exceeds Rs.20000/-
Condition: 3
The payment mentioned in (ii) above has been made otherwise than through an account payee cheque or account payee bank draft
Query: Accordingly if the assesse has incurred an expenditure on printing and stationery to Raj Stationers vide Bill No.1 Rs.18000,Vide B.No.15000.The assesse has cleared the above payments amounting to Rs.33000/- in cash in a single day .Whether provisions of Sec 40 A(3) applies to the above mentioned case ?
Solution: No, section 40A (3) does not apply in the above case.
The same view is supported by the author singhania in taxmann publication and another author in bharath series student guide to income tax.
Whether there is any notification or circular supporting the above view or contrary to the above view?
Please help me urgent, thanks in advance ?
19 May 2009
Now the secion 40A(3) is amended an includes that single payment exceed Rs. 20000 to one party in one day then whole of the expenditure is disallowed.
19 May 2009
not applicable
19 May 2009
Yes.
They would not be disallowed.
They would not be disallowed.
20 May 2009
Section 40A(3) of the I-T Act says that, where an assessee incurs any expenditure in respect of which payment in excess of Rs 20,000 is made, otherwise than by a account payee cheque or account payee bank draft, such an expenditure shall not be allowed as deduction.
The following points should be considered to understand the scope of Sec.40A(3): n If an assessee makes payment of two different bills (none of them exceeds Rs 20,000) at the same time in cash or by bearer cheque, Sec.40A(3) is not applicable even if the aggregate payment is more than Rs 20,000. This is because of the fact that Sec.40A(3) is applicable only in respect of an ‘expenditure’ which is in excess of Rs 20,000. In other words, for Sec.40A(3) to be applicable both the payment and amount of bill (or expenditure) should exceed Rs 20,000. n Where more than one payment is made to a party on the same day, the ceiling limit applies to each such payment and not to the aggregate payment. This was held in the case of CIT vs Aloo Supply & Co (1980) 121 ITR 680 (Orissa) and CIT vs Triveniprasad Pannalal (1997) 94 Taxman 381 (MP).
In view of this, Sec.40A(3) of the I-T Act is not applicable to you, since you have made payment in instalments and each instalment does not exceed Rs 20,000. It is irrelevant that the aggregate payment during the year exceeds Rs 20,000. This is because of the fact that Sec.40A(3) is applicable only for an ‘expenditure’ which exceeds of Rs 20,000.
The following points should be considered to understand the scope of Sec.40A(3): n If an assessee makes payment of two different bills (none of them exceeds Rs 20,000) at the same time in cash or by bearer cheque, Sec.40A(3) is not applicable even if the aggregate payment is more than Rs 20,000. This is because of the fact that Sec.40A(3) is applicable only in respect of an ‘expenditure’ which is in excess of Rs 20,000. In other words, for Sec.40A(3) to be applicable both the payment and amount of bill (or expenditure) should exceed Rs 20,000. n Where more than one payment is made to a party on the same day, the ceiling limit applies to each such payment and not to the aggregate payment. This was held in the case of CIT vs Aloo Supply & Co (1980) 121 ITR 680 (Orissa) and CIT vs Triveniprasad Pannalal (1997) 94 Taxman 381 (MP).
In view of this, Sec.40A(3) of the I-T Act is not applicable to you, since you have made payment in instalments and each instalment does not exceed Rs 20,000. It is irrelevant that the aggregate payment during the year exceeds Rs 20,000. This is because of the fact that Sec.40A(3) is applicable only for an ‘expenditure’ which exceeds of Rs 20,000.
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