Section 40a(3) - Cash Payment above Rs. 20000

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This query is : Resolved

Deepak Kumar (Querist)

15 June 2011 Hi

I have come across a interesting case wherein I wants to take your opinion.

Case: One construction company having various construction sites wherein site-in-charge have been appointed for dealing day-to-day expenses of the concern site. The company is transferring required amount of fund to their account for meeting expenses.

What I observed there that for avoiding cash payment above Rs. 20000, site-in-charge is making payment by issuing account payee cheque from his personal account to parties.

I wants your opinion whether this practice is legally allowed to avoid cash payment exceeding Rs. 20000 or whether it still attracts section 40a(3)for company.

Apart from the income tax, Is there any other non-compliance on the part of company.

CA Rajendra Purohit

CA Rajendra Purohit (Expert)

18 June 2011 Company is required to deduct tax at source if the payment is made to any work contract or any other payment which attracts TDS rules.
Apart from this as such the practice is not wrong, as we have observed whenever employee goes on travel for company purpose, the employee makes the expense and same is reimbursed by the company. However, how the company is considering this advance given to the site in charge is to be considered.
And what type of payments are made are also to be considered, as whether it is for freight then service tax liability is on company and if payment for contract then TDS rules, etc

These are my views. Experts are invited to correct it.

CA PARAS BAFNA

CA PARAS BAFNA (Expert)

19 June 2011 For Section 40A(3)the relevant issue to be considered here is-
1. Whether the payments made by the company to the site-in-charge are as per the requirement of Section 40A(3)?
And,
2. Whether the payments made by the site-in-charge to the respective parties are as per the requirement of Section 40A(3)?
In both the cases cheques are issued to Payees Account.
In my view , expenditure can not be disallowed under section 40A(3).

CA PARAS BAFNA

CA PARAS BAFNA (Expert)

19 June 2011 In case payments are made after considering the applicable TDS and Service Tax provisions, and later the company fulfills its obligations related with TDS & ST, I think, there remains no objectionable issue with the tax authorities.

As far as compliance is concerned, it is always remains incomplete. The important thing is how we represent the case in a particular situation.

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