Friends.........
Please explain sec 40A(3) and also the amendment made in Finance Act 2009.......
should not exceed Rs.20000/- means per bill / per day / per payment?????
please help me........
Ratan Deep Saxena
(Asstt Manager (Accounts & Finance))
(2998 Points)
Replied 03 April 2010
ratan
RAMESH KUMAR VERMA
( CS PURSUING )
(43848 Points)
Replied 03 April 2010
Rule 6 d Of The Income Tax Rules Rule Deals With, Cases and circumstances in which a payment or aggregate of payments exceeding twenty thousand rupees may be made by a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft.
RULE BEFORE AMENDMENT
The main part of the Rule earlier read as, No disallowance under clause (a) of sub-section (3) of section 40A shall be made and no payment shall be deemed to be the profits and gains of business or profession under clause (b) of sub-section (3) of section 40A where any payment in a sum exceeding twenty thousand rupees is made otherwise than by an account payee cheque drawn on a bank or account payee bank draft in the cases and circumstances specified hereunder, namely:-
RULE AFTER AMENDEMENT
Now the amended Rule reads as, No disallowance under sub-section (3) of section 40A shall be made and no payment shall be deemed to be the profits and gains of business or profession under sub-section (3A ) of section 40A where 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 in the cases and circumstances specified hereunder, namely:-
In the 2008 Finance Act, Section 40 A has been amended as follows:-
Amendment of section 40A
In section 40A of the Income-tax Act, for sub-section (3), the following subsections shall be substituted with effect from the 1st day of April, 2009, namely:-
“(3) 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.
(3A) Where an allowance has been made in the assessment for any year in respect of any liability incurred by the assessee for any expenditure and subsequently during any previous year hereinafter referred to as subsequent year) the assessee makes payment in respect thereof, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, the payment so made shall be deemed to be the profits and gains of business or profession and accordingly chargeable to income-tax as income of the subsequent year if the payment or aggregate of payments made to a person in a day, exceeds twenty thousand rupees:
Provided that no disallowance shall be made and no payment shall be deemed to be the profits and gains of business or profession under sub-section (3) and this subsection where 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, in such cases and under such circumstances as may be prescribed, having regard to the nature and extent of banking facilities available, considerations of business expediency and other relevant factors.”
The Government explained this amendment as follows:-
Amendment to the provisions of section 40A (3) of the Income-tax Act, Section 40A (3)(a) of the Income-tax Act, 1961 provides that any expenditure incurred in respect of which payment is made in a sum exceeding Rs.20,000 /- otherwise than by an account payee cheque drawn on a bank or by an account payee bank draft, shall not be allowed as a deduction. Section 40A (3)(b) also provides for deeming a payment as profits and gains of business or profession if the expenditure is incurred in a particular year but the payment is made in any subsequent year in a sum exceeding Rs. 20,000/- otherwise than by an account payee cheque or by an account payee bank draft. However, the provisions of this section are subject to exceptions as provided in Rule 6DD of the Income-tax Rules, 1962.
Section 40A (3) is an anti tax-evasion measure. By requiring payments to be made by an account payee instrument, it is possible to verify the genuineness of the transaction thereby mitigating the risk of evasion. It has come to notice that the provisions of section 40A (3) are being circumvented by splitting a particular high value payment to a person into several cash payments, each below Rs. 20,000/-. This splitting is also resorted to for payments made in the course of a single day. Courts have also held that the statutory limit in section 40A (3) applies to payment made to a party at one time and not to the aggregate of the payments made to a party in the course of the day as recorded in the cash book. According to the judicial opinion, the words used are `in a sum’, i.e., single sum.
Therefore, irrespective of any number of transactions, where the amount does not exceed the prescribed amount in each transaction, the rigours of section 40A (3) will not apply.
To overcome the splitting of payments to the same person made during a day as referred above and to increase the efficacy of the provision, the amendment seeks to substitute the present provision to provide that where 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, the disallowance of such expenditure shall be made under the proposed sub-section (3) of section 40A or the payment shall be deemed to be the profits and gains of business or profession under the proposed sub-section (3A) of section 40A , as the case may be.
The proviso to the proposed sub-section (3A) provides that in certain prescribed cases and circumstances the provisions of proposed sub-sections (3) and (3A) shall not apply.
This amendment will effect
Accordingly Rule 6DD is amended accordingly.CBDT Notification No. 97/2008 [F.NO. 142/10/2008- TPL], dated:
CA AYUSH AGRAWAL
(Kolkata-Pune-Mumbai)
(26986 Points)
Replied 03 April 2010
Balaji,
I Think Just to Read The Section & Get UR Concept Clear .no way !!!!!
U Have to Take Example ask it...we can give u solution...............with concept
CA Anshu Agarwal
(B€ @LW@¥$ ]-[@Pp¥)
(1832 Points)
Replied 03 April 2010
Payment otherwise than by A/c Payee Cheque or Bank Draft:
[section 40A(3)]: -
Ø Where expenditure has incurred by the assessee
Ø payment made to a person otherwise than by an account payee cheque or draft
Ø in a day
Ø exceeds Rs.20000/- in a day.
No deduction shall be allowed for such expenditure.
[section 40A(3A)]:-
Ø in case, assessee follows mercantile system of accounting
Ø any expenditure has been allowed as deduction in any previous year on accrual basis.
Ø Now in any subsequent year, payment is made in violation of section 40A(3)
The payment so made shall be chargeable to tax in the year of payment.
Note:
The payment made in the circumstances and cases covered under rule 6DD, are allowable.
Rs.35000 shall be considered in case of payment made for plying, hiring or leasing goods carriages.
Laxmi Mittal
(Practice)
(188 Points)
Replied 04 April 2010
Sir!
Our Client is engaging in supply of Waste paper to various Paper Mills , which is being used by them as raw material for the manufacturing of Kraft Paper.
From the word' Waste Paper' it is simple that the item is such wherin the suplier of the Waste Paper are not operating from the organised activities & do not have any Bank account/ PAN Card etc.
As soon as the Truck/ Tempo load comes , it is unloaded in Paper Mills on our clients challan. It is weighed in the factory & unloaded.
Based upon the approved quantity , the client raise Sale Bills on Paper Mill by charging VAT. Paper Mills release payment by cheque . In turn , after withdrawing from Bank, it is distributed on the same day to the supplier as per approved quantity of Waste Paper certified by the Paper Mill.
However in books, the cash payment to single party is accounted as payment made to respective supplier as below Rs. 20000/- in a single day. For example , if the cost of the Waste Paper is Rs. 50000/-, in books it will be shown as payment made in 3 days by splitting Rs. 5000/-.
I.T. department want to apply Section 40A(3) by disallowing al purchases of Waste Paper.
Is there any exception in Rule 6D .??
If the cash payment is not made, the business of the client has to be closed. All Waste Paper supliers act in same fashion as stated above.
Is there any recent Case Law, Rule, whereas it is ruled that if it is not poossible to carry on business if the above procedure is not followed???
Pl let us know.
CA Laxmi Mittal
S K SINGH
(CA FINAL)
(42 Points)
Replied 12 April 2010
SECTION 40(A) (3)
Further under the existing provisions of sections 40A(3) the Income-tax Act, if an assessee incurs any expenditure in respect of which payment in excess of Rs 20,000 is made otherwise than by an account payee cheque or account payee bank draft, such expenditure is not allowed as a deduction. As a large number of small truck owners/drivers have little working capital and do not have bank accounts outside their home cities, they insist on payment in cash for undertaking long haul journeys, as they need cash for incurring en-route expenses on diesel, food and repairs etc and such expenses generally exceed Rs 20,000/-. This causes operational problems to those who have to pay for their services.
To address this problem, it is proposed to raise the limit of cash payment to such transport operators to Rs 35,000/- from the existing limit of Rs 20,000/-.
These amendments will take effect from the 1st day of October, 2009 and will accordingly apply to transaction on or after such date.
CA Sudhir Chaurasia
(Chartered Accountant)
(21 Points)
Replied 30 January 2016
Can Diesel expense of 40000 paid in cash at a single time allowed as business expense
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