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Ca final november, 2014 audit exam

Akshit Batra (Partner) (56 Points)

11 November 2014

Q 5(a) XYZ Ltd. pays Rs. 90000/-for its 6 employees to a hotel as boarding and lodging expenses of such employees for a conference. The company pays amount in cash to the hotel. The Hotel gives 6 bills of Rs. 15000/-.

Whether the same will be allowable as an expense u/s 40 A (3)?

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51 Replies

deva lal jat (article) (30 Points)
Replied 11 November 2014

No separate bills have been raised and which is less than 20000

deva lal jat (article) (30 Points)
Replied 11 November 2014

Yes allowed as expenses

Kirthiga Rao (----) (94 Points)
Replied 11 November 2014

As per section 40(A)(3) of the Income-tax Act,1961, any payment by mode other than account payee cheque or draft (in current illustration cash) to a single person in a single day in excess of 20,000 shall be disallowed. The Company has made payment to the Hotel (a single person - an assessee) in excess of 20,000. Hence, the entire expenditure will be disallowed.

Previously, 40(A)(3) was applicable bill wise. However, the amendment made it clear that it will be to a single person. Hope it clarifies

1 Like

praggamoy dasgupta (Article assistant) (21 Points)
Replied 11 November 2014

Section 40A(3) is not applicable . This section applies wherein , the expenditure as well as the payment exceeds 20,000 . Although the payment is more than 90,000 , however the expenditure is only 15,000( which is less than 20,000) . One has to judge the expenditure from the point of view of each bill , distinct from one another .

CA ANKUSH AGGARWAL (CHARTERED ACCOUNTANT) (2782 Points)
Replied 11 November 2014

disallowed if such treatment is allowed it would be very easy to twist the law dats y payment in a single day to a single person shall not exceed rs 20000

Kirthiga Rao (----) (94 Points)
Replied 11 November 2014

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, an amendment was made through Finance act 2008 and after 01.04.2008, 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.

EXAMPLE :To illustrate with an example, let us assume a taxpayer has incurred an expenditure of Rs 40,000/-. The taxpayer makes separate payments of Rs 15,000/-, Rs 16,000/- and Rs 9,000/- all by cash, to the person concerned in a single day. The aggregate amount of payment made to a person in a day, in this case, is Rs 40,000/-. Since, the aggregate payment by cash exceeds Rs 20,000/-,Rs. 40,000/- will not be allowed as a deduction in computing the total income of the taxpayer in accordance with the amendment.

RATIKANTA PARHI (AUDITOR) (21 Points)
Replied 11 November 2014

Assessee can pay Rs 90000 without attract sec.40A(3)because of fact that question said that 6 bill payment. Evenif payment made to single person there is no disalowane would attract.

CA Nitin Jain (Jaipur) (72 Points)
Replied 11 November 2014

disallowed

CS Dhruv Swami (Student) (157 Points)
Replied 11 November 2014

Disallowed.........

RAMESHWAR KUMAR MISHRA (ARTICLE) (45 Points)
Replied 11 November 2014

Disallowed ..clear cut case

himanshu (student) (33 Points)
Replied 12 November 2014

Disallowed, Bcz, transaction is taken place between XYZ com. and hotel. Where XYZ Com(single assesee) making payment for its expenditure to hotel. So payment of Rs 90000in cash will be disallowed under sec 40A(3) because it exceeds the limit of Rs 20000. Issuance of 6 bill by hotel to XYZ com will not succseed company to avoid diallonce.

bhagwati (employee) (26 Points)
Replied 12 November 2014

Seperate bills. No disallowance. Less than rs 20000 in a day for a single bill. Sepearate bills issued by hotel. Payment made for less than rs.20000 in a day.

ASHISH JAIN (ARTICLE CLERKS) (30 Points)
Replied 12 November 2014

In case of hotel ... Bill is always issued in the name of individual because of security reason...... Same is allowd as expenses under section 37. In this case bill amount less than 20000 so there is no disallowance