Cash of more then 20000 deposited into the account of creditor will be disallowed u/s 40A (3)
If payment towards any expenditure exceeds Rs 20,000, it must be by means of account-payee crossed cheque or draft. If not, the entire expenditure is not eligible for deduction.
The monetary limit of Rs 20,000 is prescribed in Section 40A(3) and there are certain exceptions to the disallowance, which are mentioned in Rule 6 DD.
Cash payment by the buyer into the bank account of the supplier of merchandise does not fall within the exception and, hence, liable for disallowance. In the K. Abdu & Co vs ITO (2008 170 Taxman 297 Kerala) case, cash payment into the bank account of the supplier was held as breach of Section 40A(3) and liable for disallowance.
View expresses By:-
CA.Parminder Singh
Ludhiana
CAclubindia
