Disallowability of expenses U/s 40 A (3) of I.T. Act

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Prabeer (B. COM (H) CA & CS Final) 04 February 2011

Please provide your expert opnion:

X Co. has given a contract for construction of factory to A Co. (contractor).
X Co. purchased some TMT bars (construction materials) of Rs. 80,000/- in cash from a single party on a single day on behalf of A Co. and debited the account of A Co. in its books of accounts and credited cash. The bills and other documents are in the name of A Co.

I seek your opinion that whether the provisions of Sec. 40 A (3) of I.T. Act are attracted, if yes who of the two parties would be disallowed...??

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Pankaj Arora (Learner) 04 February 2011

yes provisions of sec. 40A (3) will attract because you can not pay more than 20000/- in a single day.

Abhijeet Vasant Lande. (Chartered Accountant) 04 February 2011

In my openion the provisions will apply to the company making payment i.e. X co.

Prabeer (B. COM (H) CA & CS Final) 04 February 2011

Sir,

Please clarify with supporting text from the Section..

RaviKumar s (Articled Assistant) 04 July 2012

for X co.. expenditure will bw disallowed.. because he has made payment to the party on behalf of A co.. In A co expenditure is allowed

CA.Varalakshmi.M (Manager-Finance) 04 July 2012

It is a capital expenditure,so no question of allowing and disallowing of expenses under 40 A (3) of I.T. Act

Sunil Kumar V.Peruru (Associate Consultant) 04 July 2012

Under section 40A(3)Expenses are disallowed if payment is made violating the rules, like payment in cash. Purchase of TMT bar is not a revenue expense to claim. Because it is a capital expenditure which is capitalized to asset there is no relevance of section 40A(3).

CA Sripal Jain (Associate Finance) 04 July 2012

Super like for sunil.

SHIVANI MAHESHWARI (CA) 05 July 2012

Originally posted by : Sunil Kumar V.Peruru
	Under section 40A(3)Expenses are disallowed if payment is made violating the rules, like payment in cash. Purchase of TMT bar is not a revenue expense to claim. Because it is a capital expenditure which is capitalized to asset there is no relevance of section 40A(3).