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Pls Help me Sec 40A(3)

n!tE$h GarG (CA Final) (216 Points)

20 October 2010

As per sec 40 A (3), sum of Rs. more than 20,000 can not b paid in cash.

So my ques. is dat ?

Can we deposit more than 20,000 cash directly in Supplier's Bank A/c instead of cash paid to him.

is that allowable ?

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32 Replies

Sharad Saini (Student) (286 Points)
Replied 20 October 2010

if u makes payment by any mode other than a a/c payee cheque or bank draft then it shall attract disallowance u/s 40A(3).. so in my opinion if u deposits money directly into bank account then it shall be disallowed.

Devendra (Chartered Accountant) (4775 Points)
Replied 20 October 2010

Direct deposit in excess of Rs. 20000 in the supplier's bank account attracts section 40A(3).

CA Himanshu Bansal (Risk Manager) (2345 Points)
Replied 20 October 2010

Originally posted by : Sharad Saini
	hi if u makes payment by any mode other than a a/c payee cheque or bank draft then it shall attract disallowance u/s 40A(3).. so in my opinion if u deposits money directly into bank account then it shall be disallowed.

Agreed, as per the section 40A(3), Only a/c payee cheque or draft will do, else disallowed.

CA Sandeep Kumar (Audit Assistant) (804 Points)
Replied 20 October 2010

Mere technical default shall not be considered for disallowance u/s 40A(3). Please note that intention of law is not to penalise the assessee just because payment is made is modes which is not recognised. If you have proof that cash has been deposited to supplier's bank account directly, it will NOT be disallowed, that is not the intention of law. Go to basics, 40A(3) was introduced to plug revenue leakage, in your case there is no such activity which may tantamount to revenue leakage.

Please revert. Correct me if am wrong.

1 Like

CA Madhukiran Reddy (CHARTERED ACCOUNTANT) (12714 Points)
Replied 20 October 2010

yes depositing of cash more than 20000 into suppliers a/c will attract the provisions of 40A(3)

Santhosh Poojary (SIEMPRE AHÍ PARA TI) (15607 Points)
Replied 21 October 2010

Dear Nitesh

Even if you are Depositing Cash Amount which is More than Rs 20000 into Suppliers A/C then also its attracts the provisions of Sec 40A(3) .

Regards

SAN

CA Parag Shukla (Practicing Chartered Accountant) (153 Points)
Replied 21 October 2010

Yes it attracts sec 40A(3)

CA Keyur Shah (Finance Manager) (403 Points)
Replied 21 October 2010

Please refer this link ....

https://www.caclubindia.com/experts/disallowances-of-exps--153626.asp

Shyamal Mistry (Final Student) (282 Points)
Replied 21 October 2010

It is disallowed.....

Rknahar (Rupesh Kumar Nahar) (85 Points)
Replied 21 October 2010

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.
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.
Person are 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.

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 proposed amendment.

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 take effect from 1st April, 2009 and will accordingly apply in relation to assessment year 2009-10 and subsequent assessment years.

NITIN AGARWAL (Practice) (21 Points)
Replied 21 October 2010

Yes it will attract the disallowance u/s 40A(3).

Manjunatha G (Audit Senior B Com ACA ACS) (97 Points)
Replied 21 October 2010

Intension of the law is important for introduce any provision in the law. The intension for introduce Sec 40A(3) is to curbed the transaction made cash mode. As long as the payer is able to proove the payment is made directly into the account of the payee account then such sum would not be disallolwed under section 40A(3). The mere reading of payment in cash in excess of Rs.20,000/- itself is not sufficient to disallow the expense and nature of trasaction and genuinity of the transactions also to be considered while disallowing the expense. In this case the expense certainly not to be disallowed as it is paid directly into the payee account.

Ca Aashish Upadhyay (CONSULTANTS) (913 Points)
Replied 21 October 2010

Principally Yes! but if the circumstances of the case permits such deposit than it can be allowed. So read section 40A(3) together with rule 6D and relevant case laws and decide.