Query on sec.40a(3) of it act'1961

Dear All,

My client had purchased land of an extent of 3 acres in cash for Rs.2.00 crores by various parties (viz., 10 vendors) and sold the same in the form of plots after setting aside land for roads formn and for other amenities.

Assessing officer while processing return of income u/s.143(2) of IT Act'1961 had pointed out that entire purchs being made in cash and debited to P & L account may be disallowed u/s.40A(3) of IT Act'1961

Kindly provide your valuable guidance & support in this regard

Replies (3)
treat it as capital assets (stcg) not as business act if carried to p/l ac purchases will be disallowed

If it is his business then it will be disallowed under 40A (3), otherwise treat it as capital asset.

But then can he show how he got huge cash, this may attract penalty also.

kumar,

you may show the situatiin why it is paid by cash. Since all the sellers are new and they insist on cash payments, then the AO may admit it. otherwise you may get letters from the sellers that the payments were to be made in cash only ans file the letters with AO

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