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Request solution for query under sec.40a(3) income tax act

Anand Mohan (Proprietor) (55 Points)

07 April 2016

Sir/madam, Whether under sec.40A(3) of the Income tax Act in case an assessee square off his amount of purchases payable to party "Y" against the amount due from party "Z" for sales made, this square off will be disallowed treating as expenditure otherwise than through account payee cheque or it will be allowed as purchase expenditure without any hassles. Any case law may please be quoted.

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5 Replies

CA Raj Doshi (Practising CA) (8723 Points)
Replied 07 April 2016

If there is internal arrangement between the debtor and creditor than the amount receivable from debtor is directly payable to creditor then no disallowance. But confirmations and relevant extract of bank statements of bank account of both the parties will be required to prove the same.

Anand Mohan (Proprietor) (55 Points)
Replied 07 April 2016

Sir, is there any case law to fortify this analogy. Pl quote.

thanks

CA Raj Doshi (Practising CA) (8723 Points)
Replied 07 April 2016

Please search on google with " debtor paying directly to creditor 40A ( 3 ) disallowance case laws "

CA and CMA Ravinder Singh (CA and CMA) (853 Points)
Replied 07 April 2016

Sec 40A(3) was introduced the discourage cash transactions. Further, the principle of "substance over form"...so adjustment against another debt is allowed nd nt disallowed under 40A(3).

sajeb (Article) (44 Points)
Replied 09 April 2016

Exception-Rule 6DD

No disallowance shall be made under sec 40a(3) in the following situations:

When payment is made on the day when there is bank holiday or strike.
When payment is made to a person who resides or does business in a village where there is no bank facility.
When payment is made to government and it is required to pay in cash. Like deposits, tax to government.
When payment is made to

Reserve Bank of India,
state bank of India,
Co-operative bank or land mortgage bank,
any primary agriculture credit society
LIC

5. Where the payment is for the purchase of manufactured products and power was not used in production.

6. Where payment is made by way of book adjustment

7. Where payment is for following purchases

Agriculture or forest products
Animal husbandry or poultry farming products
Fish products or fish
Agiculture or horticulture products

8. Where the payment is made by

Letter of credit arrangement via bank
Mail or telegraphic transfer
Book adjustment in bank
Bill of exchange payable to a bank
Credit card or debit card
Electronic transfer

9. When payment is for gratuity or retrenchment compensation to employee or his legal heirs and salary of the employee does not exceed Rs 50000

10. When the payment is for employee’s salary after deducting TDS and when such employee (read about TDS in detail)

Is transferred to place other than his normal place of duty or on ship for fifteen days or more.
And he does not maintain bank account at that place or ship

11. Where the payment is to agent by principal where agent has to pay in cash for goods and services on behalf of principal.

12. Where payment is made by money changer for purchasing of foreign currency or traveler’s cheque.