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Sec-40a(3)

Souvik Kumar Ghosh (CA Final) (1368 Points)

16 January 2012

Payments made in cash amounting to Rs. 5000 on 1st day of each month for 6 months is recorded via a single entry in accounts i.e

Expense A/c Dr. 30000

To cash 30000

Is it liable for disallowance u/s- 40A(3) of the Income Tax Act?

Regards

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14 Replies

(Guest)

Just split the entries and pass every month as 6entries. Then only it is right treatment. Now the entry passed you is wrong. ok

VIGNESH (Manager Finance &Accounts) (327 Points)
Replied 16 January 2012

As Srinivas told, pass an entry for each month i.e 6 enlries on 1st of every month.

Expenses A/c Dr 5000

To Cash 5000

Since 40A(3) attracts only if single payment in a day to a single person exceeds Rs.20000. so in your case Single day transaction is very well with in the limit of Rs. 20000

Souvik Kumar Ghosh (CA Final) (1368 Points)
Replied 16 January 2012

But if I don't pass the entries can it be disallowed u/s 40A(3)?

Dipjyoti Majumdar (CA in service & CS. dipmaj@ rediffmail.com ) (3468 Points)
Replied 16 January 2012

Why you like to pass an aggregate entry. If you do not pass day by day entry your book cash balance will not reflect a true and a fair view. Or is there a cash deficit ?

SIDDHARTH KOTHARI (N.A) (280 Points)
Replied 16 January 2012

It will surely be dissallowed except the nature of the expenditure is such that which is covered by Rule 6DD of the IncomeTax Rule.

CA Gaurav Choradia (Relationship Manager ) (418 Points)
Replied 16 January 2012

No disallowance....

mistake in preparation of accounts is not basis of disallowance... ifthe supporting of payment are maintained properly then no disallowance...

reason being disallowance is related with Payment not with recording in books

CA Sunil Kumar Parjapati (ACA Senior Manager- Accounts & Finance) (224 Points)
Replied 16 January 2012

As per sec 40A(3), if the AGGREGATE payment to the SAME person during a day exceeds Rs. 20000, then the entire amount would be disallowed .

Accounting entry will not change decide the allowance or disallowance .

The thing is that payment to same person should not exceed RS. 20000 in a particular day.

suchit shah (Dy. Manager(Finance & Accounts)) (208 Points)
Replied 16 January 2012

Yes Mr. Ghosh it will surely going to be disallowed U/S 40(A)3....

and Mr. Gaurav.... as far as income tax and audit of accounts is concern ur accouts has to get tallied with ur supportings....if u say it was ur mistake... the department would be least concern.... n actually ur auditor will disallow this expense him self as it is very basic kind of a mistake that no auditor would miss it....................

Regards

Suchit

suchit shah (Dy. Manager(Finance & Accounts)) (208 Points)
Replied 16 January 2012

Yes Mr. Ghosh it will surely going to be disallowed U/S 40(A)3....

Nitin Kumar Mishra (Account Executive) (38 Points)
Replied 16 January 2012

If cash payment exceed Rs.20000 in a day to a particular person, it is disallowed u/s 40a(3)

If you make a single entry for Rs.30000, it will be consider as a single payment, as it is cash payment and will actract sec. 40a(3) and the expenses will be disallowed.