Dear All, First Expenditure need not be interpretted as singular all we know that we call income and expenditure account and not as incomes and expenditures account. Second the term any expenditure is used in the act. It need not be a single head of account but can be of multiple heads. Third there is no limit mentioned for expenditure and there is only limit for the payment by cash in a single day. Hence the payment if it is more than 20k in a single day will be fully disallowed. Further even if a single pary is paid by cash from more than one branches of a concern then also it will be disallowed. Try to accept the purpose of enactment as many of the members have alreay pointed this.
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Sec 40A(3)
Replies (112)
Dear All, First Expenditure need not be interpretted as singular all we know that we call income and expenditure account and not as incomes and expenditures account. Second the term any expenditure is used in the act. It need not be a single head of account but can be of multiple heads. Third there is no limit mentioned for expenditure and there is only limit for the payment by cash in a single day. Hence the payment if it is more than 20k in a single day will be fully disallowed. Further even if a single pary is paid by cash from more than one branches of a concern then also it will be disallowed. Try to accept the purpose of enactment as many of the members have alreay pointed this.
Fatema,
What you're saying is right. But, I don think the govt. would have missed this kinda backdoor in this section.So, in all probabilities i THINK its virtually certain that the payments are gonna be disallowed by the AO in these circumstances.
Dear V. Mahaganapathi,
IT WAS THE FINEST REPLIES OF ALL.HOPE EVERYONE UNDERSTANDS IT.THANK TO U AND ALL .
| Originally posted by :Pankit Sheth | ||
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If an enterprise pays Rs. 15,000/- pertaining to a particular expense and also pays Rs. 16,000/- pertaining to some other expense (both in cash) on a single day and to a same party then will this expense be allowed or disallowed u/s 40A(3)?? The above mentioned expenditure will be allowed as deduction because as per sec 40A(3) any cash expense in excess of Rs.50000 or in aggregate is disallowed only. |
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Plz read this carefully
INCOME TAX – PAYMENT OF MORE THAN RS 20,000/- (AMENDEMENT IN RULE 6d OF THE INCOME TAX RULES)
Oct 14, 2008 Income Tax
Rule 6 d Of The Income Tax Rules Rule Deals With, Cases and circumstances in which a payment or aggregate of payments exceeding twenty thousand rupees may be made by a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft.
RULE BEFORE AMENDMENT
The main part of the Rule earlier read as,No disallowance under clause (a) of sub-section (3) of section 40A shall be made and no payment shall be deemed to be the profits and gains of business or profession under clause (b) of sub-section (3) of section 40A where any payment in a sum exceeding twenty thousand rupees is made otherwise than by an account payee cheque drawn on a bank or account payee bank draft in the cases and circumstances specified hereunder, namely :-
RULE AFTER AMENDEMENT
Now the amended Rule reads as,No disallowance under sub-section (3) of section 40A shall be made and no payment shall be deemed to be the profits and gains of business or profession under sub-section ( 3A ) of section 40A 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 in the cases and circumstances specified hereunder, namely:-
In the 2008 Finance Act, Section 40 A has been amended as follows:-
Amendment of section 40A
In section 40A of the Income-tax Act, for sub-section (3), the following subsections shall be substituted with effect from the 1st day of April, 2009, namely:-
“(3) Where the assessee incurs any expenditure in respect of which 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, no deduction shall be Allowed in respect of such expenditure.
If this helps u out, plz reply
if both of the expenses paid by way of same bill total amount will be disallowed, different bills then 40A(3) not applicable.
hello mahaganapathi sir u have mentioned that expendidure need not be interpretted as singular i agree with u but i want to ask u whether before amendment in F.A 2008 if payment is made aginst two bill ( expense under same head) in cash in excess of limit to diff person then would it be disallowed us 40A(3) as both bills are considered as an expenditure. before F.A 2008 these words were not in d provision that payment made to a person
please clarify me
hello mahaganapathi sir u have mentioned that expendidure need not be interpretted as singular i agree with u but i want to ask u whether before amendment in F.A 2008 if payment is made aginst two bill ( expense under same head) in cash in excess of limit to diff person then would it be disallowed us 40A(3) as both bills are considered as an expenditure. before F.A 2008 these words were not in d provision that payment made to a person
please clarify me
Dear Tarun Sharma
I understand your point. Since there was lacuna in the act the same got corrected wef 1.4.2009 by including the word "to a person in a day". By reading the then provision we understand only the expenditure part and not the liability part. But wef 1.4.2009 the act referres to the discharging of a liability with reference to any expenditure. Now it is very clear that the act is not considering the expenditure but it consideres discharging of any liability arised due to any expenditure. And if such liability is paid by cash in a day to a person more than 20k such portion of expenditure alone disallowed. Ex:- XYZ Ltd incurred expenses for a sum of Rs.150000/-. All the expenses are in combination of values (ie. some more than 20k and some less than 20k) Now XYZ Ltd paid on various days all by cash out of which two payments are more than 20K (Assumed 21000 and 23500). Now the present provision is to disallow the 44500/- irrespective of the size of an expense (may be less than 20K). Hope u can understand this.
The above reply of MR. mahaganapathi.v is absolutely rite that we will see the aggregate of the payments made to a party in a single day other wise the purpose of this provision will be defeated. but i want to made some addition to this topic just for knowlege.. There is a case held in which Assesee was doing more than on transactions in a day but if the amount in each transation does not exceed the limit prescribed in sec 40 A (3) , the rigors of section 40 A (3) will not apply..
The case was KOTHARI SANITATION & TILES (P) LTD . (MADRAS)
Dear Varun Sharma
Can i know the case law year pl? is it after 1.4.2009 case or pertaining to old provisions.
@ Varun...
Yes its correctly interpreted according to the provisions of 40A(3) in 2006. But this section has been amended to cover this loophole in the FY 2008-09
its allowable////
i think in amndment FA 2008 only d payment in one time has been amended with payment (either single) or (if more than one payment of same expenditure) aggregates of payment in a same day. & whole d provision is same as it was. hence if earlier exp was allowed on basis of single bill then now it also should be on d basis of single bill
& in income tax intention of law maker is totally irrelevant otherwise that amendment was not required to be inserted
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