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Sec.40A(3) of IT Act

Varshit Shah (Self Employed) (676 Points)

23 April 2009

Hello everyone. I m a CA Final student. I have doubt on Sec. 40A(3) of IT ACT. As From AY 09-10 , amended rule for payment made in excess of Rs.20000 other than a/c payee cheque is in force , due to which the entire expenditure will be disallowed if made to a single person.

Mr. X has purchased a raw material / use its services or any other thing from his Creditor Mr. A. Mr. A has given 2 bills dated 17.10.08 (for Rs.15000) & 25.10.08 (for rs. 17000). Mr. X had made payment in cash on 27.10.08 for Rs.32000/-. whether it is allowed u/s 40A(3) ?

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11 Replies

(Guest)

The entire amount will be disallowed.

Since 27th october was not a holiday and separate bill does not make any difference.

(Guest)

If there is only one bill of Rs.32000 and payment has been made 18000 and 14000 on different date then this will be an allowed expences

hope its clear.

Vrnanda (auditor) (110 Points)
Replied 24 April 2009

Hi,

It is has nothing to do with the number of bills,

Question here whether the payment is made more than Rs. 20,000/- or not.

If yes, i am support the view of the Mr. Ali Raza 100%.

vijay (.) (212 Points)
Replied 24 April 2009

The payment of Rs. 32,000 will not be eligible for deduction while computing inome tax.but u havent mentioned where Mr. X lives, if Mr. X lives in a Place where there is no bank then it will be allowed.

Where the payment is made to the producer, cultivator, or grower for the purchse of

(a) Agricultural of Forest Produce,

(ii) The product of animal husbancry or diary or polutory farming

hope this will suffice your requirement...

if not please specify the status of Mr. X.

Reagrds

Vijay Kumar

praveen (Chartered Accountant) (6971 Points)
Replied 24 April 2009

Originally posted by :Md.Mosharraf Ali Raza
"	If there is only one bill of Rs.32000 and payment has been made 18000 and 14000 on different date then this will be an allowed expences hope its clear.	"

Md.Mosharraf Ali Raza

if the payment is made over 20000 it does not depend on no of bills. However if there was one bill of 32000 and payment is made in 15000 and 17000 then also it will not be allowable based on concept of split payments.

Dilip vishwakarma (Article trainee) (22 Points)
Replied 24 April 2009

Dear Freinds,

Before applying any law or amendment, we must see since when it is applicable..In our case the wordings go like this

The following sub-sections (3) and (3A) shall be substituted for sub-section (3) of section 40A by the Finance Act, 2008, w.e.f. 1-4-2009 :

(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 payeee cheque drawn on a bank or account payeee bank draft, exceeds twenty thousand rupees, no deduction shall be allowed in respect of such expenditure."

From the above it is clear that this is effective from 01-04-2009 and not before that in your case Mr. X had made payment in cash on 27.10.08 for Rs.32000/- so as per earlier law it is not disallowed as there is evidence showing two seperate bills.

pavankumar (Pursuing CA) (12 Points)
Replied 24 April 2009

what is said is right

SWANAND AGASHE (PARTNER) (31 Points)
Replied 24 April 2009

Dear

to get attracted to provisions of Sec 40 A ( 3 ) both the bills as well as the payment in cash should exceed 20000. so as your bill does not exceed 20000. you are not covered u/s 40 A ( 3 )

Manmohan ACA, CS (Chartered Accountant ) (14243 Points)
Replied 24 April 2009

get attracted to provisions of Sec 40 A ( 3 ) both the bills as well as the payment in cash should exceed 20000. so as your bill does not exceed 20000. you are not covered u/s 40 A ( 3 )

Varshit Shah (Self Employed) (676 Points)
Replied 24 April 2009

thank u so very much all of u for giving ur opinion on my query. but now i m more worried that , whatever the question i have asked is been explained in one of the well known author's book which i m using as a study material . He said that such kind of entries are allowed. I have also confirmed the Same with one of the "CIT" , he also said it is allowed. so if u people have any cases with reference to this pls let me know. Again thanks a lot.

vijay (.) (212 Points)
Replied 26 April 2009

Dear Varsh*t

I am agree with Mr. Manmohan as the payment made is less than Rs. 20,000 then Section 40 (A) (3) is not applicable in your case and you can claim expemption for the same.

Regards

Vijay Kumar