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Section 40A(3)

Tax queries 966 views 3 replies

PRANITA DALMIA

Chartered Accountant

30 Points Joined February 2008

If a debtor of a Company pays an amount directly to the creditor of the same Company and then the Company passes an adjustment entry, crediting the debtors and debiting the creditors, whether such adjustment would attract the provisions of section 40A(3) of the Income Tax Act, 1961?

Replies (3)

Late CA Sampat Jain

Chartered Accountant

4772 Points Joined March 2007

The section uses the term otherwise than account payee cheque ...........payemnt by adjustment entry is payment otherwise than account payeee cheque and not in accordance with the provisions;

M.Sriram Shenoy

CA Final

814 Points Joined January 2008

Pranita Ji. I can provide you with a circular, which can prove helpful for you. Circular No.34, year 1970. But it says that the adjustment should be between the same parties (i.e i owe you money and you also owe me money) and not 3 different parties( i.e assessee, debtor and creditor)

S.Srinivasaraghavan

Chief Financial Officer and Co

11318 Points Joined September 2007

40A(3) will get attracted only if the following ingadients should be present 1. Incurring of expenditure 2. Payment In your case both the above are not there. The room for invoking 40A(3) is absent in ur case.