Section 40A(3)

 

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)
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;
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)
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.

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