Section 40a(3): disallowance of cash payment exceeding rs.20

YES, I agree with Mr. Rahul Jalan. Payment will be disallowed u/s 40(A)(3A).

Hmm thats true that the corcerned expense is disallowed. But how the contractor will make expenses if he hasn't given any advance... and why he would come different days to collect the advance???

Payment of advance is not an expenditure. When the expenditure is booked by a journal entry supported by a proper bill, no dis allowance under 40A(3) can be made.

Extract of rule 6DD e is given below.

Rule 6DD e) where the payment is made by way of adjustment against the amount of any liability incurred by the payee for any goods supplied or services rendered by the assessee to such payee.

In order to avoid complications the liability for the expenditure to be created before the payment is made.

M V S N SHARMA