Section 40A(3) of Income Tax Act, 1961

Yes, section 40A(3) applicable on the same.

If each bill is not more than 20000/- than a person can pay more than 20000/- in cash same day. But if a singhal  bill is more than 20000/ than you can not pay more than 20000/- in cash in a day.

Ajay kumar sir..do u seriously feel AO will allow such payment if its for same type of expenditure and same party and in aggregate exceeds 20000....

@ hareesh...

AO has to allow....the rule says....no single payment in a exceeding Rs 20000 "IN A SINGLE DAY"

it means if u pay 5000, 6000, and 10000 in a single day it will be disallowed u/s 40A(3)...

but if u pay 5000 today...6000 tomoro...and 10000 day aftr tomoro...then AO has to allow such payments...he cannot invoke 40A(3)...

for your information.....if payments are made for  plying, hiring or leasing goods cariages..the limit is 35000....other criteria remain the same.... this amendment is effective from 1-10-2009 with a prospective effect...

dear abhilesh i was talking abt same day only...as said in the ques

If the assessee makes the payment of 2 diff. bills (none of them exceed 20,000) at the same time in cash ,sec 40A(3) not applicable even if aggregate is more than 20,000.

This is because of the fact that sec 40A(3) applicable only in respect of an "expenditure" which is excess of 20,000.

⁹⁵(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.^95a

Mr. Abilesh u r 100% correct, what u r saying.

But, this question is about 2 bills, whose payment is made in single day.

Originally posted by : Hareesh H Sharma
	Ajay kumar sir..do u seriously feel AO will allow such payment if its for same type of expenditure and same party and in aggregate exceeds 20000....

I dont feel it will be allowed by just splitting the bills. The words in the act are any expenditure, not any bill. Bill is not expenditure, it is only a supporting external evidence for expenditure....

Please see the definition of expenditure

Actual payment of cash or cash-equivalent for goods or services, or a charge against available funds in settlement of an obligation as evidenced by an invoice, receipt, voucher, or other suchdocument. A revenue expenditure is cash used in payment for goods and services consumed in a short period. A capital expenditure is cash used in purchase of fixed assets that last one year or more.

https://www.businessdictionary.com/definition/expenditure.html

To me, if the separate identity of transactions is established (not by bills) then AO may give a lenient interpretation that it can be allowed, but most probably not.

Cos you can see that the amendment was brought about, to dislodge the one-on-one relationship between payment and expenditure.

The decision in aloo supply company case, was that 40A(3) concentrates on the size of payment and manner of payment, and not the totality of the expenditure....

In that decision, it was held that "SUM" meant a single amount of money paid, to be measured separately at each point, so the word sum was replaced by "payment or aggregate payments in a day"...

You may not that there are many cases where HCs and SC have held that "any" is a word which has multiplicity of meaning, which should be interpreted according to the intent of legislature, which is to prevent payments to a party in excess of 20,000 IN A DAY..... Any can mean one, all, either etc, and its use in the singular sense also correctly fits into english grammar as far as plural sense is concerned...

Hence it is strongly suggested that payments in excess of 20,000 should not be made to a person, even if it is against different expenditures (Again, EXPENDITURES, Not Bills)

Better to play safe by splitting payments over different days, than by getting fingers burnt....

Thanks GK for  Explanation

Dear Friends,

In aloo supply co case i just referred in previous post,

ASSESSEE DID NOT EVEN KNOW HOW MUCH IS THE CASH FLOW/EXPENDITURE FOR THE DAY WHEN PAYMENT WAS MADE........

Cos he used to make payments in morning, midday, afternoon, evening, etc. as per the demand arose in his business... In the end of the day or a couple of days later, his supplier used to give him a consolidated bill.

It was acceptable to the court that the same was expedient to the business to make payment without knowing the final expenditures..... the problem to revenue was the use of the words "a sum", which in the opinion of the court referred to a specified amount of money, as was the usage in parlance.

If u go thru the judgement fully, u will be able to appreciate why the importance of 40A(3) is only on the volume and nature of payment. So here

https://law.incometaxindia.gov.in/DitTaxmann/IncomeTaxActs/2006ITAct/[1980]121ITR0680(Ori).htm

Dear friends the expenditure will be disallowed because w.e.f  A Y 2009-10 onwards aggregate payment in a day is to be considered whether bill amount is more than or less than Rs. 20,000/- wont have any effect on payment.

Originally posted by : Ketan Kumar G Shah
	Dear friends the expenditure will be disallowed because w.e.f  A Y 2009-10 onwards aggregate payment in a day is to be considered whether bill amount is more than or less than Rs. 20,000/- wont have any effect on payment.

Dear Arun,

i feel section 40A(3) will not be applicable in the present case.

This is because of the fact that section 40A(3) is applicable only in respect of an "Expenditure" which is in excess of Rs 20000 /- . In other words, unless the amount of bill and amount of payment exceeds Rs 20000 /- , section 40A(3) is not applicable.

The text of section 40A(3) is reproduced for your ready reference.

“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.

 Hope this clarifies the matter.

Regards

So friends the act was amended just to bring single bill above 20000 to the purview of 40 A 3 huh???? u mean the words aggregate of payments was brought just to avoid splitting up of payments of SAME bill???and not aggregate payments under different bills??? its hard to digest..may be true...But i wud like to know whether the AO has allowed any such bills in practical case....if so that wud solve the issue i suppose...