Expenses disallowed under section 40A (3) made in Cash and their Exceptions means any expenditure incurred in respect of which payment is made in a sum of exceeding Rs. 10,000 during a day otherwise than by way of account payee cheque drawn on a bank or bank draft or through use of electronic clearing system, shall not be allowed as deduction.
Section 40A (3) (b) provides for deeming a payment as profit & gains of a business or profession if the expenditure is incurred in a particular year but the payment is made in any subsequent year in a sum exceeding of Rs. 10,000 otherwise than by way of account payee cheque drawn on a bank or bank draft or through use of electronic clearing system.
Exception-
- Any payment made for plying, hiring or leasing of goods carriage to the extent of Rs. 35,000/- in a day.
- Expenses of Capital nature are not covered under this section. :
Example 1-
Mr. A has made two cash purchases from Mr. X of Rs. 8,000 or 5,000 in a single day. It will attract the provision of section 40A (3) (a)?
Answer-
Yes, the above transactions are covered under section 40A (3) (a) and such expenditure will be disallowed.
Example 2-
Mr. A has made purchase from Mr. X of Rs. 22,000 during the year 2017-18 or payment has made of Rs. 9,000 or 7,000 & or 6,000 in a single day i.e. on 28.05.2018. It will attract the provision of section 40A (3) (b)?
Answer-
Yes, the above transactions are covered under section 40A (3) (b) and such expenditure will be disallowed because expenditure is incurred in particular year 2017-18 and payment is made on 28.05.2018, exceeding of Rs. 10,000 during a day.
Example 3-
Mr. A has make payment of Rs. 32,000 on account of freight to the transporter in a single day. It will attract the provision of section 40A (3) (a)?
Answer-
No, the payment to transporters is not covered under section 40A (3) (a) up to Rs. 35,000/-in a single day. It will not attract the provision of section 40A (3) (a).
Example 4-
Mr. A has purchase a Machinery of Rs. 15,000 in cash. It will attract the provision of section 40A (3) (a)?
Answer-
No, the payments for purchase of capital goods are not covered under section 40A (3) (a). It will not attract the provision of section 40A (3) (a).
Exceptions under Rule 6DD-
No disallowance of expenses exceeding Rs. 10,000 in a day made otherwise than by way of account payee cheque or bank draft. These circumstances and cases as provided under Rule 6DD of the Income Tax Act.