Applicability of section 40a(3)

[SPJV Company]

assesee depoists cash into supplier bank accounts exceeding rs 20000/- , will 40a(3) dis allowance be applicablke

[DEV KUMAR KOTHARI]

Please do your ground work completely and send query with full facts and details. Under what circumastances payment by way of a/c payee cheque or DD was not possible? why cash was deposited instead of cheque? These to be enquired and reasonable cause for deposit in cash is to be established.Holidays of clearing on the same day or next day or delay in clearing causing hardship could be reasonabe causes. Payment in cash to prompt delivery/ despatch of urgent material or to meet some urgency at payyes end could be good grounds. Deposit in cash in a/c of payee is equal to cash payment to which S. 40A (3) apply. You may refer to K. Abdu & Co. V Income-tax Officer, Ward-3, Cannanore 170 Taxman 297.

[Rama Krishana]

It appears that direct deposit of amount into the supplier's bank account is not a valid ground to escape from the provisions of section 40a(3) read with rule 6DD. You may face the consequences, if you failed to provide the valid, justifiable and acceptable reasons for doing so.

AI Summary

Cash deposit into supplier bank account may trigger disallowance under section 40A(3) unless reasonable cause shown.
Deposit of cash into a supplier's bank account is treated as a cash payment and attracts disallowance under section 40A(3) unless the assessee establishes a reasonable, verifiable cause for not paying by account-payee cheque or DD; direct deposit alone does not avoid the provision read with rule 6DD and factual substantiation of urgency or impracticability is required.