40A (3) Expenditure

[SURENDRA KUMAR ILLINDRA]

A company is involved in Real Estate Business and it purchases land on which constructions activity is carried out and is sold in the form of flats. Certain amount of cash in excess of Rs. 20000/- has been paid against purchase of land. Finally, the land will not be capitalised in the books of accounts. Further, Please advise whether the same will be disallowed u/s 40A(3) of the Income Tax Act, 1961 or not.

AI Summary

Real Estate Firm Faces Disallowance Risk for Cash Payment Over Rs. 20,000 Under Sec 40A(3); Explore Rule 6DD Exemption A real estate company paid over Rs. 20,000 in cash for land, which will not be capitalized in its accounts, raising concerns about disallowance under section 40A(3) of the Income Tax Act, 1961. One suggestion was to break payments into installments under Rs. 20,000 to avoid disallowance. Alternatively, if the payment is made in a rural area without banking services, rule 6DD could exempt the transaction. Another option is appointing an agent with power of attorney to handle cash payments. Ultimately, the payment mode and location specifics play crucial roles in determining compliance and potential exemptions.