TaxTMI 
TaxTMI 
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.
40A (3) Expenditure
15 Nov 2011 
7 Replies 
2577 Views Asked by
Cash payment limitation under section 40A(3) can bar deduction for large land purchase payments absent rule 6DD exceptions.
Cash payments for land acquisition in real estate are vulnerable to the cash-payment disallowance when paid otherwise than by account-payee cheque or bank draft; such payments recorded in registered documents may be disallowed unless exceptions apply. Key exceptions include absence of bank services at the place of payment with the payee lacking a bank account, supported by contemporaneous proof, and instances where payments are made by an authorised agent acting on behalf of the payer; proper documentation is essential to invoke these exceptions. (AI Summary)
Cash payments for land acquisition in real estate are vulnerable to the cash-payment disallowance when paid otherwise than by account-payee cheque or bank draft; such payments recorded in registered documents may be disallowed unless exceptions apply. Key exceptions include absence of bank services at the place of payment with the payee lacking a bank account, supported by contemporaneous proof, and instances where payments are made by an authorised agent acting on behalf of the payer; proper documentation is essential to invoke these exceptions. (AI Summary)