section 40 B

[Asked by Guest]

sir if a entity has purchased goods worth Rs 35000 on credit and passed the entry

Purchase a/c Dr 35000 

     to Creditor A/C

and then the payment is made personally to the creditor by the proprietor

and then he passes the entry 

Creditor A/c.... Dr

    To Capital A/C

so this expense is allowed in section 40 B of Income Tax Act or not because the payment is settled in cash only , no payment is made by account payee cheque 

by

Mayank Gupta

[CAGOPALJI AGRAWAL]

First it is presumed that you are concerned about sec 40A(3). Your case is apparently covered under the mischief of law. However you may refer the exception under rule 6DD.

 

 

AI Summary

Disallowance for cash payments questioned where proprietor personally settles trade creditor; prescribed rule exception may apply.
Whether a business expense incurred on credit and later settled by the proprietor through a personal cash payment, followed by a book entry debiting the creditor and crediting capital, is allowable raises the question of disallowance for cash payments under the statutory restriction; the advisor indicates the facts appear to fall within the provision's mischief but suggests consideration of a prescribed rule exception that may apply.