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

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.