CLAUSE 21(d) · s.40A(3)High
Cash payments above the ₹10,000 limit
Facts
32 party-days across six cash books carry payments above the s.40A(3) limit, totalling ₹12,33,024. The largest is ₹7,88,000 paid for cafe renovation across four days in April 2025.
LedgerCASH BANK WITHRAWL & DEPOSIT (Daily Cash Sale) · Cash Book (Cafe Counter Cash) · Cash Fy 24 25
FolioVch 15, 17, 48, 512
Pagep.155, p.180, p.252 of All Ledger.pdf
Our comments
Section 40A(3) disallows the whole of any expenditure paid otherwise than by account-payee cheque where payments to one payee in one day exceed ₹10,000. Of the ₹12,33,024, ₹7,88,000 is capital and falls under the second proviso to s.43(1) rather than 40A(3); ₹51,000 is a deposit and not expenditure at all; ₹3,94,024 is revenue expenditure disallowable in full unless a rule 6DD exception applies. The ITA may contend that the entire revenue amount is disallowable.
| Amount involved | ₹12,33,024 |
| Tax | ₹1,22,700 |
| Interest | nq |
| Penalty | nq |
Do this
Pull the 32 vouchers and test each against rule 6DD. Six are cash salary payments that may survive under rule 6DD(l) — obtain that confirmation in writing.
OwnerAccounts
CLAUSE 18 · s.43(1) second provisoHigh
Depreciation claimed on an asset paid for in cash
Facts
₹7,88,000 of the cash payments above was cafe renovation — capital expenditure, capitalised into the Furniture & Fittings block.
LedgerFixed Assets → Furniture & Fixtures
FolioVch 15, 17, 48, 512
Pagep.11 of Trial Balance.pdf · p.155, p.180, p.252 of All Ledger.pdf
Our comments
The second proviso to section 43(1) excludes from actual cost any expenditure for acquisition of an asset paid otherwise than by account-payee cheque where the payment exceeds ₹10,000. The ITA may contend the ₹7,88,000 must come out of the block, reducing allowable depreciation by ₹78,800 and the closing written-down value to ₹49,87,709. Depreciation for the year reconciles block-by-block to ₹16,42,299.91 and the opening written-down value agrees to the rupee with last year's signed report, so the block itself is sound — only this addition is in question.
| Amount involved | ₹7,88,000 |
| Tax | ₹78,800 |
| Interest | nq |
| Penalty | nq |
Do this
Remove ₹7,88,000 from the Furniture & Fittings block before the return is filed, and restate depreciation.
OwnerCA
CLAUSE 34(a) · s.194THigh
TDS base on partner remuneration exceeds the P&L by ₹8,24,898
Facts
The 194T control account shows ₹6,80,121 deducted, implying a base of ₹68,01,210. Partner remuneration debited to the profit and loss account is ₹59,76,312 — ₹36,07,762 plus ₹23,68,550 of working partner remuneration.
LedgerDuties & Taxes → TDS on Partner Remuneration (194T) Payable
Foliocontrol account movement, opening nil, deducted ₹6,80,121, paid ₹6,62,154, closing ₹17,967 Cr
Pagep.1 of Trial Balance.pdf · p.3 of Profit and Loss.pdf
Our comments
Section 194T is new from 1 April 2025 and applies at 10% to remuneration, interest, commission and bonus paid to partners above ₹20,000 a year. FY 2025-26 is the first year it applies. The account reconciles exactly — opening plus deducted less paid equals closing — so the deduction is real. The question is what the extra ₹8,24,898 of base represents. The likely answer is interest on partner capital, or remuneration routed through capital accounts rather than expensed. If it is remuneration that never reached the profit and loss account, the section 40(b) computation changes as well.
| Amount involved | ₹8,24,898 |
| Tax | nq |
| Interest | nq |
| Penalty | nq |
Do this
Reconcile the ₹8,24,898. Identify every partner payment that attracted 194T and confirm whether each was expensed or taken to capital.
OwnerManagement
CLAUSE 21(b) · s.40(a)(ia)Medium to High
Freelancer fees of ₹9,70,000 with no TDS in any control account
Facts
"Freelancer Salary Expense" of ₹9,70,000 is debited to the profit and loss account. No TDS control account — 194C, 194J, 194-I or 194T — carries a matching deduction.
LedgerIndirect Expenses → Freelancer Salary Expense
Folionot applicable — annual expense head, no single voucher
Pagep.2 of Profit and Loss.pdf
Our comments
If these are professionals rather than employees, section 194J applied at 10% above the ₹50,000 threshold. Where tax is not deducted, section 40(a)(ia) disallows 30% of the expenditure. The ITA may contend that ₹2,91,000 is disallowable. If they are employees the correct section is 192 and the exposure is different, so the classification must be settled before the return is filed.
| Amount involved | ₹9,70,000 |
| Tax | ₹2,91,000 |
| Interest | nq |
| Penalty | nq |
Do this
Establish whether these are contracts for service or of service. Obtain the engagement terms for each freelancer.
OwnerManagement