Applicability of provisions of sec40A(3) where advances are given to incur exp.

[Pritesh Jain]

Dear sirs,
              The facts are as follows:
                                                 A company (Assesse) gives advances to its employee's in modes other than those specified (i.e cash, etc.)who incur various expenses on behalf of the company, upon incurring of expenses a journal is passed

                                                  Expense A/c.. dr
                                                      To Advance A/c

My doubt is whether dis-allowance is applicable or not, If applicable, whether its applicable when.,
            1. Payment exceeding 20000 is made by company to employee. or

            2. Passing of journal exceeding Rs.20000 when exp is incurred. or

            3. Employee makes payment exceeding 20000 to third party.

Pls Clarify..

Thanks in advance for your efforts

[PANKAJ JAIN]

In order to avoid the confusion as to applicability of 40A(3), the Co. should account for each expenses separately incurred by the employees rather than passing a consolidated journal entry. If the entries are already passed and the matter has come up in scrutiny, the Co. should show that the it is a consolidated entry and should prove the same with sufficient documentary evidence.

[Pritesh Jain]

Sir thanks for replying,

The Co. is accounting each entry seperatley, i'll further elaborate my doubt by Example.

Eg: Co. gives advance to E'ee Rs.50000 by mode specifed in 40A(3), can that be considered capital payment by Co.


Now, the employee then incurs expense paying cash Rs.30000, Co. passes jounal debitting expense and creditting advance

The Co. is not making any payment >20000 thru unspecified modes, so is dis-allowace applicable to the co.

[hiralraja]

To me it appears that since finally individual expenses does not exceed Rs. 20000/- in cash, there can be no disallowance for the same.