Post # 23: Payment of Exenditure by Crossed Banking Instruments - Deductions not Allowed (DNA) Section 21(l)

Q. Income tax..Sec 21(I) : EXPEnditure -. . . . .in aggregate exceeds Rs.50,000. . . . . -provided that ths clause shal nt apply in da case of expenditure nt exceedng Rs.10,000. . . . . . . It means tht aggregate 50,000 hna chahye bt individuly it should b m0re thn 10,000 ?or wht?

Ans. Section 21(l) of ITO-2001 aims to encourage documentation of economy, by making payment of expenditure by banking channel so that expenditures of the payers and incomes of the payee may be verified easily.

Deduction is not allowed for an expendiute that is paid otherwise than by a crossed banking instrument (such as paid in cash) if an expenditure:

(i) is under a single account head, such as fuel, advertisement, repair, etc

(2) has sum total exceeding Rs. 50,000/-  in the year, and

(3) Individual expenses incurred under the head exceed Rs. 10,000/-.

To understand this provisions, take the following example of a 'ledger account' of an expenditure 'Fuel', with following details. 

FUEL
Sr.	Date	Amount in Rs
1	01.01.200X	20,000
2	05.01.200X	8,000
3	16.01.200X	10,000
4	20.01.200X	42,000
	Total	80,000

Since, sum total under this account head is exceeding Rs. 50,000/-, hence, the individual expenses of Rs. 20,000/-, and Rs. 42,000 are required to be paid vide crossed banking instrument. If paid in cash, these amounts will not be allowed as deduction. The remaining individual expenses of Rs. 8,000/- and Rs. 10,000, being not exceeding Rs. 10,000, may be paid in cash or vide crossed cheque etc or in whatever mode of payment the taxpayer wishes.