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CMA Intermediate · Direct and Indirect Taxation · Profits and Gains of Business or Profession

Sharma Traders, a proprietorship, paid Rs. 48,000 in a single day in cash to a supplier for goods purchased for business. No exception under the prescribed cases applies. What is the amount disallowed under section 36(4) of the Income-tax Act, 2025?

The disallowance is Rs. 48,000. Since the cash payment to one person in a day exceeds Rs. 10,000 and was not made through specified banking or online mode, the entire expenditure by way of that payment is disallowed under section 36(4), not merely the excess.

  1. ARs. 38,000
  2. BRs. 48,000Correct
  3. CRs. 13,000
  4. DNil

Explanation

Where payments made in a day to a person exceed Rs. 10,000 and are not made through specified banking or online mode, the expenditure by way of such payments is not allowed. The whole Rs. 48,000 is disallowed, not just the excess over Rs. 10,000. Rs. 38,000 wrongly disallows only the excess.

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