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A trader made four separate cash payments of Rs 8,000 each to the same supplier on the same day, totalling Rs 32,000. Under section 40A(3) the disallowance is:
ANil, since each single payment is within Rs 10,000
BRs 32,000, the entire expenditure paid that day
CRs 22,000, the excess over the Rs 10,000 limit
DRs 8,000, being only the last payment of the day
Answer & Solution
Correct answer: B. Rs 32,000, the entire expenditure paid that day
1. Section 40A(3) aggregates all payments made to a PERSON in a DAY: 4 x Rs 8,000 = Rs 32,000.
2. The aggregate exceeds Rs 10,000 and was paid in cash, so the condition is breached.
3. The disallowance is of the ENTIRE expenditure — Rs 32,000 — not merely the excess over the limit, which rules out option C.
4. Splitting a payment into sub-Rs 10,000 instalments within the same day gives no protection, which is precisely why option A fails.
_Source: ICAI CA Inter P3(A) Income-tax SM (May 2026), Ch 3 Unit 3 PGBP, PDF p. 90_
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