Depreciation and section 40A(3)

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Max Payne (Querist)
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30 June 2009 Dear all,
This is an issue about which many people give different opinions whenever i ask.
There are 3 views i have come across regarding the latest amended 40A(3).
If an asset (say plant and machinery) is purchased for Rs. 50,000 in cash,
a) the same shall be added to the computation of income from B&P, since it involves the payment of cash above Rs. 20,000 on the same day to the same party.
b) the depreciation on such depreciable asset is disallowed
c) there is no disallowance since it is the purchase of a fixed asset and is hence covered by exemption Under rule 6DD.

Please is there a consensus on this issue in any case laws/rulings?

Whereas many people (including CAs) say outright that (c) is the correct stance, I have come across the view that disallowance under 40A(3) applies to depreciable assets [Direct Taxes Reckoner by Dr. Vinod K Singhania for Assessment years 2008-09 and 2009-10, Page A-110, Para 49.3.3.5, (Taxmann publications, May 2008)]

NISHIT A. DOSHI

NISHIT A. DOSHI (Expert)
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30 June 2009 MY FRIEND GOPALKRISHNAN,IT'S A VERY SIMPLE QUESTION.DISALLOWANCE U/S 40A(3) is made only in case of the revenue expenditure.when any capital expenditure is incurred by way of cash,no disallowance can be made.

with regards,
C.A.NISHIT DOSHI

Ratan Sharma

Ratan Sharma (Expert)
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30 June 2009 Hi,
In my opinion sec. 40A(3) is not applicable in this case. Reckoner can not override the Act. There are other few mistakes also in the reckoner referred by you.
Plz Wait for the opinion of other experts.

Max Payne

Max Payne (Querist)
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30 June 2009 Yes, i was also that view when the topic was taken in my class;
but now i am thinking after reading this book, that depreciation is also an expenditure for the use of fixed asset, only it is claimed on accrual basis (deferred basis). So why the depreciation should not be disallowed.......
Pls case laws?!?

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