Section 40A(2)

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B.Chandra Sekhar

B.Chandra Sekhar (Querist)
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10 June 2009 Section 40A(2) is applicable for capital expenditure or not.

CA Devin

CA Devin (Expert)
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10 June 2009 Yes, A.O. can bring down the value of investment/Fixed Asset if he feels that payments made to persons mentioned u/s 40A(2)(b) which has been capitalised is excessive or unreasonable.

Ratan Sharma

Ratan Sharma (Expert)
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10 June 2009 No, Chandrasekhar, Section 40A(2) is only related with the expenditure debited to your trading,profit & loss account. If you purchased a car of Rs. 5.00 lacs and debited to asset account then there is no question of dissallowance of expenditure. Therefore sec. 40A(2)(b) is not related to capital expenditure.

CA Devanshi Gandhi (Ajani)

CA Devanshi Gandhi (Ajani) (Expert)
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11 June 2009 not applicable, section 40A(2) covers expenditure incurred for goods, services or facilities and not capital expenditure

Deepak Goel

Deepak Goel (Expert)
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11 June 2009 I agree with Mr. Ratan Sharma. Section 40A(2) deal with the expenditure of trade.

CA Devin

CA Devin (Expert)
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11 June 2009 Agree with Devanshi that 40A(2) applies to goods, services or facilities,

But consider a situation in which a pvt ltd company pays professional fees to relative of its director for chosing best machine from various options. Company will capitalise these expenditure and will claim depreciation on the same along with the machine. Now if A.O. Feels that prof. fees paid to relative of director is excessive or unreasonable it can bring down value of fixed asset and disallow excessive depreciation.

However, i have never faced such situation in practical...

Aditya Maheshwari

Aditya Maheshwari (Expert)
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11 June 2009 40A(2) applies to goods, services or facilities. Hence it is not applicable to capex.

Ankur Garg

Ankur Garg (Expert)
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11 June 2009 Yes, applicabilty of Section 40A(2) on capital expenditure is Nil.

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