SECTION 40A(3) MEANING OF EXPENDITURE

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Anubhuti Bhawsar (Querist)
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21 July 2009 Under section 40 A (3), as it has been given that there is a 100% disallowance of "expenditure" if payment exceeding Rs. 20000 is made by any mode other than a/c payee cheque or a/c payee draft, does "expenditure" cover revenue expenditure only or capital expenditure is also covered within its meaning?

Also, i have heard that depreciation on assets acquired by making payment exceeding Rs.20000 by any mode other than those aforementioned will be disallowed. is it true? kindly explain.

Bhaskaran Chackrapani Warrier

Bhaskaran Chackrapani Warrier (Expert)
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21 July 2009 Circular no 34 dated 5-3-1970 says provisions of section 40A(3) are aplicable only in computing 'income under the heads profits and gains of business or profession' and 'income from other sources'. At the same time 'expenditure' has not been defined in the act,it is a word of vide importance.The Supreme court in Attar Singh Gurmukh Singh Vs ITO (1991)ITR 667 said purchases are also covered under expenditure.
Considering these two citations, my observation is, purchases in relation to computing income under the head 'profit and gains of business or profession'need only be considered for the purpose of 40A(3). In other words depreciation being a non cash adjustment and not an expenditure but an allowance,though considered for computing income from business or profession, is outside the ambit of the section 40A(3).

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