40 a(3)

As per decision of Hon’ble Supreme Court in the case of Pandyan Insurance Co. Ltd. reported in 55 ITR 716 that depreciation is not ‘expenditure’. Therefore, depreciation cannot be disallowed u/s 40A(3). 

Further in my personal view the interest on loan taken for purchase of capital assets should not be linked with the cash payment for purchase of assets. These are two separate transaction. So if interest in paid through banking channel then it should not be disallowed.