A company is involved in Real Estate Business and it purchases land on which constructions activity is carried out and is sold in the form of flats. Certain amount of cash in excess of Rs. 20000/- has been paid against purchase of land. Finally, the land will not be capitalised in the books of accounts. Further, Please advise whether the same will be disallowed u/s 40A(3) of the Income Tax Act, 1961 or not.
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40a (3) expenditure
Replies (3)
Please note that the provisions of section 40(A)3 are applicable only in respect of expenses whihc are required to be routed through the P&L account.
In case of construction industry land is considered to be an direct expense relating to the business of the company. Hence any expenditure incurred in cash in respect to land shall be disallowed in the assessement of the firm.
Hence the expenditure will be disallowed.
Provisions of 40 A (3) does not apply to an expenditure which is not claimed as deduction u/s 30 to 37.
In the given instance, expenditure incurred for purchase of land is deducted u/s 37 , so the payments made in cash in exess of Rs. 20000/- will be dissallowed :)
As per Section 40A (3) Expenditure over Rs.20,000 for acquiring Land other than account payee cheque will be disallowed.
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