Depreciation and 40a(3)

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MANOJ

Learner

551 Points Posted on 19 April 2014

Here is an interesting question lingering over my head ever since I studied Dr.Vinod K. Singhania's "direct taxes".

Sec.40A(3) states that any payment in excess of Rs.20000 which is otherwise allowable under sections 30 to 37 shall be disallowed if they are made otherwise by an account payee cheque or bank draft.

Section 32 deals with depreciation..

Does it mean that if we purchase a fixed asset for cash, the depreciation on it is disallowed for the entire life of the asset?

When the question was posed to none other than Dr.VKS himself, he said "section 32 very well comes within the range of "30 to 37" and, therefore the disallowance is applicable".

With all due respects to Dr.VKS, is the interpretation correct and if so is the law itself inadvertently drafted in this respect?

Replies (5)

CA SUKSHAM ARORA

459 Points Posted on 19 April 2014

in my opinion :

we can interpet sec40a(3) in this way too.

it is applicable to Revenue expenditure but depriciation is the spreading of a capital expenditure over the life of the asset so this should not be disallowed according to me

SAURABH NENE

Chartered Accountant

176 Points Posted on 19 April 2014

In my opinion Sec 40A(3) is clear enough. It uses the words,

1.assessee incurs any expenditure which is deductible under provision of the Act for computing business income

2. A Payment (or aggregare of payments made to a person in a day) in respect of the above expenditure exceeds Rs. 20,000/-

As in case of depreciation there is no paymnet "in respect of the expenditure" but the payment is for acquisition of Asset.

Hence no question of disallowance.

marimuthu

tax consultant

26 Points Posted on 21 April 2014

Depreciation is an allowance and not an expenditure.Hence Sec 40A(3) not applicable to depreciation.

Income Tax Wala: (Fin. Expert)

Chartered Accountants

1412 Points Posted on 21 April 2014

Dear Manoj

first of all section 40A (3) is applicable on all revenue expenditure which is incurrered in cash and dep. is not an cash expenditure it is just a notional exp. because of existance of capital assets.

hence it dep can not be made disallowed only because of reason that we had purchased car in cash.