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Depreciation on Mach.

CA Gaurav Choradia (Relationship Manager ) (418 Points)

11 June 2010

A Ltd (a trading Co.) purchased a Computers for Rs300000 in cash on 1/4/2009 put to use on the same date. How much depreciation is eligible u/s32 of IT Act? & specify the rate of dep.

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24 Replies

CA Manoj Tilokani (JOB) (163 Points)
Replied 11 June 2010

RATE OF DEPRECIATION IS 60% SO AMOUNT OF DEP U/S 32 WILL BE Rs 180000/-

RITESH KOTHARI (B.COM, FCA, DISA(ICAI)) (778 Points)
Replied 11 June 2010

yup, depreciation @ 60% will be provided.

1 Like

Venkateswara Rao Sapare (Accountant) (1500 Points)
Replied 11 June 2010

Dear friend.

Section 40 A (3) says “If an assessee incurs any expenditure in respect of which payment in excess of Rs.20,000 is made otherwise than by an account payee cheque or an account payee bank draft, 100 percent of such expenditure will not be allowable as deduction, subject to some exemptions in specific instances.”

Here, underline the words “Any expenditure”, ( Capital expenditure / Operative expenditure).

In your case, the enterprise paid in Cash. So, it is clear that this expenditure is not allowed. In such a case, there is no further thinking about “DEPRECIATION” aspect.

CA Manoj Tilokani (JOB) (163 Points)
Replied 11 June 2010

Originally posted by : Venkateswara Rao Sapare
	Dear friend. Section 40 A (3) says “If an assessee incurs any expenditure in respect of which payment in excess of Rs.20,000 is made otherwise than by an account payee cheque or an account payee bank draft, 100 percent of such expenditure will not be allowable as deduction, subject to some exemptions in specific instances.” Here, underline the words “Any expenditure”, ( Capital expenditure / Operative expenditure). In your case, the enterprise paid in Cash. So, it is clear that this expenditure is not allowed. In such a case, there is no further thinking about “DEPRECIATION” aspect.

PLEASE GOTHROUGH WITH THE FOLLOWING LINK. YOU WILL BE CLEAR..

/forum/sec-40a-3-regarding-fixed-assets-47211.asp

vijay (.) (212 Points)
Replied 11 June 2010

Dear Gaurav

The depreciation chargeable shall be 60%. and if it is a manufacturing concern then additional depreciation of 20% shall be available if it is used in factory premises not in the office.

CA.TAPAS DALAR (CHARTERED ACCOUNTANT) (130 Points)
Replied 11 June 2010

Dear Venkateswara Rao Sapare,

Section 40A(3) explains about the disallowance of expenses in the p&l account as expenses are allowed in p&l account. but so far as purchase of fixed assets is concerned it is not charged to p&l account, rather we take it to the B/S by capitalising it and charge depreciation on it on a systematic basis by debiting it to the p&l account as per the rules of the Income tax Act.

So fixed asset is capitalised whether it is purchased throughcash or cheque or exchange or acquisition etc.... and depreciation should be charged to p&l a/c as per the provisions of Income Tax Act...

CA Gaurav Choradia (Relationship Manager ) (418 Points)
Replied 11 June 2010

Dear seniors.

Mr Venkateswara Rao Sapare is almost right

If any assessee purchases a depreciable asset say computers for Rs 3 lakhs by making payment in cash, depreciation ( i.e. 60% of 300000), which is other wise deductible, will be disallowed under the provisions of Section 40A(3). because section 40A(3) applies on expenditures which are deductible between sec 30 to 37.

Aditya Maheshwari (CA in Practice) (35867 Points)
Replied 11 June 2010

The expenses u are claiming is of depreciation and not of the asset. So depreciation expenses was not paid in cash to be disallowed u/s 40A(3).

CA NITESH GUPTA (PRACTICE) (145 Points)
Replied 11 June 2010

I am agree with aditya hence depreciation will allowed @ 60%

Venkateswara Rao Sapare (Accountant) (1500 Points)
Replied 11 June 2010

Dear Friends,

May I request your attention to "Section 40A(3) is applicable even if an assessee purchases a depreciable asset".

Please, put this view to an acid test and let us understand where we miss the point.

Pardon me, as my view differs with some.

Shivish Verma (C A) (376 Points)
Replied 11 June 2010

Dear friend.

Here, underline the words “Any expenditure”, ( Capital expenditure / Operative expenditure).

In your case, the enterprise paid in Cash. So, it is clear that this expenditure is not allowed. In such a case, there is no further thinking about “DEPRECIATION” aspect.

Dear Friend. Sec 40 (A)(3) is not applicable in the case of capital expenditure, as confirmed by a circular. hence the rate is 60 %

CA. Dashrath Maheshwari (TaXpert) (15090 Points)
Replied 11 June 2010

Section 40 A(3) is for expenses covered under sections 30 to 37 of the Income tax act,1961 and claimed as deduction. Though depreciation is covered in betwen those sections, it is not an expense but an allowance. So section 40A(3) cannot be applied on depreciation on cash purchase of assets. Further Circular no. 34 dated 05031970 also says that section 40 A(3) is not applicable for purchase of a capital asset not meant for resale.

CA. Dashrath Maheshwari (TaXpert) (15090 Points)
Replied 11 June 2010

The said section refers to expenditure incurred by the assessee in respect of which payment is made. It means that all outgoings are to be brought under the word expenditure as per the decision in Attar Singh Gurmukh shah Vs. CIT (1991) 191 ITR 667. Depreciation not being an expenditure, rather an allowance, and there is no outgoings on account of depreciation from the assessee concerned, my view is depreciation on assets purchased in cash does not come under the purview of section 40A(3) of the Income tax Act,1961.

an answer by -- B.CHACKRAPANI WARRIER