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Disallowance u/s 43a(3)

AADI (Accountant) (74 Points)

05 February 2012

1.Fixed asset(computer) acquried for Rs.45000/- in cash. Is depreciation is eligible for deduction under section 32 ? or is disallowed u/s 40A(3) as the asset is acquired other than account payee cheque ?

thanks in advance

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3 Replies

Sunshine (Helping All) (10575 Points)
Replied 05 February 2012

sec 40A(3) is not attracted in case of fixed assets.....Yes depreciation u/s 32 can be claimed......

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mannu (1/2 CA) (589 Points)
Replied 05 February 2012

or is disallowed u/s 40A(3) as the asset is acquired other than account payee cheque i think u hav written wrong section .it`s section 43b....

student (WORKING) (757 Points)
Replied 06 February 2012

This is a very controvertial issue.

Extract of section 40A(3) is reproduced below:

“40A Expenses or payments not deductible in certain circumstances

(1) …

(2) …

(3) Where the assessee incurs any expenditure in respect of which a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, exceeds twenty thousand rupees, no deduction shall be allowed in respect of such expenditure.

whether depreciation can be considered as ‘expenditure’ as used in section 40A(3). It has been held by 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).

all expenses(revenue) r expenditures but expenditure can be revenue/capital.sec 40A(3) uses the word expenditure w.r.t. revenue b/c only that item can be disallowed which can be allowed -this analysis i am giving w.r.t fixed asset