QUERY IN RESPECT OF SECTION 40A(3)

Tax queries 2145 views 4 replies

CA Umashankar Vaishnav

Service in Cement Manufacturing Organiza

1069 Points Joined September 2007

RESPECTED SIR, MAY I HAVE ONE QUERY IN RESPECT OF INCOME TAX “ PROFIT & GAIN OF BUSINESS AND PROFESSION “ . IN IT UNDER SECTION 40(A) (3) ANY EXPENSES ( PAYMENT) BY MEANS OF CASH PAYMENT( EXCEPT BY AN ACCOUNT PAYYEE CHEQUE OR AN ACCOUNT PAYEE BANK DRAFT) EXCEED RS. 20000 /- THEN SUCH EXPENSES MAY BE 100% DISALLOWED AND NOT DEDUCTIBLE.

[ AMENDMENT IN FINANCE BILL 2008]

[ UPTO THE FINANCE BILL 2006 IT MAY BE ONLY 20% DIS-ALLOWED]

NOW , IF ANY PERSON DURING THE PREVIOUS YEAR 2008-09 PUCHASES A COMPUTER EQUIPMENTS FOR CASH PAYMENT OF RS .500000 /- , THEN FOR SUCH CAPITAL ASSET IF DEPRECIATION CLAIMED BY AN ASSESSE UNDER SECTION 32 @ 60% (THAT IS RS.300000/-). IS SUCH DEPRECIATION BEING ALLOWED OR NOT ALLOWED AS DEDUCTIBLE EXPENDITURE IN PROFIT & LOSS A/C STATEMENT OF AN ASSESSE.

GIVEN IN BOOK OF INCOME TAX THAT SECTION 40A(3) IS APPLICABLE EVEN IF AN ASSESSEE PUCHASESA DEPRECIABLE ASSET. ALSO, SECTION 40A(3) APPLY IN RESPECT OF AN EXPENDITURE WHICH IS CLAIMED AS DEDUCTION UNDER SECTIONS 30 TO 37 . AS DEPRECIATION CAME UNDER SECTION 32. SO SIR WHAT WILL LIKELY TO BE DONE UNDER THAT PARTICULAR SITUATION AS PER THE INCOME TAX ACT .

Replies (4)

CA CS VINAYAK PATIL

CHARTERED ACCOUNTANT

921 Points Joined February 2009

Originally posted by :umashankar vaishnav
"	RESPECTED SIR, MAY I HAVE ONE QUERY IN RESPECT OF INCOME TAX “ PROFIT & GAIN OF BUSINESS AND PROFESSION “ . IN IT UNDER SECTION 40(A) (3) ANY EXPENSES ( PAYMENT) BY MEANS OF CASH PAYMENT( EXCEPT BY AN ACCOUNT PAYYEE CHEQUE OR AN ACCOUNT PAYEE BANK DRAFT) EXCEED RS. 20000 /- THEN SUCH EXPENSES MAY BE 100% DISALLOWED AND NOT DEDUCTIBLE. [ AMENDMENT IN FINANCE BILL 2008] [ UPTO THE FINANCE BILL 2006 IT MAY BE ONLY 20% DIS-ALLOWED] NOW , IF ANY PERSON DURING THE PREVIOUS YEAR 2008-09 PUCHASES A COMPUTER EQUIPMENTS FOR CASH PAYMENT OF RS .500000 /- , THEN FOR SUCH CAPITAL ASSET IF DEPRECIATION CLAIMED BY AN ASSESSE UNDER SECTION 32 @ 60% (THAT IS RS.300000/-). IS SUCH DEPRECIATION BEING ALLOWED OR NOT ALLOWED AS DEDUCTIBLE EXPENDITURE IN PROFIT & LOSS A/C STATEMENT OF AN ASSESSE. GIVEN IN BOOK OF INCOME TAX THAT SECTION 40A(3) IS APPLICABLE EVEN IF AN ASSESSEE PUCHASESA DEPRECIABLE ASSET. ALSO, SECTION 40A(3) APPLY IN RESPECT OF AN EXPENDITURE WHICH IS CLAIMED AS DEDUCTION UNDER SECTIONS 30 TO 37 . AS DEPRECIATION CAME UNDER SECTION 32. SO SIR WHAT WILL LIKELY TO BE DONE UNDER THAT PARTICULAR SITUATION AS PER THE INCOME TAX ACT .	"

Dep will be allowed as deduction and u can purchase capital asset on cash.

CA Biswaranjan

job

149 Points Joined January 2008

I think depreciation in this case will be allowed as deduction as dep. is not directly related to cash payment but purchase of computer is in cash.

CA. Ashok shah

CHARTERED ACCOUNTANT

333 Points Joined January 2009

Yes, the matter is disputable. However, as you know, provision of Sec.40A (3) does not apply in respect of an expenditure, which is not to be claimed as deduction u/s.30 to 37 and hence payment for purchase of assets, like machinery, plant, furniture etc. will not attract this provision. The said capital expenditure is not actually claimed as deduction in P&L A/c. The said view gets support from the decision of the Punjab & Haryana High Court in the case of CIT Vs. Alpha Toyo Ltd. (2008) 22(I) ITCL 40 (P&H-HC), where the High Court has held that where payments are made in cash on capital account (like repayment of loan), the provisions of Sec.40A(3) are not attracted.

Mohit Kanodia

Audit Assistant

182 Points Joined September 2007

As per my advice, it is clearly specified that cash payment of any amount, for any capital expenditure is allowed for deduction. So, purchase of computer equipments is allowable for deduction. Hence depreciation so claimed is also allowed for deduction.