Query on section 40a(3)

Purchase of fixed assets (for business purpose) in excess of Rs 20000 in cash is allowed...

There will be no disallowance u/s 40(A)(3)...

and depreciation is allowed...

follow the link to clarify your doubt :

1. /experts/fixed-asset-purchase-in-cash--673445.asp#.T-7baxeZZqc

2. /forum/purchase-of-fixed-assets-159650.asp#.T-7bcReZZqc

Rectify me if i am wrong...

Regards,

Siddharth Bumb

sidbumbhelp @ gmail.com

WWW.SIDDHARTHBUMB.BLOGSPOT.COM

@ Siddharth:- For Fixed Asset (Land) I agree with you as there is no depreciation.

however, For other assets if depreciation is allowed or not  I have a doubt.

depreciation is allowed...

depreciation is not disallowed.

@ abhinav: me not sure abhinav any clarification or proof on this..

@ Subhasish : hw could u supppose to say that dear...

as per me purchase of mobile for business purpose can be  capitalise & 15 % depreciation will be allowed as per IT Act.

depreciation will be allowed...as cash expenses are dissallowed and dep.is not a cash exp.....pur,mb.phone and capitalising it is also not a cash exp..

Sirji i think depreciation is not allowed
there is some case reference for it
for assets paid in cash

@ Siddharth, @ Rupesh, @ Sagar, @ Tanvi

SCOPE OF SEC 40A(3)

If payment in excess of Rs. 20,000 is made otherwise than by crossed cheque or draft , then deduction under sections 30 to 37 in respect of such payment is not available. For instance, if any assessee purchases a depriciable asset ( say, a Car ) for Rs. 3 lakh by making payment in cash, depriciation (i.e. 15 per cent of Rs. 3 lakh), which is otherwise deductible, will be disallowed under the provision of section 40A(3).

Dep. is allowed

Now, it is settled in the above discussion that the payment made for purchasing an asset in cash exceeding Rs. 20,000/-, can be capitalised in the books and their is no question of disallowance in that P.Y. as the same is not claimed as deduction.

However, deduction of such expenditure is claimed by way of depreciation on yearly basis and whole thrust of discussion is on allowance of depreciation.

With all due respect to the above views, I firmly believe that by plain reading of section 40A(3), what is disallowed is the 'Expenditure' incurred by the assessee for which the payment has been made by way other that by A/C payee Cheque, in aggregate, exceeds Rs. 20,000/-.

However, Depreciation is not an expenditure and it is statutory allowance. The said view has also been supported in the decision delivered by the Special Bench, ITAT, Ahemdabad very recently in the case of  Vishnu Anant Mahajan v/s ACIT. And consequentially, Depreciation is not covered under section 40A(3).

In this case Both Expensese are allowed.