Assistant Manager - Taxation
49 Points
Joined April 2009
Sec 40A (3) says any expenditure paid either single or in aggregate to a person....... Section 29 to 40A(3) basically deals with revenue expenditure/expenditure charged to Profit and Loss Acccount. On this strength, we can argue that 40A(3) applies only to revenue expenditure. But we have to face the following consequences:
1. The payment for depreciable asset is not charged to P&L A/c. But we are claiming the depreciation on the said asset for which the cash payment is made. Hence deduction of depreciation becomes a issue. 2. More over if you read the section 40A(3), it starts with the word "any expenditure". The department can easily argue and disallow the depreciation or it may disallow the entire expenditure on fixed asset even it is not charged to P&L A/c.More over, there is no stated notification or case law given other than Rule 6DD. The case is debatable and easily defeatable from department side.Thus there is a apparent possiblity of disallowance of depreciation or in some cases the entire capital expenditure.Taking in to account, the above consequences it is apt that it is not safe to incur such a expenditure in cash.