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sec 40A (3)

swati (Article) (72 Points)

06 April 2010

Is Sec 40A(3) applicable to the purchase of depreciable assets?

I know cap exp is not covered in this section but what about depreciation part. Is it allowed or not??

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50 Replies

Deepak Tapse (Accounts Manager - Taxation) (1771 Points)
Replied 06 April 2010

Not applicable for capital goods, doublt about deprecation claimed during the year. Lets see others view.

Preetham S L (CA Final Student) (94 Points)
Replied 06 April 2010

Hi Swati,

Section 40A(3) covers only those expenditure which involves outflow of cash or it's equivalents. But in case of depreciation the question as to whether Section 40A(3) applies or not does not arise as there is no element of cash. So depreciation is not within the ambit of Section 40A(3).

Naga Praveen (Chartered Accountant) (304 Points)
Replied 06 April 2010

Yes it is applicable for purchase of depreciable assets.

Eg: If u puchase any motor car for say Rs 3,00,000 by cash. Depreciation rate is 15%. Then the entire amount of depreciation Rs 45,000 (3lacs*15%)is disallowed.

Originally posted by : swati

Is Sec 40A(3) applicable to the purchase of depreciable assets?

I know cap exp is not covered in this section but what about depreciation part. Is it allowed or not??

Amol Gopal Kabra (CA,CS,DISA) (Practicing CA) (8539 Points)
Replied 06 April 2010

Sec 40(A)3 is applicable only to those purchases for which we claim deductions by debiting to profit and loss account. The section is not applicable for the payments on account of capital expenditure. Even if we debit the depreciation on such capital assets, such depreciation is not disallowed. The section apples only to expenditure made directly in cash and not on such book entries. Hope its clear.

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Naga Praveen (Chartered Accountant) (304 Points)
Replied 06 April 2010

Please refer to Taxmann Book on Direct Taxes

Naga Praveen (Chartered Accountant) (304 Points)
Replied 06 April 2010

Dear Amol Gopal Kabra Sir,

I have read in Taxmann that if purchase any asset for cash and debit depreciation that depreciation will be disallowed if the amount exceeds Rs 20000.

swati (Article) (72 Points)
Replied 06 April 2010

Guys can anyone give me a confirmed answer????? I m confused.................

Chintan Shah (-) (534 Points)
Replied 06 April 2010

Dear Swati,

What Amolbhai has referred to is absolutely correct. There cannot be any disallowance in respect of depreciation because what Section 40(A)(3) says is that where assessee incurs any expenditure in respect of which payment or aggregate of payments........ and so on.. This means that there has to be cash outflow in the year in which the expenditure is claimed. Of course in the year of purchase the depreciation will be disallowed. However in subsequent years no disallowance can take place because no payment (i.e. cash outflow) has taken place.

As of my view the view taken by Dr. Singhania in Taxmann's Direct tax professional version book is not tennable in view of the aforesaid explanation...

Hope this clears the doubt...

Regards

Chintan

Ratan Deep Saxena (Asstt Manager (Accounts & Finance)) (2998 Points)
Replied 06 April 2010

Section 40A(3) specifically deals with Expenditure incurred in cash more than specified limits. As per the said section any expenses incurred in cash in excess of Rs. 20000/- shall be fully disallowed. Now in case of assets purchase, it is only the amount of purchase and not the depreciation amount that will be disallowed.

regards,

ratan

Amol Gopal Kabra (CA,CS,DISA) (Practicing CA) (8539 Points)
Replied 06 April 2010

In case of capital assets, neither the amount paid for purchase of such assets nor the depreciation on the same shall be disallowed irrespective of the amount of acquisition of the asset or depreciation even if whole of such amount is paid in cash. Sec 40A3 applies to only those payments that are debited to profit and loss account.

swati (Article) (72 Points)
Replied 06 April 2010

Still not satisfied......:(

I m getting mixed reviews and not sure who is right & who is wrong......

Lucky Jain (student) (210 Points)
Replied 06 April 2010

WHY R U CONFUSED 40A(3)

IS A SECTION 4 DISSALLOWANCE WITH RESPECT TO EXPENDITURE...

N U HAV A DOUBT ON ALLOWIN AN XAPENDITURE...IE DEPRECIATION YA IT WILL B ALLOWED IT ITS PLACE BUT SINCE DEPRECIATIONS TREATMENT IS WRT P/L 40A(3) HAS NOTHIN TO DO WITH SAME

swati (Article) (72 Points)
Replied 06 April 2010

I hope u have read others views also... I m getting mixed answers thats why i m confused

Naga Praveen (Chartered Accountant) (304 Points)
Replied 06 April 2010

Swati,

40A(3) also applies to cases of book adjustments. Once refer to Taxmann material for Direct Taxes. In that it is mentioned that if an asset is purchased by cash for more than Rs 20000, the depreciation on it will be disallowed.