Purchase of land in cash

[Ashutosh Chhawchharia]

If I purchase Land in cash exceeding Rs.20000/-, whether it will be allowed or diasllowed (Payment is made to Non Governmenr persons/bodies). Please refer case laws, if any

[DEV KUMAR KOTHARI]

Whether, land is stock-in-trade or investment? Why you paid in cash? What were exceptional circumstances to pay in cash? Cash payment in such cases always become a reason for suspected understatement of consideration so avoid them. Case law will not help you unless you know which law is applicable in your case and what are your facts and circumatances.

[Rama Krishana]

The provisions of section 40A(3) are applicable to Business Expenditure. Purchase of capital goods like Land can not be held as Business Expenditure. There for limit of 20000/- is not applicable.

[Nirmalkumar Ojha]

The provisions of section 40A(3) specifically allowows to purchase capital goods in cash if buyer wants buy it in cash. land is capital asset hence can not be inadmissible even if cash payment more than 20000/- has been made.

[DEV KUMAR KOTHARI]

With reference to reply of Mr. Nirmal Kumar I add that as per my understanding( I hope I am not wrong), there is no specific provision to allow 'capital expenses' made in cash u/s 40A (3). Provisions of S.40A have overriding effect, but only in respect of income under the head" profits and gains of business or profession". Therefore, in case a capital asset is eligible for depreciaiton, the A.O. may extend S. 40A (3) and disallow capital cost for the purpose of deprecation allowance. Land is not a depreciable asset, so in problem of querist Mr.Ashutosh Chhawchharia, the provision shall not apply. But who know that in future even 'capital asset', may be considered a stock-in-trade , by assessee, so why to invite unnecessary problems, better pay by A/c payee cheque or A/c payee draft. Payment by A/c payee cheque is always best option, though it may also be disallowed in some circumatances.

AI Summary

Buying Land with Cash Over Rs. 20,000? Understand Section 40A(3) and Avoid Tax Complications. A forum user inquired about the implications of purchasing land in cash exceeding Rs. 20,000, specifically regarding tax allowances. Respondents discussed the applicability of Section 40A(3) of the Income Tax Act, which limits cash payments for business expenditures but not for capital assets like land. One respondent highlighted that while land is a non-depreciable capital asset, paying in cash could raise issues if the asset is later considered stock-in-trade. The consensus was to avoid cash transactions and use account payee cheques to prevent potential complications.