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

Cash payment restrictions under Section 40A(3) not bar capital asset purchases like land, but risks arise if treated as stock-in-trade. Section 40A(3) constrains cash payments for business expenditure and may cause disallowance when payments are in cash to non account parties; purchase of land as a capital asset ordinarily falls outside that restriction because it is not business expenditure and land is not depreciable, though risk arises if land is treated as stock in trade or if an assessing officer extends the restriction to capital items eligible for depreciation; paying by account payee cheque reduces inquiry risk.