Is U/s 40(A)(3) apply on Cash payment 4 purchase of a depreciable capital asset exceeding Rs.20000?

[Anup Kumar Grover]

Whether Purchase of a depreciable Capital assets in cash exceeding Rs.20000/- liable for disallowance u/s 40(A)(3)? Whether depreciation be allowed or disallowed on said purchase?

[CAGOPALJI AGRAWAL]

No, section 40A(3) is applicable for expenditure which are debited into profit & loss account. Depreaction has no concern in this regard.

[DEV KUMAR KOTHARI]

Kindly see heading of S. 40A and see that it starts with nonobstante clause " The provisions of this section shall have effect notwithstnding anything to the contrary contained in nay other provision of this Act relating to computation of income under the head "profit or gains from business or profession". S/ 40A (3)- where the assessee incurs any expenditure in respect of which a payment..... Thus, capital expenditure is also covered if it is to be considered under head income from business or profession. Thererfofe, the AO may disallow deprecation to the extent of paymetns hit by S. 40A (3). This can lead to litigation and ontingency which should be avoided. in case depreciation is claimed under head other sources, then s. 40A may not apply - need to be re-checked.

AI Summary

Applicability of section 40A(3): whether cash purchase restrictions can curtail claimed depreciation on capital assets. Whether the payment-restriction provision applies to cash purchases of depreciable capital assets and affects claimed depreciation is disputed: one view limits the provision to expenditures debited to the profit and loss account and not to depreciation, while another relies on the provision's non-obstante clause to cover capital expenditure for business income computation, potentially permitting assessing officer disallowance of depreciation attributable to affected payments.