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40 a(3)

Raj Chitroda (Accounts) (325 Points)

02 May 2014

if capital assets puchased worth rs 5 lac by mode of cash payment then dep rs 75k debited to p n l disallow u/s 40A(3) ? and. if capital assets financed with bank rs 3lac out of 5 lac then interest on loan will b disallow or not?

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3 Replies

CA Ashok Agrawal (Chartered Accountant) (60 Points)
Replied 03 May 2014

As per decision of Hon’ble Supreme Court in the case of Pandyan Insurance Co. Ltd. reported in 55 ITR 716 that depreciation is not ‘expenditure’. Therefore, depreciation cannot be disallowed u/s 40A(3).

Further in my personal view the interest on loan taken for purchase of capital assets should not be linked with the cash payment for purchase of assets. These are two separate transaction. So if interest in paid through banking channel then it should not be disallowed.