Depreciation is governed by sec 32 and not 40A(3).

First of all dep. is disallowed if the following conditions are not satisfied u/s 32 :-

1) Assessee does not own the asset (except some exceptions).

2) Assessee does not use the asset in the revelant previous year.

Secondly, Sec. 40A(3) does not apply to any capital expenditure. Here the word "CAPITAL EXPENDITURE" is important.

Sec. 40A(3) applies only to "EXPENDITURE INCURRED IN CASH".

Depreciation is not an expenditure. It is just a charge over the asset - A NON CASH ITEM.

So there is no scope disallowance of depreciation under sec. 40a(3).

The point given by Mr Singhania is his interpretation of the section . You can follow his rare opinion which is correct but only for exams and not practically for your client.

LOGICAL VIEW: Firstly we have got to see y the framers have included this section and wats their idea . The whole idea of this section is to capture the transactions of the assessee which are above certain amount (Rs. 20000). In this regard capital assets too should be bought into the purview of this section    

BUT 

now lets see the words of the act.. it says 'all those EXPENDITURE incurred by the assesee which is allowed as deuction under the act' should be paid through a acc payee if it exceeds 20000 . please keep in mind the word 'EXPENDITURE'. For a asset expenditure is incurred and for depreciation no expenditure is incurred  and the act does not allow any deduction for buying a capital asset . hence depreciation is out of the view. and hence allowable in any case.

This view is also held by the Tax conceptual Guru TN Manoharan

i think dhiraj is ryt ...the section disallows amount exceeding 20,000 which are paid in cash...which were otherwise allowed , and that too of only REVENUE  EXPENDITURE ...SO DEPRICIATION CANNOT BE DISALLOWED....

Sec 40A(3) is not applicable for purchase of a capital asset. 

So if someone has purchased a building for Rs 100000 and makes the payment in cash nothing will be disallowed.

There is no room to disallow depreciation.... depreciation is a non cash expenditure so there should be no confusion about the payment exceeding Rs.20000 since no cash is paid for allowing depreciation.......

1) payment made in cash is  for "PURCHASE OF ASSET" (which is not an expenditure i.e.it is  acquistion of asset)

 2)Depreciation is an allowable expenditure since it is not a cash expenditure.....

To Conclude,DEPRECIATION MUST BE ALLOWED irrespective of mode of acquistion of capital asset

Thank u members overhere, appreciating my answer.... Coz i really didnt find any logic to disallow ANY NON-CASH expenditure u/s 40 a 3.., as itself deals with cash espenditure only

 it refers to expense....that is an outflow

depreciation is a reserve...

expense cant be equated with a reserve

therefore depriciation can only be claimed on expenditure...and assets are not covered

hi gaurav,

Read the Sec 40 a(3) thouroughly. Scope of the Section is to fix the limit on revenue expenditure &not on capital expenditure. THAT TOO HAVE CERTAIN SITUATIONS EXEMPLTED UNDER RULE 6D

The nature of the depreciation is of allowance. Section 32(1) says :

the following deductions shall be allowed-

So depreciation is based on certain percentage and use of assets for the purpose of business; owned wholly or partly.

The purpose of allowing depreciation is to give a booster to the industry. That is why additional depreciation is also allowed.

So depreciation is not an expenditure; it is an allowance which is in line with erstwhile Investment Allowance (Sec. 32A).

Ca Surendra Rakhecha

Surat

Where the assessee incurs ANY expenditure in respect of which a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, exceeds twenty thousand rupees, no deduction shall be allowed in respect of SUCH expenditure.Sec 40 A(3)

The keyword in the section is "SUCH" as highlighted above .

Since depreciation is a deduction which is claimed in respect of such expenditure , it has to be disallowed . Sec 40A(3) and Sec 32 are to be read together and not independently

Hi Frndz,

Purchase of capital asset on which 100% (or even normal) depreciation is allowable does not constitute expenditure and is not covered u/s 40A(3). Similarly, sec 40A(3) is not attracted if an asset is purchased for Scientific purpose on which depreciation is allowable u/s 35(1)(iv).