Purchase over rs.20000/- by cash

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

25 February 2014 If mobile is purchased above Rs.20000/- by Cash for business then will its purchase be considered. I mean depreciation will be allowed or not ? Pl reply.

Thanks in advance

CA Siddhartha Bhardwaj

CA Siddhartha Bhardwaj (Expert)
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25 February 2014 Since an asset is purchased, Section 40A(3) is NOT applicable.

Further, depreciation is NOT a cash expenditure so dep will NOT be disallowed.

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Ganeshbabu K

Ganeshbabu K (Expert)
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25 February 2014 Depreciation is allowed

Sec 40 A(3) will not applicable on purchase of capital asset as it is not revenue expence
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Cannot disallow depreciation because it is not expence to company but allowance to company for replacement of capital asset
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So u can avail depreciation

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Naresh Dharia F.C.A.

Naresh Dharia F.C.A. (Expert)
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26 February 2014 I defer with the reply.
The provision states....AN ASSESSE INCURS EXPENSES....it does not specify as only revenue exp.....Even capital exp incurred will be disallowed....
Ok

Nikhil Kaushik

Nikhil Kaushik (Expert)
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26 February 2014 sir the problem is that you never claim the asset purchase as such in the profit & loss account except through depreciation. Therefore it is not disallowed.

Nikhil Kaushik

Nikhil Kaushik (Expert)
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26 February 2014 you may also refer to Circular No 34 dated 5 March 1970 wherein it was clarified

" The provisions of section 40A(3) would apply in computing the income under the heads “Profits and gains of business or profession” and “Income from other sources” as per section 58(2). All payments in excess of Rs. 2,500 at one time whether for goods or services obtained for cash or credit, which are deductible in computing the income, have to be made by crossed cheque or bank draft. Thus, the price of goods purchased for resale or use in manufacturing process or payments for services will be covered by the provisions of section 40A(3). However, the section will not apply to repayment of loans or payment towards the purchase price of capital assets such as plant and machinery not for resale."

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Naresh Dharia F.C.A.

Naresh Dharia F.C.A. (Expert)
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26 February 2014 Expenditure incurred more than 20k in cash will be considered for disallowace
No matter you repay or incur..
Section 40 A is very clear....

Nikhil Kaushik

Nikhil Kaushik (Expert)
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26 February 2014 no issues. where will you disallow? for expense to be disallowed, it first needs to be charged against the profits!!

rest I think CBDT has already clarified on the subject long ago..

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Ganeshbabu K

Ganeshbabu K (Expert)
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26 February 2014 When it is not charged against profits it is not possible to disallow expenditure

Depreciation may be charged to profit and loss account and same cannot be disallowed for non deduction of tds as depreciation is not in nature of expenditure it is an allowance..as per sec 32
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Depreciation and additional depreciations are mandatory in nature..refer explanation to sec 32
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So in my opinion we cannot disallow capital expenditure and also depreciation chrged on it subsequent years

CMA Ramesh Krishnan

CMA Ramesh Krishnan (Expert)
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27 February 2014 Sec.40A(3) clear only but practically

capital asset paid in cash cannot be disallowed u/s 40A(3) as it is not claimed as a deduction under p&l. Further, depreciation on such assets can also not be disallowed u/s 40A(3) as it is not in the nature of ’expenditure’

CA SURENDRA KUMAR RAKHECHA

CA SURENDRA KUMAR RAKHECHA (Expert)
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27 February 2014 Depreciation is an allowance; not an expenditure.
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An expenditure requires actual outflow of money hence it can't vary. An allowance can vary being in nature to encourage someone to do that activity.
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(Example : as Standard Deduction was varying previously while computing taxable salary).
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Since depreciation is variable (less than or more than 180 days criteria) hence depreciation is allowable being ALLOWANCE in nature.