As far as i have interpreted the act, i under stand that - "If cash exp. Incurred in excess of Rs. 20,000/- and it is capitalized then also disallowable under section 40 A (3). In the same way, if amount is liable to TDS u/s. 193, 194A, 194C, 194H, 194I and 194J and tax is not deducted at source and that amount is capitalized, then depreciation is also not deductible on proportionate basis."
Kindly express your views with relevant provisions of these sections.
14 July 2010
So far as capitalization of interest to the Actual cost of assets is concern, your hypothetical situation can be understood, but I dont know the situation whereby some one would be capitalizing commission, rent etc....to the actual cost of the assets.
Anyways, irrespective of that...presuming that that is capitalized to the actual cost of assets...
As per S.40(a)(ia), if you are claiming any expenditure u/s 30 to 38 and if you have not deducted tax at source under Chapter - XVI of the Act, then the same expenditure shall be disallowed. In the present case, you are not claiming any expenditure u/s 30 to 38, on the contrary you are capitalizing the same and therefore no disallowance can be made.
Now what you are claiming is depreciation on such capitalized assets u/s 32(1) of the Act for which no tax is required to be deducted in the scheme of the Act and hence no disallowance can be made in respect of depreciation.
14 July 2010
Certainly S.32 comes within 30 to 38 but no tax is required to be deducted on depreciation under Chapter XVI-B of the Act. Hence, no proportionate depreciation, on the count of non deduction of tax at source, can be disallowed u/s 40(a)(ia) of the Act.
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09 June 2012
Any more expert can throw light on this subject? Suppose some asset is purchased in cash for Rs. 2,00,000/- Section 40A(3) says 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 Here the term used is no deduction so all deductions from section 30 to 38 are covered. Means depreciation is also not allowed. Agree?
Secondly, suppose the above mentioned assets is get constructed through contractor for which payment is made to contractor of Rs. 1,00,000/- without making TDS thereon u/s. 194C. Now section 40 will also disallow deduction claimed under section 30 to 38 because of non deduction of tax at source. that means depreciation u/s. 32 will be disallowed. right?
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