Deepak (Specialist) (119 Points)
29 November 2011Dear All
One company paid advance for purchase of an Asset but the suplier is neither supplied the Asset nor returned the advance money. What will be the treatment as per Income Tax Act. Any tax planning to avoid or allow the advance at least tax burden will not be there for that amount.
Phalgun
(Audit Manager)
(327 Points)
Replied 29 November 2011
If asset was there u could ve claimed depreciation. For advance i dont think any tax benefit is there.
Aman Mehta
(CA Qualified CMA Final and CS Executive)
(63 Points)
Replied 29 November 2011
The full amount can be allowed as bad debts.
Meghna Sinha
(CA )
(31 Points)
Replied 30 November 2011
Advance amount shall have no tax treatment and it can't be claimed as bad debts.
Arijit Bhattacharjee
(ACA, M.COM)
(407 Points)
Replied 30 November 2011
Mr Deepak , i dont get your case
whether its a bookish question or areal business scenario.
If a real situation, why the company is not pressuring the dealer for getting the asset.
In my opinion, just get a written approval from the party that the asset is getting ready for despatch
and then, show the asset as "Asset in Transit"
Claim Depreciation, (AS 6) provides depreciation for effluxion of time, apart from wear and tear, same can be negotiated with Income Tax Authorities later.
Regards
Yogesh Bhandari
(CA FINAL Student)
(429 Points)
Replied 30 November 2011
good point from Arijit upto depreciation,,, But i don't agree with the statement ""same can be negotiated with Income Tax Authorities later""...
As we know the depreciation claimed From the put to use of asset in INCOME TAX ACT....
Arijit Bhattacharjee
(ACA, M.COM)
(407 Points)
Replied 30 November 2011
I mean to say theres alwaya enough room for drafting a AS Complied accounts and further reconciliation with Taxation aspect.
Yogesh Ji, what i mean to say is that TAX authorities would disallow Depreciation but same can be claimed in the Books under AS 6 giving rise to deferred Tax Assets (Provided there is Virtual Certainity with Convincing evidence) which can gradually be adjusted later by reversal.
But as of now, what precisely Mr Deepak wants i;e Tax Deduction on account of depreciation cant be allowed. But, atleast the books of accounts can be drafted in a manner so that the claim of depreciation even though lingered, is hasslefree in future
Cheers
RAJU
(LEARNER)
(1089 Points)
Replied 30 November 2011
I think the discussion is not tune with the query of Mr. Deepak. The query seeks clarification on allowability or otherwise of payments made to supplier for purchase of capital asset which is not supplied. There is no question of claiming depreciation U/s.32 as the asset was never supplied. Depreciation can be claimed only when it is put to use.
When asset itself is not purchased, where is the question of capitalising it in the books and claiming depreciation as per AS 6 and consequential adjustments viz., deferred tax!!!!!
Section 37 seeks to provide for deduction for expenditure which is not a capital expenditure and is incurred wholly & exclusively for the purpose of business.
We will await responses as to whether these payments can be excluded from the exceptions provided with reference to any case law...
Arijit Bhattacharjee
(ACA, M.COM)
(407 Points)
Replied 30 November 2011
Dear Mr. Dharmaraju, appreciated.........
please refer to my previous reply, to understand the base on which i made the statement..........
or else certainly my litany shall be all absurd and rubbish
Regards
RAJU
(LEARNER)
(1089 Points)
Replied 30 November 2011
Hi Arijit....
I have read your replies and assumptions. If we make assumptions, there can be many scenarious which we can debate & discuss to find out the solutions... But primarily, the discussion should throw light on the point under discussion...
Dont take it otherwise, I was only pointing out that by discussing all this, we are not finding the required attention for the query which is being posted under this thread....
Yogesh Bhandari
(CA FINAL Student)
(429 Points)
Replied 30 November 2011
But the main point is ,, this advance can't be allowed as deduction for tax purposes,, but somehow, it should be allowed as deduction u/s 37. When it will be treated as income to the receiver then it should be allowed as deduction to the payer...
Z
( )
(2965 Points)
Replied 30 November 2011
Deduction can not be availed in this case under any section. Section 37 is for ALLOWING EXPENDITURE, ADVANCE payment is not an expense then how will you claim deduction?
(Bad debt is a different case since it is non payment of revenue which has been recognized in the book for both accounting aswell as tax purpose, allowing bad debt means writting off that part of sales which should not be included in total sales)
You can sue the party though.
And as pointed by other members even depriciation can not be availed for tax purposes.
@ Mr. Yogesh Bhandari
"When it will be treated as income to the receiver then it should be allowed as deduction to the payer..."
How is it treated as income?
As per AS-9 revenue recognition para 6.1
A key criterion for determining when to recognise revenue from a transaction involving the sale of goods is that the
seller has transferred the property in the goods to the buyer for a consideration. The transfer of property in goods, in most
cases, results in or coincides with the transfer of significant risks and rewards of ownership to the buyer. However, there
may be situations where transfer of properly in goods does not coincide with the transfer of significant risks and rewards of
ownership. Revenue in such situations is recognised at the time of transfer of significant risks and rewards of ownership to
the buyer. Such cases may arise where delivery has been delayed through the fault of either the buyer or the seller and the
goods are at the risk of the party at fault as regards any loss which might not have occurred but for such fault. Further,
sometimes the parties may agree that the risk will pass at a time different from the time when ownership passes.
And also according to income tax (If am not mistaken) this is the basis for sales. So if the sales have not been recognized then income has also not been recognized and if IT is not allowing deduction for advance payment to buyer also, then where is prob.?
GSTR 9 and 9C for FY 23-24 as amended by Notification 12/2024 dated 10th July 2024(with recording)
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