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Cash payment

Sowmya S (CAO) (214 Points)

05 December 2012

Dear All,

My proprietor wants to buy one second handle vehicle by paying cash of Rs.5,70,000/-, Is that ok from tax point of view?

Plz reply me.

Thanks & Regards,

Sowmya.S

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9 Replies

Sanket (!..Live to Give..!) (16427 Points)
Replied 05 December 2012

Section 40A(3) is applicable even if an assessee purchases a depreciable asset....

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Sumit Grover (Chartered Accountant ) (3652 Points)
Replied 05 December 2012

Yes, there is no problem in such transaction since the payment in cash for purchase of capital asset(i.e.capital expenditure) are not covered by section 40A(3) .

The following link can also be referred for the same.

/experts/morethan-rs-20-000-cash-payments-capital-expenditure-600280.asp#.UL7dr-Tqn6Y

Deepak (Studies) (28 Points)
Replied 05 December 2012

I agree With Sumit Grover.... It is a CAPEX....So it is aloowed....

CA Daksh Dawar (Chartered accountant ) (80 Points)
Replied 05 December 2012

Dear Sumit,

I beg to differ with you in this regard as

although it is capital expenditure but the depreciation on this capital asset stands disallowed.

Sowmya S,

It is advisable that you should purchase the asset through an account payee cheque.

Hitesh Kaila (TAX CONSULTANT) (270 Points)
Replied 05 December 2012

I agree With Sumit Grover..

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Devendra (Chartered Accountant) (4775 Points)
Replied 05 December 2012

As per my knowledge, you will not be eligible to claim depreciation on the Second Hand Vehicle, if you are purchasing the same by paying Cash.

Regards,

Devendra Kulkarni

Dipjyoti Majumdar (CA in service & CS. dipmaj@ rediffmail.com ) (3468 Points)
Replied 05 December 2012

Section 40A(3) is not applicable if the payment is not debited to revenue,ie, where no deduction is claimed for business income computation.

Depreciation is not a cash expenditure.

One should also examine the scope of application of unexplained expenditure under section 69C if the payment is made in cash.

Gunjan Tulsyan (Article) (222 Points)
Replied 05 December 2012

if a depreciable asset is purchased in cash then it is allwd to be capitalised n its depreciation claim is disallowed...!!!

Ranganathan K (Manager-Accounts & Audit) (329 Points)
Replied 06 December 2012

Its always safe for companies to make payments only through "A/C PAYEE CHEQUE", if it exceeds Rs.20000/- whether its a revenue expenditure or capital expenditure.