CA B Anand (CHARTERED ACCOUNTANT) (198 Points)
16 June 2010under income tax act,. any expenses made in cash in excess of Rs. 20000/- is disallowed, but depreciation can be claimed as an expense in profit and loss a/c, though the fixed asset is purchased in cash? how it is justified?
for ex: depreciation on Rs. 10 lakh worth of a machinery @ 15% say Rs. 1,50,000/-can be claimed as an expense....though the machinery is purchased in cash....
Sandeep Kumar
(learner)
(81 Points)
Replied 16 June 2010
Dear Anand,
Rule is Rule. You have to follow whatever written in the law.
Section 40(A) earlier read as follows: (3) Where the assessee incurs any expenditure in respect of which payment is made, after such date (not being later than the 31st day of March, 1969) as may be specified in this behalf by the Central Government by notification in the Official Gazette, in a sum exceeding [twenty] thousand] rupees otherwise than by [an account payee cheque drawn on a bank or account payee bank draft], [twenty per cent of such expenditure shall not be allowed as a deduction] : The following sub-section (3) shall be substituted for the existing sub-section (3) of section 40A by the Finance Act, 2007, w.e.f. 1-4-2008 : (3)(a) Where the assessee incurs any expenditure in respect of which payment is made in a sum exceeding twenty thousand rupees otherwise than by an account payee cheque drawn on a bank or account payee bank draft, no deduction shall be allowed in respect of such expenditure SO EARLIER: [twenty per cent of such expenditure shall not be allowed as a deduction] AND NOW: no deduction shall be allowed in respect of such expenditure SO the position is this earlier expenditure was disallowed ......since capital expenditure was never allowed as expenditure , the question of disallowance did not arise. BUT , now no deduction is to be allowed inrespect of such expendiuture. Depreciation is an deduction allowed in repect of capital expenditure made . Therefore , now if capital expenditure is incurred in excess of RS 20000/- i n cash , deduction in respect of such expenditure , i.e. depreciaiton may be disallowed.
CA B Anand
(CHARTERED ACCOUNTANT)
(198 Points)
Replied 16 June 2010
sandeep ji, i didnt go against the rule....wat i meant to ask is, if the dept. 's intention is to allow expenses only if the payment is made by an a/c payee cheque / draft, then why do they allow the depreciation amount claimed out of cash. it will create chances for undisclosed income in the hands of seller...and assessment 'll be made difficult, right?
CAclubindia
