Celebrate Freedom and save 20% OFF on CAclubindia Pro Subscription! Use code: FREEDOM20

Query in relation to Demand Draft

vinish kumar (Partner) (25 Points)

02 February 2011

If an assessee in his books treats & records demand draft as cash in hand. Whether the same is allowable under income tax act.

Reply
Follow
Share

3 Replies

Sathya (Articled Clerk) (118 Points)
Replied 02 February 2011

In my opinion,

Demand draft received which are to be deposited in the bank shall be included in cash in hand until

the next working day. When the draft is deposited in the bank, Bank A/c shall be debited and by

crediting cash in hand.

I.T. Act doesn't prevent this treatment. Its note-worthy that income should be recognized on accrual or

cash basis, whichever is consistently followed. In the given circumstance, Income should be

recognised when the demand draft is received.

1 Like

Upgrade to CAclubindia Pro. Subscribe Now!

ashoka r d (senior audit assistant) (82 Points)
Replied 02 February 2011

in the given case we cannot treat a demand draft as cash. that has to be deposited into the bank. then in the books we have record the source of the receipt that all.

CA PARAS BAFNA (Practising CA ) (33423 Points)
Replied 02 February 2011

No, Demand Drafts may be treated as Cheques in Hand Rather than cash in Hand.

The accountant will always have a risk of negative cash balance in the cash book and if it remained unoticed the assessee may be penalised for undisclosed income.