Disallowance of depreciation under section 32 and capital expenditure under section 35AD on cash payment

Under the existing provisions of the Act, revenue expenditure incurred in cash exceeding certain monetary threshold is not allowable as per sub-section (3) of section 40A of the Act except in specified circumstances as referred to in Rule 6DD of the Income-tax Rules, 1962. However, there is no provision to disallow the capital expenditure incurred in cash. Further, section 35AD of the Act , inter-alia provides for investment linked deduction on the amount capital expenditure incurred, wholly or exclusively for the purposes of business, during the previous year for a specified business except capital expenditure incurred for acquisition of any land or goodwill or financial instrument.

In order to discourage cash transactions even for capital expenditure, it is proposed to amend the provisions of section 43 of the Act to provide that where an assessee incurs any expenditure for acquisition of any asset in respect 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 or use of electronic clearing system through a bank account, exceeds ten thousand rupees, such expenditure shall be ignored for the purposes of determination of actual cost of such asset.

It is further proposed to amend section 35AD of the Act to provide that any expenditure in respect of which payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or an account payee bank draft or use of electronic clearing system through a bank account, exceeds ten thousand rupees, no deduction shall be allowed in respect of such expenditure.

These amendments will take effect from 1st April, 2018 and will, accordingly, apply in relation to the assessment year 2018-19 and subsequent years.

[Clauses 13 & 16]

Extract of relevant clause from Finance Bill, 2017

Amendment of section 35AD.

13. In section 35AD of the Income-tax Act, in sub-section (8), in clause (f), after the words “shall not include”, the words “any expenditure in respect of which the payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or an account payee bank draft or use of electronic clearing system through a bank account, exceeds ten thousand rupees or” shall be inserted with effect from the 1st day of April, 2018.

Amendment of section 43.

16. In section 43 of the Income-tax Act, in clause (1), with effect from the 1st day of April, 2018,—

(a) after the proviso and before Explanation 1, the following proviso shall be inserted, namely:—

“Provided further that where the assessee incurs any expenditure for acquisition of any asset or part thereof 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 an account payee bank draft or use of electronic clearing system through a bank account, exceeds ten thousand rupees, such expenditure shall be ignored for the purposes of determination of actual cost.”;

(b) in Explanation 13, the following proviso shall be inserted, namely:—

“Provided that where any capital asset in respect of which deduction or part of deduction allowed under section 35AD is deemed to be the income of the assessee in accordance with the provisions of sub-section (7B) of the said section, the actual cost of the asset to the assessee shall be the actual cost to the assessee, as reduced by an amount equal to the amount of depreciation calculated at the rate in force that would have been allowable had the asset been used for the purposes of business since the date of its acquisition.”.

More Under Income Tax

Posted Under

Category : Income Tax (28050)
Type : Articles (17777) Featured (4021)
Tags : Budget (1957) Budget 2017 (356) Section 40A(3) (42)

3 responses to “Disallowance of depreciation & capital expenditure on cash payment”

  1. MAHESH says:

    INDIVIDUAL TURNOVER IN FY 2016-17(ENDING 31.3.2017) WERE 15000000/-( one & half crore) then what responcibility in FY 2017-18 TDS OR TCS

  2. T V Ganapathy says:

    Hope by error it will applicable from 01/04/2017 has been entered as 01/04/2018 in the following para:
    These amendments will take effect from 1st April, 2018 and will, accordingly, apply in relation to the assessment year 2018-19 and subsequent years. – See more at: https://taxguru.in/income-tax/disallowance-depreciation-capital-expenditure-cash-payment.html#sthash.IMq9b1U0.dpuf

  3. Ravi says:

    These amendments will take effect from 1st April, 2018 and will, accordingly, apply in relation to the assessment year 2018-19

    is it 1st April 2017?

Leave a Reply

Your email address will not be published. Required fields are marked *