TaxTMI 
TaxTMI 
If a fixed asset worth say 250000/- is purchased by cash payment, will the depreciation be disallwed on the ground that the asset is procured through cash payment exceeding Rs 20000/-. Please clarify
Disallowance of fixed asset
10 Jan 2009 
5 Replies 
28388 Views Asked by
Section 40A(3) challenge to depreciation: cash purchase of fixed asset may risk disallowance absent genuine exceptions.
Depreciation is a statutory allowance on assets owned and used for business and is not ordinarily a revenue expenditure; therefore disallowance for cash payments should not automatically apply. Nonetheless, the provision barring deductions for certain cash payments may be construed to encompass capital expenditure and related depreciation, enabling an assessing officer to challenge the allowance. Practical responses include capitalising the amount and claiming depreciation, invoking prescribed exceptions to cash payment disallowance, and avoiding high value cash payments by using account payee cheque or DD due to difficulty proving bona fides. (AI Summary)
Depreciation is a statutory allowance on assets owned and used for business and is not ordinarily a revenue expenditure; therefore disallowance for cash payments should not automatically apply. Nonetheless, the provision barring deductions for certain cash payments may be construed to encompass capital expenditure and related depreciation, enabling an assessing officer to challenge the allowance. Practical responses include capitalising the amount and claiming depreciation, invoking prescribed exceptions to cash payment disallowance, and avoiding high value cash payments by using account payee cheque or DD due to difficulty proving bona fides. (AI Summary)