CONSEQUENCES IF FIXED ASSET PURCHASE IN CASH AND PAYMENT EXCEEDS Rs. 10000.00 IN A DAY.
–27 May, 2022CONSEQUENCES IF FIXED ASSET PURCHASE IN CASH AND PAYMENT EXCEEDS Rs. 10000.00 IN A DAY.
AMENDMENT IN SECTION 43 (1) BY ADDING A SECOND PROVISO BY FINANCE ACT, 2017 TO DISCOURAGE CASH TRANSACTIONS FOR CAPITAL EXPENDITURE TRANSACTIONS:
1. HISTORY & OBJECTIVE OF AMENDEMENT IN SECTION 43 (1):
The Government of India had announced the demonetisation on 8th November, 2016 and banned the old currency notes of Rs. 500 and Rs. 1000.00. To extend the cash less economy transactions and to discourage the cash transactions for capital expenditure (in general term know as Fixed Assets addition) through finance act, 2017 made amendment in section 43 (1) by adding a proviso which shall came into effect from 1st April, 2018.
2. Description of Section 43 (1) and amendments through Finance Act, 2017:
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Section 43 (1) "actual cost" means the actual cost of the assets to the assessee, reduced by that portion of the cost thereof, if any, as has been met directly or indirectly by any other person or authority: Provided that where the actual cost of an asset, being a motor car which is acquired by the assessee after the 31st day of March, 1967, but before the 1st day of March, 1975, and is used otherwise than in a business of running it on hire for tourists, exceeds twenty-five thousand rupees, the excess of the actual cost over such amount shall be ignored, and the actual cost thereof shall be taken to be twenty-five thousand rupees:
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 or through such other electronic mode as may be prescribed, exceeds ten thousand rupees, such expenditure shall be ignored for the purposes of determination of actual cost.” |
3. IN SHORT SECTION 43 (1) AND AMENDEMENTS:
· Section 43 (1) deals with “Actual cost of Capital Expenditure
· It mainly deals with 3 elements of actual cost of assets
1. It should be actual cost of the capital assets
2. It should be actual cost of the assets to the assesee
3. Any portion of the cost should not be met directly or indirectly by any other person or others Authority (e.g. Grant/Subsidy etc)
· The payment made in cash in a day exceeds Rs. 10000.00 then this amount to be ignored at the time of determination of cost of assets.
· Normal Depreciation/additional depreciation under section 32 and investment allowances 32AD will not be allowed.
4. CONSEQUENCES IF PAYMENT MADE THROUGH CASH FOR FIXED ASSET PURCHASE IN A DAY EXCEEDS Rs. 10,000.00:
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SITUATION |
Solution |
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M/S. Krishna Enterprises purchase a Machine of Rs. 4,50,000.00 and makes the payment Rs. 3,50,000.00 through account payee cheque and Rs. 1,00,000.00 in Cash in a day. |
In this situation Second proviso of Section 43 (1) shall be applicable and Rs. 100,000.00 shall be ignored while computing the Actual Cost of the machine and accordingly depreciation shall be calculated upon Rs. 3,50,000.00 |
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M/S. Krishna Enterprises purchase a Machine of Rs. 10,00,000.00 and makes the payment Rs. 9,90,000.00 through account payee cheque and Rs. 10,000.00 in Cash in a day. Else this Rs. 30,000.00 paid in cash to transporter for transport this machinery. |
In this situation Second proviso of Section 43 (1) shall not be applicable upon Rs. 10,000.00 paid in cash, however, as per section 36 (1) (iii) all the expenses till the date of assets first put to use shall not be allowed as an expense and such expenses will be added to the cost of assets, hence Rs. 30,000.00 will be added to Rs. Cost of Machine but in this situation second proviso of section 43 (1) shall be applicable (Rule 6DD shall not be applicable here since this rule deals with Certain expenditure made in cash), hence Rs. 30,000.00 shall be ignored to calculate the actual cost of assets. accordingly depreciation shall be calculated upon Rs. 10,00,000.00 |
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M/S. Krishna Enterprises purchase an electric e-bike of Rs. 1,00,000.00 and makes the payment Rs. 90,000.00 through account payee cheque and Rs. 10,000.00 in Cash in a day and received 30% i.e. Rs. 30,000.00 subsidy upon this e-bike from govt. |
In this situation Second proviso of Section 43 (1) shall not be applicable because amount paid in cash in a day is Rs. 10,000.00, however, section 43 (1) will applicable and Rs. 30,000.00 shall be deducted while computing the Actual Cost of the e-bike and accordingly depreciation shall be calculated upon Rs. 70,000.00 |
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M/S. Krishna Enterprises purchase an electric e-bike of Rs. 1,00,000.00 and makes the payment Rs. 80,000.00 through account payee cheque and Rs. 20,000.00 in Cash in a day and received 30% i.e. Rs. 30,000.00 subsidy upon this e-bike from govt. |
In this situation Second proviso of Section 43 (1) and section 43 (1) simultaneously shall be applicable. Since amount paid in cash in a day exceed Rs. 10,000.00 and Rs. 30,000.00 subsidy received against this e-bike, hence Rs. 10,000.00 shall be ignored and Rs. 30,000.00 Shall be deducted while computing the Actual cost of the e-bike and according depreciation shall be calculated upon Rs. 50,000.00 |
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