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Section 43(1) of the Income Tax ACt 1961 talks about "actual cost" for the purposes of claiming depreciation under Income Tax Act 1961.
In our previous post (Read here ) we have talked about the dis allowance of the revenue exprnditure , in this post we will discuss about the disallowance of depreciation of the asset which is purchased in cash.
Section 43(1) defines actual cost of asset for the purpose of depreciation , however a new provison was inserted in the section which stated that,
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 76[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.
Explanation
The above provision states that , where any assessee incurs any expenditure ( capital in nature) for the acquisition of any asset , for which a payment is more than 10000.00 and such is made in modes other than prescribed then it will not be added to cost of asset , and hence every addition made in the Cost of the depreciable asset will be ignored under Income Tax Act 1961 , however in the books of account it can be accounted, but not under the depreciation chart made as per income Tax Act 1961.
Important Point
Capital Expenditure is required to be incurred in respect of which aggregate payment made to a person otherwise then by account payee cheque, draft or ECS through bank account exceeding Rs. 10000.00 , else no depreciation will be allowed and such amount so paid will not be considered in Actual cost , under the Income Tax Act 1961.
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