Capital expenditure incurred in cash : Depreciation Disallowed
20. Disallowance of depreciation under section 32 and capital expenditure under section 35AD on cash payment.
20.1 Sub-section (3) of section 40A of the Income-tax Act provides that revenue expenditure incurred in cash exceeding certain monetary threshold is not allowable except in such circumstances as specified under Rule 6DD of the Income-tax Rules, 1962. However, there was no provision to disallow the capital expenditure incurred in cash. Further, section 35AD of the Income-tax Act provides inter alia 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.
20.2 In order to discourage cash transactions even for capital expenditure, section 43 of the Income-tax Act has been amended 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.
20.3 Section 35AD of the Income-tax Act has also been amended 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.
20.4 Applicability: These amendments take effect from 1st April, 2018 and will, accordingly, apply from assessment year 2018-19 and subsequent assessment years.