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July 10, 2013

Finalisation of Firm Accounts

40A(3) Where the assessee incurs any expenditure 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 account payee bank draft, exceeds twenty thousand rupees, no deduction shall be allowed in respect of such expenditure.

In following cases, even payment in cash / cross cheque and exceeding the specified limit then also expenditure is allowable
1.      Payment is made to RBI/ any bank/ govt.
2.      Payment is made to cottage industries which run s without aid of power
3.      Payment is made in a village/town where bank facility is not available
4.      Payment is required to be made on a day on which banks were closed
5.      Payment is made directly to the grower of agriculture products or to poultry, dairy, horticulture, pisci culture
6.      Any capital expenditure
7.      Payment is made to an agent who is required to make payment for goods, etc. on behalf of such person
8.      Payment is made to an authorized money exchanger who is engaged in the business of conversion of foreign currency
9.      VRS/ gratuity, etc. retirement benefits if paid to an employee whose taxable salary in the previous year just preceding the year of retirement is <= Rs.50000 i.e. lower paid employee.

Disallowance of Deprecation by Car
If the partner has income only from business & Profession that it can be very well claimed that the car was used for only official purposes. However if he has income from other sources that revenue may disallow the proportionate deprecation. 

Expenses incurred in relation to income, not chargeable to tax are not allowed to be claimed (under Section 14A).
Section 14A only deals with expenditure incurred in relation to income and not statutory allowances admissible to taxpayers under the I-T Act. Depreciation charged under the Act is an allowance granted and does not qualify as expenditure for the said purpose.

Disallowance U/s 38(2)
Disallowance us 38 shall not apply to plant etc since it applies only to assets specified us 32(1)(ii) only ie patents etc.....

Disallowance is not sustainable if u can prove that there is no personal use of vehicle. It can be proved by showing that there is personal vehicle of partners or otherwise.

The mere fact that the business and residential premises of the assesse are in the same premises cannot lead to a conclusion that there cannot be any business use of the cars.

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