Assess maintained a private nursing home accounting method for cash system.assess purchases of equipment credit based year 2020-2021 and some part amount cash paid 2020-2021 year.equipment used for business purposes.
Assess this transaction How to accounting treatment in books and depreciation claimed allowed on full value or part value applicable.
Depreciation on equipment purchased for Credit:-
As per section 32 of income tax Act, depreciation is permissible for plant & machinery owned by the assessee and used for the purpose of business/profession.
Hence whether purchase of assets is done against immediate payment or purchase is done on credit, assets is owned from the date of purchase, even if payment is made at a later date as per contract terms. Depreciation is not restricted in this case. Depreciation can be claimed for assets purchased on credit. But depreciation is allowed from the date assets is put to actual use, if assets is purchased but not put to use then depreciation is not allowed.
But here we need to consider section 40A(3) of income tax Act.
As per Section 40A(3)(a) of the Income Tax Act , any expenditure incurred in respect of which payment is made in a sum exceeding Rs. 10,000/- in a single day otherwise than by an account payee cheque drawn on a bank or by an account payee bank draft or through use of electronic clearing system, shall not be allowed as a deduction.
Hence expenses which are paid in hard cash and which are more than Rs. 10000/- in a single day are not allowed as deduction for the purpose of calculation of profits & gains of the business.
If any assets more than Rs. 10000/- is purchased in cash then depreciation on such assets may not be allowed. To be eligible for depreciation, payment should be made through an account payee cheque drawn on a bank or by an account payee bank draft or through use of electronic clearing system.