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CS Professional · Goods and Services Tax (GST) and Corporate Tax Planning · Tax Planning and Location of Business

Vindhya Warehousing Ltd claims a section 46 deduction for a new warehouse for agricultural produce and buys a racking system for Rs. 8 lakh, paying Rs. 8 lakh in cash to the supplier in one day. What is the tax consequence?

The Rs. 8 lakh does not qualify as capital expenditure for the section 46 deduction. A payment to a person in a day above Rs. 10,000 made otherwise than through specified banking or online mode is excluded, so the whole payment is disallowed, not merely the excess.

  1. AThe Rs. 8 lakh qualifies fully because it is capital expenditure
  2. BOnly Rs. 10,000 of it qualifies
  3. CIt does not qualify as capital expenditure for section 46 because the payment in a day exceeded Rs. 10,000 otherwise than by specified banking or online modeCorrect
  4. DIt qualifies but only after the business has run for eight years

Explanation

Section 46(11)(g)(i) says capital expenditure excludes payments to a person in a day exceeding Rs. 10,000 not made through specified banking or online mode. The cash payment of Rs. 8 lakh therefore fails altogether, not just for the excess over Rs. 10,000.

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