Payment capitalised, no tds -- effects ?

If payment is capitalized then there is no need to deduct the tax. 40 a(ia) clearly stipulates that the tds is to be deducted as per chapter XVII B. So, there is no worry. If you clearly mention why it is capitalized i can further explain the matter

the question is not clear.the purpose of the  payment made needs to be known to give a view on this.

AO cannot disallow expenses for which no deduction has been claimed. (This depends - certain capital expenditures, are allowed in lumpsum or in instalments as deduction - these can be disallowed u/s 40(a) by the AO)

But for sure, the assessee will be an assessee in default, liable to pay the TDS and interest and penalty thereon.

please eloborate the nature and purpose of payment?? why you have capitalized it??

Section 40 (a) (ia) of the Act deals with the disallowance of expenses. When an expense has been capitalised there is no allowance of the expenditure so the machinery of the said Section fails to apply.

Regards.

Query is not clear, some of payment even though capitalised, will cover u/s 194C.

Dipjyoti,

I am giving a hypothetical example. Please tell me if I am wrong. Let us say a company is building a new factory. The first time painting expenses will be capitalised. The Tax is required to be deducted u/s 194C. Now, are you saying what will happen if tax is not deducted as the painting expenses are not claimed as deduction but are added to factory cost?

Thanks to Friends in this forum to discuss this. The example given by Ameya Lonkar is perfect one to discuss on this further.

Regards,

In continuation, if any machinery or furniture is installed in the premises and labour charges have been paid, TDS would be applicable. Normally u/s 194C, but this may differ on a case to case basis. So if the labour charges exceeds the threshold limit, we need to deduct TDS.

If not deducted, no disallowance will be applicable. However contravention of TDS provisions will apply and interest and penalty would be applicable.

I would also like to add on that TDS will be apllicable irrespective of its usage. In other words, it will apply even if used for personal purpose. Because nowhere in the TDS provisions it tells that it has to be incurred only for business purpose.