Allowability of depreciation u/s 32 of IT Act

This query is : Resolved

Jigar (Querist)
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20 September 2009 Dear Friends,

Very often while claiming an expenditure as a revenue expenditure, this is treated as capital expenditure by the department instead of revenue expenditure.

As per my understanding as and when an expenditure of revenue nature is treated as capital nature by the department during proceedings, then assessee is entitled for depreciation u/s 32 of IT Act on the amount treated as capital expenditure.

However appellate authorities have taken the view that since no new asset has come in to existence and that is a precondition for allowing depreciation u/s 32 of IT Act therefore no depreciation shall be allowed u/s 32 of the IT Act on the amount of revenue expenditure treated as capital expenditure during assessment.

Members are requested to share their views on allowabilty of depreciation u/s 32 of IT Act on the amount treated as capital expenditure in place of revenue expenditure in the light of above facts duly supported by relevant case law , if any which support their views

Kaustuv

Kaustuv (Expert)
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20 September 2009 capital expenditure is not synonymous to fixed asset always. As per IT Act, for example, expenditure on VRS scheme is also a capital expenditure. If you charge it off at one go, Department won't allow because the Act requires you to amortise over 5 years period. Now this is a Capital expenditure as per IT Act which does not give rise to any asset. More expert views in this matter are solicited.