deprecation cliamed even if asset not to put in use reasons?
deprecation cliamed even if asset not put to use
CA lakshmikanth (Chartered Accountant) (238 Points)
05 December 2009
10 Replies
Sunali
(Learner)
(1317 Points)
Replied 05 December 2009
As per Sec 32..
"Depreciation can be claimed on an asset if it has been USED for the purpose of business or profession during the last previous year.".......hence dep. will be available only if the asset has been put to use..
However, as per AS -6..
If an asset has been purchased, the same being ready to use...could have been put to use any time during the previous year..hence depreciation has to be claimed whether or not it has been actually put to use..
Moreover, the courts have also given contrary decisions on the above issue..
Recently, the Delhi High Court in case of CIT v. Insilco Ltd. (2009),, has given the following decision..
The Court observed that the expression “used for the purposes of business” appearing in section 32 also takes into account emergency spares, which, even though ready for use, yet are not consumed or used during the relevant period. This is because these spares are specific to a fixed asset, namely plant and machinery, and form an integral part of the fixed asset. These spares will, in all probability, be useless once the asset is discarded and will also have to be disposed of. In this sense, the concept of passive use which applies to standby machinery will also apply to emergency spares. Therefore, once the spares are considered as emergency spares required for plant and machinery, the assessee would be entitled to capitalize the entire cost of such spares and claim depreciation thereon.
– One of the conditions for claim of depreciation is that the asset must be “used for the purpose of business or profession”. In the past, courts have held that, in certain circumstances, an asset can be said to be in use even when it is “kept ready for use”. For example, depreciation can be claimed by a transport company on spare engines kept in store in case of need, though they have not actually been used by the company. Hence, in such cases, the term “use” embraces both active use and passive use for business purposes.
CA CS Bhumika Thakkar
(CA,CS)
(1618 Points)
Replied 05 December 2009
ready to put to use is allowed in many cases lik CIT v Vayithri Plantations Ltd.(Madras),Whittle Anderson Ltd.v CIT(Bom),CIT v Vishwanath Bhaskar Sathe (Bom).bt contrary view was given in d case Dy CIT v Yellama Dasappa Hospital(Kar) and Dineshkumar Gulabchand(Mum ITAT).
however recent ITAT decision allowed the kept ready to put to use theory in ACIT v Chennai Petroleum Corp.Ltd.(Chennai) (TM)
Its a third member bench decision...
CA. Megha Topiwala
(Job)
(1534 Points)
Replied 05 December 2009
you can claim depreciation even if u hv not put 2 use...
there is difference of opinion in case by different highcourts...
Sunil
(Trader)
(2611 Points)
Replied 05 December 2009
If you buy a packed piece item that is ready to use and open the box and tear the packing, it is a used asset as without packing it cannot be re sold as new and unused. You do not have to physically plug the wire into the outlet to use it. You open it, it is in use.
However, if you are erecting plant and machinery, unless it is not commissioned, it cannot be in use.
A spare engine is already in use as it is in working condition and kept aside as a standby. This is the case for aircrafts depreciation is allowed even on the running spares that come with the aircraft.
Bharat Khurana
(Student)
(153 Points)
Replied 10 December 2009
depreciation is allowed only when the assets is put in use as per section 32. if assets is used in the year other than the year of purchase then full deprefciation shall be allowed irrespective of its period of use
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