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Depreciation

Devina (Article) (111 Points)

19 March 2015

Is it mandatory to claim depreciation? And why?

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There was a controversy on whether a depreciation claim is optional or mandatory. The tax authorities had taken a view that depreciation claim is mandatory. Ultimately, the Supreme Court in the case of Mahendra Mills (243 ITR 56) settled the controversy by holding that depreciation claim is optional and the assessing officer cannot thrust the depreciation allowance when it is not claimed by the assessee.

To get over the aforesaid decision, Explanation 5 to Section 32 (1) has been inserted with effect from April 1, '02, that is, Assessment Year 2002-2003. Pursuant to the insertion of the said Explanation, depreciation has become mandatory whether or not the assessee has claimed a deduction for depreciation in computing total income.

Explanation 5 reads "For the removal of doubts, it is hereby declared that the provisions of this sub-section shall apply whether or not the assessee has claimed the deduction in respect of depreciation in computing his total income;"

So, if the assets are used for the year, depreciation is mandatory.

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CA AnKiT BoHrA (AB) (Manager) (25955 Points)
Replied 19 March 2015

yest.. mandatory... to know the real value of assets specially having rear and tear due to use... and as further a great explanation above by madhvi ji....

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Devina (Article) (111 Points)
Replied 19 March 2015

Thank you so much!!

Vishal Goel (Chartered Accountant) (1688 Points)
Replied 19 March 2015

Hello,

Explanation 5 to section 32(1) : MANDATORY TO CLAIM DEPRECIATION .

It is mandatory for the assessee to claim deprecation. Deprecation shall be allowed to the assessee whether or not the assessee has claimed deduction in respect of deprecation in computing his total income. Therefore, in computing the profits and gains of business or profession for any previous year, the deduction of deprecation under section 32 shall be mandatory.

Vishal Goel (Chartered Accountant) (1688 Points)
Replied 19 March 2015

Logic :

Current year PGBP income = 10 lakh
Current year deprecation = 10 lakh

Carry forward business loss = 12 lakh ( last year for set off)

Carry forward loss ko set off kar dete the aur deprecation claim nai karte the, aur W.D.Value kam nai hota tha asset ka. ..dat y explanation comes......