Depreciation Query!!

Yogesh Shah (Managing Corporate Finance) (1051 Points)
Replied 30 June 2009

Hi Simardeep,

I agree with you. In section 32 of Income Tax Act, 1961 - there is no any provision in respect of asset acquired & put to use for less than 180 days and subsequently sold before year end.

In my opinion, depreciation will be @ 50%.

Yashpreet (68 Points)
Replied 30 June 2009

ur answer wil b opening wdv 400000

add: purchase 200000

less : sold 100000

wdv 500000

no dep shall be charged if the asset is purchased nd sold in the same year

(Guest)

Hi Simardeep,

Depriciation for the year is calculated on the balance WDV of the block after adjusment for purchase and sale of asset of such block on the last day of previous year. If any asset which is used for less than 180 days and which exists on the last day of the PY then rate will be 50% of the applicable dep. rate for such asset only and the rest of the assets of the block will be charged with the full rate of dep.

If the assets is sold in the same year of purchase then full rate of dep will be applicfable on the rest of the assets on the last day of PY.

Asstes entered in to block does not lose its identity exactly. we check sec 50 first then go to sec 43(6) thats why we calculate STCG\L first assuming it lost its identity then if there is any balance then we calculate WDV as per sec. 43(6) assuming that identity is not lost.

I think this will solve your query or else further discussion will be greeted.

Simardeep Singh (Articled Assistant & CA Final (New) Student) (99 Points)
Replied 30 June 2009

@ Tinku and all - Thanks for your reply. Any reference to case law/circular/specific provisions of the Act will be highly appreciated as I have gone through Sec 32 and 43 (6) to find any reference to imply that the asset (not meaning block) must be existing on the B/S date for which depreciaition is being claimed.

@ Yashpreet - only asset D has been sold and the rest of the block consisting of ABC assets still exists.

@ Yogesh - also please discuss whether 50% of the depreciation will be calculated on Rs. 2 L or Rs. 1 L.

Further replies from others are also welcome. :)

Fareeda_ICWAI INTER (student) (137 Points)
Replied 30 June 2009

hi...

Fareeda_ICWAI INTER (student) (137 Points)
Replied 30 June 2009

hi....

any asset which is used for less than 180 days in a year, must b charged depreciation @ half of actual depreciation rate.. for eg: if the actual depreciation is 20%, then depreciation charged will b 10%...

Yogesh Shah (Managing Corporate Finance) (1051 Points)
Replied 30 June 2009

Originally posted by :Simardeep Singh
"	@ Tinku and all - Thanks for your reply. Any reference to case law/circular/specific provisions of the Act will be highly appreciated as I have gone through Sec 32 and 43 (6) to find any reference to imply that the asset (not meaning block) must be existing on the B/S date for which depreciaition is being claimed. @ Yashpreet - only asset D has been sold and the rest of the block consisting of ABC assets still exists. @ Yogesh - also please discuss whether 50% of the depreciation will be calculated on Rs. 2 L or Rs. 1 L. Further replies from others are also welcome. :)	"

Hi Samardeep,

In my opinion, ur Fixed Asset block will be as follows :-

........

Opening WDV - 400,000

Additions - 200,000

Deletions - 200,000 ( 200,000 less 100,000 less 50% Depreciation on 2 lacs = Loss trf. to P&L A/c. )

Closing WDV - 400,000

Simardeep Singh (Articled Assistant & CA Final (New) Student) (99 Points)
Replied 30 June 2009

@ Fareeda - Hi!! The concept of charging of depreciation at 50% of the normal rate if the asset has been put to use for less than 180 days in the year it is acquired is clear to us. But the actual question is something else. Would request you to go through my query again and reply accordingly.

@ Yogesh - Why are you calculating 50% depreciation on Rs. 2 L??

FARHAN RASUL (STUDENT) (33 Points)
Replied 30 June 2009

HI SIMARDEEP, TO GET A DEDUCTION U/S 32, THE PROVISION SPECIFIES THAT THE ASSET MUST EXISTS ON THE LAST DAY OF THE BALANCE SHEET. SO IN YR QUESTION ON AMT OF ASSET D, U WONT B GETTING ANY DEDUCTION AS IT HAS SIEZE TO EXIST

ON THE LAST DAY OF THE B/S. DEP WILL ONLY B CHARGED ON CLOSING WDV OF RS 500,000

(Guest)

Yupp!!! Farhan is right .

Sujith (Chartered Accountant) (83 Points)
Replied 01 July 2009

Hi,

As per the provisions for the Income Tax, the depreciation is available only to the purchaser of the asset. To keep it simple, the person who has sold the asset will not get the benefit of the depreciation. Its the prerogative of the purchaser to the claim the same. If in any year, you have purchased the asset, put to use and sold the same in the same year, then I feel, you cannot claim any depreciation for the same asset.

The concept is of course available for arguments. So lets see if others can come out with some other answer.

Simardeep Singh (Articled Assistant & CA Final (New) Student) (99 Points)
Replied 01 July 2009

@ Farhan & Tinku - Can you please quote any reference to the provisions of the Section or any relevant case law stating that in order to calculate depreciaiton at 50% of the normal rate, the asset must exist on the Balance Sheet date??

@ Sujith - I am talking about the purchaser only who subsequently sells the asset in the same F/Y. The basic point which I want to be discussed is that whether 50% of the depreciation would be calculated for the Gross Additions (Asset D) or on the net addtions (Cost of Asset D less Sale Price) or the normal provisions of depreciation would apply and 50% of the normal rate provision would not apply in this case.

I hope for further discussion on this point.