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Unclaimed Depreciation in Income Tax Act

siva (ca) (49 Points)

29 June 2011

An assessee did not claim depreciation under Income Tax Act for last 10 years. Can he now claim the entire depreciation now (including back dated) in one asst year. If yes please advise the section or case law or circular. Thank you.

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21 Replies

sivaram (Asst Mgr-Taxation) (6918 Points)
Replied 29 June 2011

It is mandatory to claim depreciation each year.unabsorbed depreciation can be carried forward indefinitely.so in your case you can claim depreciation

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sivaram (Asst Mgr-Taxation) (6918 Points)
Replied 29 June 2011

Sec32 deals with depreciation

sivaram (Asst Mgr-Taxation) (6918 Points)
Replied 29 June 2011

Kindly note unabsorbed depreciation can be carried forward even if you have not filed your return of income on due dates as per sec 139

A G Vishal Kirthic (Chartered Accoutant) (236 Points)
Replied 29 June 2011

Hi,

Agreed with the above view. But while calc the depreciation for each AY, the rate which prevailed in the respective AYs has to be applied on each year's WDV

CA Vitrag S Modi (Chartered Accountant) (186 Points)
Replied 29 June 2011

According to me,

It is compulsory to claim depreciation each year. If you don't claim the same in any year, it will lapse. So in the next year, you cannot claim the same. In the next year, you have to claim depreciation for succeding years only.

Example:

Asset purchased on 01.04.09 costing Rs. 3,00,000/-. Dep. rate 15%. You should claim dep. for FY 09-10 but you did not. So your claim for FY 09-10 (RS. 45000/-) will lapse and you can claim in FY 10-11 depreciation of Rs.38250/- only {(300000-45000)*15%}.

Pls wait for other reply.

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CA Adesh Gupta (Finance Manager) (160 Points)
Replied 29 June 2011

Plz elaborate ur question a bit more

is it a case of unabsorbed dep or assessee has forgoten in totality to claim dep?

Deepesh Khatri (CA) (167 Points)
Replied 29 June 2011

Lets differenciate between unclaimed depreciation and unabsorbed depreciation. Prima facei they may be the same, but technically there is a difference. In the first case, the assessee did not opt to claim depreciation; while in the latter case, the assessee did not have sufficient profits to absorb the depreciation allowable.

Here we deal with unclaimed depreciation.

Depreciation is allowed to each assessee compulsorily u/s 32. If the assessee does not claim the same, it is "a mistake apparent from record" and the AO has to take into consideration the depreciation while passing Assessment Order.

Since the AO did not do the same, the assessee cannot claim depreciation for previous years now. But what he can do is apply for rectification u/s 154 for Assessment Orders passed within last 4 yrs requesting the AO to consider depreciation while calculating PGBP.

Once the AO passess the Re-Assessment Order, consider the Opening WDV for AY 2011-12 to be Opening Block less Depreciation so allowed by the AO.

My view may be wrong, please wait for experts to reply.

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Anvesh Desai (Chartered Accountant) (156 Points)
Replied 29 June 2011

I completely agree with Mr Vitrag and Mr.Deepesh...

Assessee can also apply under section 264 of the Act for Revision...

prerna (student) (91 Points)
Replied 29 June 2011

if the assessee has overlooked it , then section 264,

if the assessee has unabsorbed depn , then hemay c/f any no of years

(Guest)

Explanation 5.—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.

"The logic behind the deductibility of depreciation while computing the eligible profits for Chapter VI-A, is because if the depreciation is not reduced while computing the income, the assessee would claim deduction on the gross amount of income and that would amount to making more deduction under Chapter VI-A, that what the assessee is entitled to.

It may also be noted that by not claiming depreciation, the assessee is in fact claiming higher deduction under Chapter VI-A, and at the same time keeping the written down value of its assets high (because if depreciation is claimed the written down value would be reduced by the amount of depreciation actually allowed. The assessee would claim depreciation on such, high written down value in the subsequent year. Thus, by not claiming depreciation in the years in which the assessee is entitled to deduction under Chapter VI-A, the assessee claims a double advantage (i) claiming a higher deduction under Chapter VI-A, than its entitlement, (ii) keeping the written down value of assets high resulting in higher claim of depreciation in the subsequent years."

Now your question

1. Is Books of accounts available of last 10 yrs.

2. S 154 is applicable only for 4 yrs not beyond that.

3. Whether in last 10 yrs there was income, tax return was filed etc. Is that available with income tax dept.

4. S 264 cannot be applied since it is revision of assessment order. That to upto 1 yr. Was assessment was done by AO under any sections.

I do not have conclusive answers

Thanks.

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tanuj sharma (CA-PCC) (47 Points)
Replied 29 June 2011

he can claim depriciation provided he had never claim depriciation if he had claim dep. from 1991 and then never claim dep. then he can not claim dep. for that asset