Depreciation under Income Tax Act
Dear Professional Seniors & Friends,
Warm Greeting!
Here is the Next post of #MCQ on concept based practical professional knowledge on Treatment of Depreciation under Income Tax Act in case of change of ownership in a unique manner to be self answered by participants. The detailed answer of these MCQs shall be posted next day for the self assessment of the participants.
MCQ 94.1: XYZ Ltd, Mumbai was incorporated on 30.07.2017 for manufacture of tyres and tubes for motor vehicles. The company commenced its manufacturing operations on 01.09.2017. The total cost of plant and machinery bought & installed up to date of commencement of operations is 120 lakhs. The said plant & Machinery included second hand plant & Machinery brought for Rs 25 Lakhs. What is the normal and additional depreciation to be charged as per Income Tax Act, 1961?
A. 18 lakh of normal depreciation and and no additional depreciation.
B. 18 lakh of normal depreciation and 19 lakh additional depreciation.
C. 18 lakh normal depreciation and 24 lakh additional depreciation.
D. None of the Above.
MCQ 94.2: If in the above case new plant and machinery included plant and machinery for scientific research relating to the business of the assesse is acquired at a cost of Rs 15 Lakh in addition to second hand machinery of Rs 25 Lakhs?
A. 18 lakh of normal Depreciation and no additional Depreciation
B. 18 lakh of normal Depreciation and 19 lakh Additional Depreciation
C. 15.75 lakh of Normal Depreciation and 16 lakh Additional Depreciation
D. None of the above.
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CA Sanjay Kumar Agrawal
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Answer MCQ Self Challenge #0094
Dear Professional Seniors & Friends,
Warm Greetings!
This post of MCQ is on provisions relating to Treatment of Depreciation under Income Tax Act
Answer MCQ 94.1: B) 18 lakh of normal depreciation and 19 lakh
Additional depreciation
Answer MCQ 94.2: C) 15.75 lakh of normal depreciation and 16 Lakh
Additional depreciation
Practical Analysis for MCQ 94.1:
- As per section 32 of the Income Tax Act, 1961, depreciation is allowed on tangible assets and intangible assets owned, wholly or partly, by the assesse and used for the purposes of business or profession and depreciation is to be charged at the rate of 15 % on
plant and machinery.
- As per Section 32(1) (iia) additional depreciation is allowable in case of any new plant or machinery acquired or installed by an asssessee engaged in the business or production of any article or engaged in the business of generation, distribution or transmission of power. Rate of additional depreciation is 20 %.
- However, additional depreciation shall not be allowed in respect of, inter alia, –
- any machinery or plant which, before its installation by the assessee, was used either within or outside India by any other person
- any machinery or plant, the whole of the actual cost of which is allowed as a deduction (whether by way of depreciation or otherwise) in computing the income chargeable under the head “Profit and gains of business or profession” of any one previous year.
| Particulars | Rs. in Lakhs | ||
| Total cost of plant and machinery | 120.00 | ||
|
Normal Depreciation @ 15% on `120 lakhs |
18.00 |
||
|
Additional Depreciation: |
|||
| Cost of plant and machinery | 120.00 | ||
| Less: Second hand plant and machinery (Note 2) 25Lakhs | ` | ||
|
25.00 |
|||
| Additional Depreciation@20% on 95 lakhs | 95.00 | 19.00 | |
| Total Depreciation allowable for A.Y.2018-19 | 47.00 | ||
- On the Basis of above analysis Answer to MCQ 94.1: B) 18 lakh of normal depreciation and 19 lakh additional depreciation
Practical Analysis of MCQ 94.2:
- As per Section 35(2)(iv), no depreciation shall be allowed in respect of plant & Machinery purchased for the scientific research relating to assessee’s business since the entire expenditure is deductible under Section 35.
In view of the above provisions, additional depreciation cannot be claimed in respect of –
- Second hand plant and machinery; and
- New plant and machinery purchased for scientific research relating to assessee’s business in respect of which the whole of the capital expenditure can be claimed as deduction under section 35(1)(iv) read with section 35(2)(ia).
| Particulars | Rs. in Lakhs | ||
| Total cost of plant and machinery | 120.00 | ||
| Less: Used for Scientific Research | 15.00 | ||
|
Normal Depreciation @ 15% on `105 lakhs |
105.00 |
15.75 |
|
| Additional Depreciation: | |||
| Cost of plant and machinery | 120.00 | ||
| Less: Second hand plant and machinery | ` 25.00 | ||
| Plant and machinery used for scientific research, the whole of the actual cost of which is allowable as deduction under section 35(2)(ia) |
` 15.00 |
40.00 |
|
|
Additional Depreciation@20% |
80.00 |
16.00 |
|
| Total Depreciation allowable for A.Y.2018-19 | 31.75 | ||
- On the Basis of above analysis Answer to MCQ 94.2: C) 15.75 lakh of normal depreciation and 16 lakh additional depreciation.
(Disclaimer: The objective of the MCQ post is just to discuss the concept, it may happen, by change of facts, the answer may be different. Please do not treat this as professional opinion; you can definitely have your own opinion.)
Sincere Regards!
CA Sanjay Kumar Agrawal
Mobile: 9810116321
To access MCQ posts regularly, please Join Telegram Channel:
https://t.me/caSanjayKumarAgrawal
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