Increase Your Knowledge On Depreciation Under Income Tax Act

MCQ SELF CHALLENGE #0094 ON DEPRECIATION UNDER INCOME TAX ACT

Depreciation under Income Tax Act

Dear Professional Seniors & Friends,

Warm Greetings from best tax consultant in Gurgaon!

Welcome to our next #MCQ on concept-based practical professional knowledge on the Treatment of Depreciation under Income Tax Act in case of a change of ownership in a unique manner to be self-answered by participants. The detailed answers to these MCQs shall be posted the next day for the self-assessment of the participants.

MCQ 94.1: XYZ Ltd. Mumbai was incorporated on 30.07.2017 for the 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 the date of commencement of operations is 120 lakhs. The said plant and machinery included second-hand plant and machinery brought for Rs 25 Lakhs What is the normal and additional depreciation to be charged as per Income Tax Act, 19617

A. 18 latch of normal depreciation and no additional depreciation.

B. 18 Jak of normal depreciation and 19 laich additional depreciation.

C. 18 lakh normal depreciation and 24 lacks additional depreciation

D. None of the Above.

MCQ 94.2: If in the above case, new plant and machinery including plant and machinery for scientific research relating to the business of the assesse is acquired for Rs 15 Lakh in addition to second-hand machinery of Rs 25 Laks?

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 lakhs Additional Depreciation

D. None of the above.

Answer MCQ Self Challenge #0094

This post of MCQ is on provisions relating to the Treatment of Depreciation under Income Tax Act

Answer MCQ 94.1:

B) 18 lakh of normal depreciation and 19 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)(a) additional depreciation is allowable in case of any new plant or machinery acquired or instated by an asssessee engaged in the business or production of any article or engaged in the business of generation, distribution of transmission of power. The rate of additional depreciation is 20
  
• However additional depreciation shall not be allowed in respect of inter all-
• 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 Proft and gains of business or profession of any one previous year.

Particulars - Rs in Lakhs

Total cost of plant and machinery - 120.00 (In Lakhs)

Normal Depreciation @ 15% on 120 lakhs - 18.00

Additional Depreciation

Cost of plant and machinery - 120.00 (In Lakhs)

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 AY 2018- 47.00

On the basis of the above analysis Answer to MCQ 94 1 8) 18 lakh of normal depreciation and 19 lakh additional depreciation

Answer MCQ 94.2:

C) 15.75 lakh of normal depreciation and 16 Lakhs

Additional depreciation

Practical Analysis of MCQ 94.2:

• As per Section 35(2)(v), no depreciation shall be allowed in respect of plant and machinery purchased for the scientific research relating to assessee's business since the entire expenditure is deductible under Section 35.

Given 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
  expense can be claimed as a deduction under section 34(1)(iv) and 35(2)(a)

Particulars - Rs in Lakhs

Total cost of plant and machinery- 120.00 (in Lakhs)

Less: Used for Scientific Research- 15.00

Normal Depreciation @ 15% on 105 lakhs- 105.00

Additional Depreciation - 15.75

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 a deduction under section 35(2)(a) - 15.00

40.00 (in Lakhs)

Additional Depreciation@20% - 80.00 - 16,00 (in Lakhs)

Total Depreciation allowable for AY 2018-19 - 31.75

On the basis of the above analysis Answer to MCQ 942 C) 15.75 lakh of normal depreciation and 16 lakh of additional depreciation

(Disclaimer: The objective of the MCQ post is just to discuss the concept, it may happen by a change of facts, and the answer may be different. Please do not treat this as a professional opinion: you can definitely have your own opinion.)

Sincere Regards

CA Sanjay Kumar Agrawal

Mobile: 9810116321