Dear All,
  I am Simardeep Singh from Amritsar (Punjab) and I am currently into CA Final (New) Course.

I have a confusion in my mind regarding sale of assets acquired and sold in the same year and which have been used for less than 180 days. What is the proper treatment to be done for the calculation of the depreciation?

I suppose putting the query into practical example will help me make it understand better. Say, there are 3 assets in a block of assets ABC (Machinery - 60%) with opening WDV Rs. 400000. An asset D was purchased and put to use on 29.10.2008 costing Rs. 200000. The asset D was then sold on 31.01.2009 for Rs. 100000. Kindly clarify the depreciation calculation to me.

Most of the persons whom I ask this query of mine say that the depreciation will be calculated at the normal rate as the asset acquired & put to use ofr less than 180 days does not exist at the Balance Sheet date. However, I slightly differ from this view point. As per the Second Proviso of Section 32 of the Income Tax Act, 1961, any asset acquired & put to use during the previous year for less than 180 days, depreciation shall be restricted to 50% of the prescribed percentage. As the asset D has been used for less than 180 days,depreciation should be calculated at 50% of the said amount. I am of the viewpoint that once the asset enters the block,it loses its individual identity. I suppose it is for the same purpose, Section 50 directs to calculate STCG/STCL only on the cessation of the block or when the sales consideration exceeds the WDV of the block. Kindly correct me if I am wrong anywhere.

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%.

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 

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.

@ 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....

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%...

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

  @ 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?? 

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