capitaisation of custom duty

This query is : Resolved

CA Devanshi Gandhi (Ajani) (Querist)
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10 June 2009 machinery was imported 10 years back without payment of custom duty under some exemption scheme...but due to some reason now it is required to pay the same.... do we need to capitalise it? if yes... depreciation should be calculated retrospectively or prospectively...pls clear this query as per accounts and income tax both...its urgent and if u can give the base for the same as i require to convince the client...

CA Sanjeev Kr Jain

CA Sanjeev Kr Jain (Expert)
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10 June 2009 BETTER TO CAPITALISE THE DUTY AND CHARGE THE DEP PROSPECTIVELY

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taxindiaconnect

taxindiaconnect (Expert)
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10 June 2009 Any expenditure incurred to purchase a capital assets is an expenditure of capital nature and should be capitalised In the case of Sitalpur Sugar Works Ltd., the Supreme Court of India has held that the customs duty paid by an assessee for acquiring the capital asset would be a part of the cost of the equipment of the assessee, and in similar way, the customs duty paid by the assessee when the equipment is imported to India for the first time would also be capital in nature.

The fact that the custom duty has been paid at a later stage, does not make any difference for the purpose of income tax as sum paid at a later stage should be capitalised on the date of payment. The depreciation in income tax act is since allowed on block of assets method where in the value of block is adjusted and not the value of individual assets for any sales / discard of addition of the new assets, there is no scope for calculation of depreciation retrospectively.

Hope this clarifies your query.

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