Challenging Question on Actual Cost u/s 43 (1)
This query is : Resolved
04 September 2016
explanation 4A to sec 43 (1) provides the actual cost in hands of leasor of asset if asset is sold and leased back. The section provides that the actual cost in hands of leasor shall be the WDV of sold asset at the time of the asset is sold to leasor by the first owner ie the leasee.
But the question arises when sale has taken place in another previous year(eg.on 31-3-16) and leased back in another py (eg on 2-4-16 )...then as per the literal interpretation of sec.43 (1) and explanation 4A of the same, the actual cost for Py.15-16 should the selling price and the actual cost for the py.16-17 should be the wdv on the date of sale by leasee. The funny thing is, we would have different actual price for different P.Ys. Is this true or there is some another way out. ?
05 September 2016
bit confused? See, as per my understanding, ...it is event oriented....
if the event occurs in 2015-16, the then provision will be applicable....
Now once actual cost is considered as per the provisions of 2015-16......the same will be continued year on year basis.... I am not able to get what is your difficulty.... Can you please explain with reference to above mentioned explanation?
if the event occurs in 2015-16, the then provision will be applicable....
Now once actual cost is considered as per the provisions of 2015-16......the same will be continued year on year basis.... I am not able to get what is your difficulty.... Can you please explain with reference to above mentioned explanation?
05 September 2016
Amol sir my difficulty is when shall the explanation 4A be invoked. If sale has taken place in one PY and leasing back is taken back in another PY. difficulty arises when the sale is done the general 43 (1) is invoked and in another previous year when lease back is done the
05 September 2016
(continuation) explanation 4A is invoked, won't it create ambiguity?
05 September 2016
According to explanation 4A....first mentioned person and second mentioned person have to satisfy certain conditions, then and then only explanation 4A can be applied.....
The conditions as set out in the said explanation 4A are
i) before acquiring the asset by first mentioned person AND
ii) the second mentioned person has used it for his business/profession AND
iii) depreciation has been allowed to second mentioned person AND
iv) the second named person takes the said asset on lease, hire or otherwise assets from first mentioned person
then....the actual cost shall be the WDV......etc etc...
The position is clear... Tell me, with respect to this.... where you are getting stuck, please.
The conditions as set out in the said explanation 4A are
i) before acquiring the asset by first mentioned person AND
ii) the second mentioned person has used it for his business/profession AND
iii) depreciation has been allowed to second mentioned person AND
iv) the second named person takes the said asset on lease, hire or otherwise assets from first mentioned person
then....the actual cost shall be the WDV......etc etc...
The position is clear... Tell me, with respect to this.... where you are getting stuck, please.
06 September 2016
Suppose Mr.S acquires Machinery(15%) from Mr.F on 29/03/2015 for Rs.1,00,000 and put to use on the same date(WDV IN BOOKS OF Mr.F is Rs.40000). So actual cost u/s 43(1) to Mr.S would be Rs.1,00,000 and depreciation allowance to Mr.S would be Rs.7500(<180 days) for the PY.2014-15 and WDV for the next year would be Rs.92,500.
Now, on the date of 04/04/2015 Mr.S leases the property back to Mr.F . DUE TO THE SAID ACTION EXPLANATION 4A TO SECTION 43(1) WOULD BE INVOKED IMMEDIATELY. So for the purpose of PY.2015-16, due to said explanation, actual cost for Mr.S would be 40000 i.e. WDV AT THE TIME OF TRANSFER BY MR.F. and depri. allowance would be Rs.6000.
My question is that “is it possible to have different actual cost of the same asset for the different previous years?” Isn’t it funny?
06 September 2016
01. See, try to note one thing clearly.....accountancy MAY differ from Income Tax......this may continue to be so year on year basis...... so? so far as income tax is concerned, the COMPUTATION will take care of such differences. The books of accounts will be recorded by the principles of accountancy. The books of accounts are not prepared as per Income Tax. Ok?
02. You are probably concentrating only on the values rather than the RATIONALE behind it.....had the provision not been there, it would have been very easy for the people to ACCOMMODATE each other just by selling and then leasing back and thereby fooling the income tax dept......isnt it?
02. You are probably concentrating only on the values rather than the RATIONALE behind it.....had the provision not been there, it would have been very easy for the people to ACCOMMODATE each other just by selling and then leasing back and thereby fooling the income tax dept......isnt it?
06 September 2016
sir, Pls try to understand that the word WDV I have used is wrt to Income Tax
06 September 2016
not wrt accounting....and I am also talking about the way by the rationale you are talking about can be defeated....pls read the question I have framed once again and try to assume yourself in place of Mr.S...and apply those section and explanation in your business...you shall immediately get my query...my humble request is..pls place yourself in place of mr.s....I m very obliged to for answering my queries....hoping you to read the question the way I am saying :)
06 September 2016
You can try it by answering my two simple question.
1.Suppose you buy a machinery from Mr.X for Rs.2,00,000(wdv for Income tax purpose in Mr.X’s return was Rs.50000) and you put to use it on 29.3.2015 in your business of manufacturing. HOW MUCH DEPRECIATION WOULD YOU CLAIM IN YOUR RETURN for PY.2014-15?( assume rate for this purpose is 15% )
2.Now on 2.4.2015 you are leasing back it to Mr.X ( Please note you are keeping the ownership with you only, so you are going to claim the depreciation for PY.2015-16). So, tell me how much depreciation you are going to claim in return for PY.2015-16?
06 September 2016
Uffffffffffffffffff.....you are thinking unidirectional.... anyway
Let me try to take you to have a BIRD's eye view...ok?
I buy the machine from X for INR 200,000 whose WDV in X's books is 50,000, on 29/03/2015.....ok?
I will claim depreciation on INR200,000..at the same time X will pay short term capital gain on INR150,000 i.e. INR200,000 - WDV50,000..... are you getting it? so to say, Income tax department GOT its due share in this transaction.....no evasion at all.... ok? Since X is paying short term capital gain, there is NO harm in allowing me to claim depreciation on INR 200,000 which is the actual cost to me..... is it ok?
The equation/situation goes heywire once, after buying the machine for INR 200,000, I lease it to X.....it is nothing but a type of bond washing transaction.....The asset whose WDV is 50,000 had been purchased by me for INR200,000. ....why? What for? To defraud income tax? ...
and not only that....it is again leased to X... why? What for? just to defraud income tax?
and if that be the case, I should rightfully be deprived off the pleasure of claiming the depreciation on INR 200,000.....that's all.... I should be happy with claiming the depreciation on the WDV of X
Now tell me your views please.
Let me try to take you to have a BIRD's eye view...ok?
I buy the machine from X for INR 200,000 whose WDV in X's books is 50,000, on 29/03/2015.....ok?
I will claim depreciation on INR200,000..at the same time X will pay short term capital gain on INR150,000 i.e. INR200,000 - WDV50,000..... are you getting it? so to say, Income tax department GOT its due share in this transaction.....no evasion at all.... ok? Since X is paying short term capital gain, there is NO harm in allowing me to claim depreciation on INR 200,000 which is the actual cost to me..... is it ok?
The equation/situation goes heywire once, after buying the machine for INR 200,000, I lease it to X.....it is nothing but a type of bond washing transaction.....The asset whose WDV is 50,000 had been purchased by me for INR200,000. ....why? What for? To defraud income tax? ...
and not only that....it is again leased to X... why? What for? just to defraud income tax?
and if that be the case, I should rightfully be deprived off the pleasure of claiming the depreciation on INR 200,000.....that's all.... I should be happy with claiming the depreciation on the WDV of X
Now tell me your views please.
06 September 2016
sir very good explanation...thank you so much....I got my answer
07 September 2016
You are most welcome.
You need to be the querist or approved CAclub expert to take part in this query .
Click here to login now
Click here to login now
Similar Resolved Queries
Unanswered Queries
- Can we claim ITC in 28%
- Forgot to update debit note in gst
- Relief Calculation u/s 89 of ITax 1961 in TableA Form10E
- Can we issue an invoice today
- SALE OF GOODS FROM OTHER STATE
- Sale of Gold ornaments
- Accounting Policies changes
- Applicability of RCM on Frieght Inward supplies received from un-registered person
- Expenses add back in profit
- Ca final exam registration may-26
- ADDITIONAL PLACE OF BUSINESS DOCUMENTS
- Are You Looking For an Easy Academic Help?
- Wrongly goods delivered to other state
- Tds on GST in connection with sale to public company
- B2B Amendment
- Restoration of certificate of practice
- Regarding change in correspondence address in SSP portal
- Regarding Advance Tax not claimed in the Return of Income for A.Y. 2025-26
- No Compliences after incorporation
- USEFUL LIFE OF USED/SECOND HAND COMMERCIAL VEHICLES
Trending Online Classes
-
DT & Audit (Exam Oriented Fastrack Batch) - For May 26 Exams and onwards Full English
CA Bhanwar Borana & CA Shubham Keswani
CAclubindia
