depreciation as per income tax

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bhushan gupta (Querist)
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18 May 2010 One company have depreciable fixed assets.There is one fixed asset that has no market value but as per books: book value is rs.1.5Lakh. company want to write off it from books of accounts. Please suggest us

a) Whether company can fully write off fixed asset as per accounting standard and companies act?
b) Whether in Income Tax Act, full depreciation Rs. 1.5 lakh is available in the year of write off or this asset will be carry on in the fixed asset schedule of income tax at normal rate of depreciation

CA. Tarun Navlani

CA. Tarun Navlani (Expert)
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18 May 2010 Mr. Bhushan,

Company should definitely write off the said asset in the books of accounts. You may note that AS 28 on impairment requires impairment review to be made atleast once in a year. Since market value is zero, you need to compute value in use i.e. present value of expected cash flows in future from independent use of asset.. if the same can not be determined, realizable value shall be zero and hence, full value of Rs. 1.5 lacs would be written off in the books as impairment loss. You may note that AS 28 under Company Accounting Standard Rules is same as that pronounced by ICAI.

However, said treatment will not be permitted under Sec. 32 of IT Act. It is based on block of asset concept. As far as WDV of block is not zero and block of asset does not cease to exist, you have to claim depreciation. There will be short term capital loss only if asset is transferred. You may note that it will also give rise to timing difference and there will be Deferred tax effect as well..