Depreciation on Assets fraudulently purchased

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A company discovered assets capitalised and depreciated were never received due to a fraudulent purchase manager. They are now writing off these assets. The discussion explores the tax treatment of this fraud, specifically regarding depreciation claims on assets that were never physically present and whether they can still be included in the Written Down Value (WDV). The consensus is that depreciation cannot be claimed for the current financial year, and the WDV should reflect prior depreciation, but further claims are not permitted.

CA Ritu Chauhan

CA Ritu Chauhan (Querist)
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16 July 2024 Company had capitalised some Assets in past years & claimed depreciation on the same. However, during physical verification of fixed asset in subsequent year, it was found that the assets have never entered to premises of the company. The purchase manager has fraudulently produced invoices, took the delivery of the assets & absconded. The company is now writing off those assets in the books. What will be the treatment of this fraud in the depreciation as per Income Tax Act? Whether the company can claim depreciation as the cost of those assets is a part of the WDV.

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
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17 July 2024 1. Whether police complaint filed for the fraud? What is its status?
2. How about insurance claim?

CA Ritu Chauhan

CA Ritu Chauhan (Querist)
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17 July 2024 Police Complaint filed but proceedings are yet to start. Assets were laptops, not insured by the company.

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
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17 July 2024 Should not close the matter as on date, till the police investigations are completed.
Secondly, you cannot depreciate the assets anymore.

CA Ritu Chauhan

CA Ritu Chauhan (Querist)
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17 July 2024 Ok, we should reduce the WDV to the extent to of depreciated value of those assets, right ?

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
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17 July 2024 WDV of the asset is already reduced by depreciation claimed earlier, how can you reduce it again?
Whether any depreciation was not claimed earlier?

CA Ritu Chauhan

CA Ritu Chauhan (Querist)
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17 July 2024 Depreciation was claimed in FY 22-23 ie in the year of purchase.

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
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17 July 2024 For FY 23-24 you cannot claim any depreciation.

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