Explanation 5 to section 32(1)

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Monika Bansal (Querist)

13 August 2016 As per explanation 5 to section 32(1), it is mandatory to claim depreciation. what is the reason for making it mandatory, even when unabsorbed depreciation can b c/f for the indefinite period?

Ruchi

Ruchi (Expert)

13 August 2016 Depreciation is charged because it is deemed that there is decrease in value of assets over time when used. If you do not charge depreciation in any year it would mean that there is no such decrease in that particular year!!
Moreover, if it is not made mandatory then organisations will charge it at their own discretion which will leave room for manipulation of profits and shifting of profits from one year to another.

Monika Bansal

Monika Bansal (Querist)

14 August 2016 Thanx Ruchi. But I want to ask that how can a company manipulates profits by not charging depreciation since even if a company incurs losses in any previous year and charges depreciation for the same previous year , it can claim unabsorbed depreciation indefinitely. So why will a company defer the depreciation?

Ruchi

Ruchi (Expert)

14 August 2016 To show lesser losses in the current year. And you are taking the case of companies only. Take a proprietorship firm, it is charged tax on increasing slab rates. So tax charge can be easily shifted from one year to another year and one slab to another if depreciation is not mandated.

Monika Bansal

Monika Bansal (Querist)

15 August 2016 I got it. Thank you Ruchi for your precious time :)

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