Confusion regarding Explanation 4A of Sec 43(1)

Tax queries 2041 views 3 replies

I have a confusion regarding Explanation 4A of Sec 43(1) of Income Tax Act

My problem is as follows,

 X  Sold a Plant to  Y on 1.6.2008 at 2,00,000.

 W.D.V on the date of transfer by  X to Y is 1,50,000. In the Books of Y  W.D.V of  the relevant  Block (Plant @ 15% dep)    as on 1.4.2008 was 3,00,000. Y  treated  the Plant as follows:

                                                                              In the Books of  Y

         W.D.V of the relevant Block on 1.4.2008                                  3,00,000

           Add: Additions during the year 2008-2009                            Rs. 2,00,000

                                                                                                                          5,00,000

           Less: Sale proceeds                                                                              nil      .

                                                                                                                         5,00,000

            Depreciation @ 15%                                                                           75,000  .

               W.D.V as on 31.3.2009                                                                 4,25,000

             Add: Additions during the year 2009-2010                                     50,000  .

                                                                                                                          4,75,000

            Less: Sale Proceeds                                                                            nil         .

                                                                                                                          4,75,000

            Less: Depreciation @ 15%                                                                 71,250   .

                                             W.D.V as on 31.3.2010                                   4,03,750   .

Now on 1.8.2010 the Plant which was acquired by Y from X was LEASED back to X  by  Y.

Vide Explanation 4A of Sec 43(1) the actual cost of the asset for the purpose of depreciation in the hands of  Y will be the W.D.V on the date of transfer by  X  to Y i.e, 1,50,000.

My question is whether the above calculation of the depreciation will be recomputed and assessment order of the

P.Y 2008-2009 and 2009-2010 will be rectified u/s 154? Please show the the computation of the depreciation and W.D.V of the relevant Block during the P. Y 2010-11 in the Books of Y. (assume there is no purchase or sale of plant in 2010-2011)

Replies (3)

Samir.... there will be no recitification or recomputation o reassessment..  wat yu did was slightly wrong... yu took Rs 200000 as the additions during 08-09 in th books of Y which shud av been Rs 150000 as per Expl 4A.

As per Expl 4A.. Actual cost to Y will be WDV of the asset at the time of transfer (not the sale value) thereof by X. this is wat i undrstd.. pls crct if i m wrong

Vedanta....  During 2008-09  Y didnt have any intention to lease it back to X. So exp 4A of sec43(1) didnt comes into play at that time. So actual cost of the asset was the cost of purchse ie, Rs.2,00,000 in the year 2008-2009. Y leased back that asset in 2010.  ... My question is whether the entire computation of the block of Asset and deprecation is to be again recomputed  from 2008-09 taking Rs.1,50,000 as the cost of the asset instead of Rs.2,00,000 with retrospective effect.

If so , there will be a need of amendmend of the assessment orders of the year 2008-09 and 2009-10.

Am i correct or not ... plz tell me ? i am confused

 


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