Suppose WDV of a building is Rs 500000 (Rate of Depreciation 25%)
Now it says WDV of Rs 50000 machinery is lost by fire.And Rs 40000 is received by an insurance claim.
My question is whether this Rs 50000 worth machinery is to be deducted to find out the allowable depreciation and is the loss of Rs 10000 allowable as per IT rule?
Building and machinery are two separate blocks for the purposes of IT ACt. If the machinery is destroyed by fire and you receive compensation from the Insurance co., the same has to be reduced from the WDV of the machinery block. If the block ceases to exist pursuant to such destruction, then the difference will be STCL. If the there are other assets in machinery block then the depreciation shall be provided on balance WDV
sorry i didnt mean to write machinery all of them are bulding...it is a typing error.sorry about that
It is a loss which will be allowed as deduction from the profit by IT Act. Which we can show 10000/ as deduction under sec 41(2). .........
40000 will be deducted from block of assets and 10000 will be allowed as expenditure.
Dear Arka, 40,000 will be treated as realisation from the block, and this shall be reduced from the sum (opening block + additions of assets which are put to use for 180 days or more). So the block become 460000 for claiming depreciation.
The 10,000 loss is not admissible from the basic fact that capital losses are not allowed in the computation of PGBP (see section 37. Revenue loss can be claimed as a deduction, and u wont find a loss of machinery allowed in the act or any case law in my knowledge.) That loss will be admissible only when the block ceases to exist, as pointed out by Pavan Jain.
CAclubindia
