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Profit on Sale of FA in Books of A/cs

CA Saurabh Shukla (Accounts Executive) (223 Points)

07 September 2012

Profit on Sale of FA in Books of A/cs treatment in I Tax, when no profit as per Income tax rule of Block Asset

We have 5 trucks in company. In current year we sold 3 trucks and purchse 2 new trucks.

We have calculated dep. and profit on sale of truck as per companies act.

We have calculated dep. as per Income Tax also, but there is no Profit in Income tax as block is not get negative after reducing sale value and still there is assets in that block.

So, My quiry is how I adjust profit on sale of fixed asset in My Return. So, that no tax will payable on profit on sale of FA.

Pls. give Sec Reference also.

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27 Replies

CA MAYANK WADHERA (CA CS CMA(I)) (789 Points)
Replied 07 September 2012

Firstly we have to follow Block concept , opening WDV (+) purchase consideration (-)sale consideration = CLOSING WDV

If the amount of sale consideration is in excess of Opening WDV & Purchase considearation of the asset in that particular block , then the excess will be treated as Short term Capital Gain . WDV of the block will be carried forward as Nil .

In my opinion if there is excess Sale consideration over Opening WDV & Purchase consideration then that profit can't be adjusted as it is a clear cut STCG .

CA Saurabh Shukla (Accounts Executive) (223 Points)
Replied 07 September 2012

Hi Mayank,

Pls. read my quiery first.

I have made calculation as per Income tax, but there is no Profit on Sale of Asset.

But, as per companies Act there is Profit on Sale of FA.

How I make Adj in filing of Return.

Vaibhav Jandey (Life iz Hard; I'm Harder) (1175 Points)
Replied 07 September 2012

Dear Saurabh,

Your query directly relates to Deferred Tax Tratements given in AS-22.

Kindly refer that.

You don't have to make adjustments in Return, but in your accounts by providing for the deferred tax asset or liability as the case may be.

CA.kaya (Chartered accountant) (3990 Points)
Replied 07 September 2012

calculation taxable income as per income tax act

book profit xxx

+ dep as per p & l a/c xxx

- profit on sale of asset xxx

- allowable dep as per it act (xxx)

taxable income xxx

by doing this adjustment profit as per company act will adjust with it act

CA.kaya (Chartered accountant) (3990 Points)
Replied 07 September 2012

and u got to provide for deffered tax asset / liab in ur books of account

eg:

u get tax liability of 10000 as per income tax act

and as per company act u get 11000 ( due to profit on sale of asset)

then the diff of 1000 (11000-10000) to be treated as differed tax liability

this calculation will come in books of accounts as

1. provision for income tax 10000 (liab side)

2. deffered tax liability 1000 (liab side)

so total liab for taxes on income would be 11000 which will match with ur tax calculation as per company act

CA Saurabh Shukla (Accounts Executive) (223 Points)
Replied 07 September 2012

Dear Kaya,

I am agree with you, that profit on sale of FA need to deduct , but please specify under which section of Income Tax.

llllVICTORllll (Internal Auditor) (511 Points)
Replied 07 September 2012

IN Income tax I donot think, There is a section for deferred tax liability. Income tax Act is only about if any income is taxable or not, and if taxable how and when and where.

Here the trasaction doesnot attract income tax, being so, it is not covered by any section.

Creation of Deferred tax Liability, you have to refer Accounting standards only.

CA.E.Deepan Chakravarthy (CA and CS Executive) (462 Points)
Replied 07 September 2012

Section 28, because the incomes from the head “Business or profession” are governed by that section, as like the expenses are governed by section 30 to 38.

Section 28 starts like this “The following income shall be chargeable to income under the head “Profits and gains of business or profession”, no clause of that section talks about profit on sale of FA because, and not only that, gain on sale of depreciable asset is governed by Section 45.

The above said gain / profit is to be adjusted under clause 3 of schedule BP of ITR 4.

CA.kaya (Chartered accountant) (3990 Points)
Replied 07 September 2012

profit on sale of asset is deducted from book profit in the cluse 3 of sch BP of ITR . i guess no specific section is there . if the sold asset is the last asset in the block then that profit will come under short term capita gain.

ANJALI NEGI (Chartered Accountant) (1263 Points)
Replied 07 September 2012

i agree with u Ms. Kaya

Himansu Sekhar Pati (CA Final) (208 Points)
Replied 07 September 2012

Yes, You can deduct it in the clause 3 of Scedule BP in ITR .

Income/receipts credited to profit & loss account considered other heads of income.

as gain from sale of assets should be considered under the head Capital Gains.

And as per your query you have still assets in the block(with positive WDV) there is no question of capital gain.

So under Capital Gain Schedule you can show Nil income.

1 Like

Himansu Sekhar Pati (CA Final) (208 Points)
Replied 07 September 2012

But If you were confused about section then Sec 50 itself says that any gain/loss arising out of sale of depreciable asset should taxed under head Capital gains.

SS HALCYON (CHARTERED ACCOUNTANT) (42 Points)
Replied 07 September 2012

Give the figures(value of the trucks)i will tel u the exact tratment for this...............................

Manjunatha M K (Manager - Accounts) (318 Points)
Replied 07 September 2012

Originally posted by : CA Saurabh Shukla
	Dear Kaya, I am agree with you, that profit on sale of FA need to deduct , but please specify under which section of Income Tax.