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Writing off fixed asset is expense or not

Sunil (Internal Auditor) (334 Points)

21 September 2012

Whether writing off obsolete fixed asset is an expense under IT Act or not?

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Giridhar S Karandikar (Team Lead) (7543 Points)
Replied 21 September 2012

An expenditure has an element of payment of something whihc can be debited to the P&L A/c. Writing off the FA cannot be considered as an expense as no payment is involved for writing off.

Hence w/o fixed asset is considered as a loss & not expenditure. The rule for nominal A/c is requried to be followed. "Debit all expenses and losses"

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Sunil (Internal Auditor) (334 Points)
Replied 21 September 2012

Thanks

But my doubt is whether its is allowable under Income Tax Act or Not?

Giridhar S Karandikar (Team Lead) (7543 Points)
Replied 21 September 2012

Yes we can claim it as an expense provided that the it is being proved to the satisfaction of the AO.

Sunil (Internal Auditor) (334 Points)
Replied 21 September 2012

Thank you

CA Vishal Jain (Chartered Accountant) (137 Points)
Replied 21 September 2012

Income tax act follows the concept of block of assets. If there is any asset remaining in the block and any particular asset is w/off from the block than there will be no implication in income tax act, you will be eligible to claim depreciation on the total amount of block of asset.

If no other asset is remaining in the block of asset than you will be allowed short term capital loss in the year in which block is written off in the books, the amount of short term capital loss will be equal to the opening WDV of block of assets.

3 Like

Sheena Maheshwari (ARTICLESHIP) (240 Points)
Replied 21 September 2012

Originally posted by : CA Vishal Jain
	Income tax act follows the concept of block of assets. If there is any asset remaining in the block and any particular asset is w/off from the block than there will be no implication in income tax act, you will be eligible to claim depreciation on the total amount of block of asset. If no other asset is remaining in the block of asset than you will be allowed short term capital loss in the year in which block is written off in the books, the amount of short term capital loss will be equal to the opening WDV of block of assets.

CA Pooja Agarwal (Chartered Accountant) (3228 Points)
Replied 21 September 2012

accorfding to section 37 of IT act, Any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head "Profits and gains of business or profession".

so if writing off of fixed asset is a general business practise(not being capital in nature),it may be allowed as expense if the AO is so satisfied

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CA Vishal Jain (Chartered Accountant) (137 Points)
Replied 21 September 2012

If there is any specific provision in an act for something, it will prevail over general provision. section 32, 48 and 50 are specific provisions for treatment of depreciable assets and section 37 is general in nature, hence in the given case section 37 is not applicable.

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Gunjan Tulsyan (Article) (222 Points)
Replied 21 September 2012

The same was the scenario at one of our client places but he was into a trading business of cloth so our sir advised disallow the expense as the writeoff amount was huge and he said that its better to disalliow then to attract the attention of the AO and lead to scrutiny and all so better would be to disallow it...!!!

GOVARDHAN REDDY (STUDENT) (23 Points)
Replied 18 June 2015

There is a balance of 40,000 pertaining to furniture in the books, but there is no furniture physically ..so they wrote off the whole amount as" debit balance written off "..is this treatment is correct or not ?.