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Section 44AD(3)

What the Income Tax Act, 1961 reads?

 

"The written down value of any asset of an eligible business shall be deemed to have been calculated as if the eligible assessee had claimed and had been actually allowed the deduction in respect of the depreciation for each of the relevant assessment years."
 
Our Analysis
 
Here, it is significant to note that WDV has to be calculated as per section 32 of the Act for the purpose of arriving at closing WDV at year end and for the purpose of applicability of section 50 of the Act relating to Short Term Capital Gain / Loss in case of Depreciable assets.
 
Example
Mr. A, a Resident individual having a machinery of RS.1,00,000/- as on 31-03-2011 eligible for depreciation under section 32 @ 15%. In A.Y 2011-12, he is covered by Section 44AD. In the Assessment Year 2012-13, his turnover is Rs. 1.5 Crores, so he calculated his profit as per normal provisions of the Act. In A.Y 2013-14, he is again covered by Section 44AD, In this Assessment year he sold the Assets for Rs.80,000/-. What are the implications of the asset so sold under the Income Tax Act?
 
 

Calculation of WDV:

 

Particulars Amount
WDV as on 31-03-2011 1,00,000
Less: Depreciation @ 15% 15,000
WDV as on 31-03-2012 85,000
Less: Depreciation @ 15% 12,750
WDV as on 31-03-2013 72,250
Less : Sale Price 80,000
WDV as on 31-03-2014 Nil

 

 

Calculation of Capital Gains:

 

Particulars Amount
Sale Consideration 80,000
Less WDV as on 31-03-2013 72,250
Short Term capital gain U/s 50 7,750