By TIOL News Service

CHENNAI, MAY 01, 2017: THE issue is - Whether for computation of capital gain, a further reduction from WDV is warranted if such WDV has already been reduced by allowable depreciation and no breakages have been claimed in the computation of income. NO is the verdict.

Facts of the case:

The Assessee is engaged in the manufacture of Soft drinks under a franchise from Coco Cola. The Assessee appealled against the AO's order for the reduction of the value of breakages of bottles and crates from the written down value ('WDV') in the computation of short term capital gains. Separately, the assessee accounted for breakages of bottles and crates at the rate of 15% as against 33% for earlier years. The AO contended that the value of breakages should be deducted from the WDV adopted for bottles and crates, whereas, according to assessee, the breakages had already been taken into account in its statement of income by way of suo moto disallowance and there was thus no need to reduce the same once more from the WDV.

On appeal, the HC held that,

++ in accordance with the provisions of section 50, where a capital asset forms part of a block of assets and depreciation has been allowed in regard to the same, then, in the computation of capital gain on the transfer of such asset, the cost of acquisition shall be the WDV of the block of assets at the beginning of the previous year, as increased by the actual cost of any asset falling within that block acquired during the previous year. In the present case, the WDV as on 1.4.1998 is Rs.12,02,56,812/- after reducing the depreciation allowable. In such an event, and in the light of the fact that the breakages have not been claimed in the computation of income, there is no justification for any further reduction from WDV.

(See 2017-TIOL-813-HC-MAD-IT)