In addition, the buyer would claim tax depreciation on plant and machinery by reference to the asset purchase price, which one would generally expect to be higher than pre-existing tax written down value
. Where a group of assets is acquired under a single sale agreement, the tax department would generally follow the allocation of sale proceeds set out in that agreement, provided they do not feel that the allocation is intended to achieve a tax advantage.
Though Explanation 3 to section 43(1) of the Income-tax Act, 1961 requires that the written down value
to the previous owner should be treated as the basis for claiming depreciation in a sale and lease back transaction, levy of penalty cannot be upheld on the ground that there has been concealment of income.
61.65 crores during 2005-06, being the written down value
of plant and machinery and building, as on the date of closure of the mine.
Now, categories of asset falling under a broad remit of Eoe1/4Y[pounds sterling]machinery and equipmentEoe1/4ao will be depreciated on a written down value
basis,Eoe1/4A[yen] Ashok said.
The worst of it is that the benefit is based forever on the list price of the new car, even if the company keeps it for several years and its written down value
is relatively small.