Impact of Amortisation

[Guest]

For a particular project involving capital investment, customer (overseas) offers that the CAPEX would be amortised over a certain level of parts produced and delivered to the customer. The amortisation amount per piece is added to the unit price of the product. Since the export invoices are prepared on the increased unit price of the product, therby the sales turn-over increasing to the extent of the amount amortized during the year, and thus the profit. Is it allowed as per IT law that the taxable income is adjusted to the extent of amount amortized.

Illustration:

Capital Investment on Toolins and Machines      1,00,00,000.

Customer adives this to be amortized over                 2,00,000 parts production & suppy

Amortization Amount                                                                   50 apiece

Base price of the product                                                         200 apiece

Billng Price                                                                                  250 apiece

Products supplied during the year                                 1,00,000 pieces

Sales Turnover                                                             2,50,00,000/-

Profit Before Tax (after depreciation)                           75,00,000/-

Can the Taxable Income be declared as follows

PBT                                                                                    75,00,000/-

Less: Amortization amount received                           50,00,000/- (50/- apiece for 1,00,000 pieces supplied)

Add: Depreciation for the Capital Equipment             15,00,000/- (@15% on 1,00,00,000/- CAPEX)

Taxable Income                                                               40,00,000/-

[DR.MARIAPPAN GOVINDARAJAN]

Whether you have got clarified in this issue? If not please inform.

AI Summary

Amortisation receipts in export pricing: whether they can be excluded from taxable income and replaced by depreciation. An exporter adds a per unit amortisation charge to export invoices to recover capital expenditure, increasing reported turnover and profit. The question is whether such amortisation receipts included in sales can be deducted from taxable income and replaced by depreciation claimed on the capital asset, effectively treating the per unit amortisation as capital recovery rather than taxable revenue.