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

Can amortization of CAPEX over 200,000 parts adjust taxable income by deducting amortization and adding depreciation? A query was raised regarding the impact of amortization on taxable income for a project involving capital investment. The customer, an overseas entity, proposed that the capital expenditure (CAPEX) be amortized over the production and delivery of 200,000 parts, with the amortization amount added to the product's unit price. This increased the sales turnover and profit. The question was whether the taxable income could be adjusted by deducting the amortization amount received and adding depreciation. A response inquired if the issue had been clarified, suggesting further discussion if needed.