TMI Blog2004 (2) TMI 691X X X X Extracts X X X X X X X X Extracts X X X X ..... s of manufacture of Master Batches and for the assessment year under appeal, in respect of two industrial undertakings, deduction under section 80-IA was claimed by the assessee company with regard to the income of ₹ 1,69,89,298. During the course of assessment proceeding, the Assessing Officer found that the assessee did not claim any depreciation while computing the aforesaid income of ₹ 1,69,89,298, even though the assessee was having gross asset base of ₹ 13,02,64,433 consisting of building, plant and machinery, vehicles, office equipments etc. The Assessing Officer asked the assessee company to explain as to why the depreciation should not be deducted from the income of the industrial undertakings before allowing deduction under section 80-IA. The assessee company relied on a number of Supreme Court and High Court decisions in support of the contention that there is no compulsion on the assessee company to claim depreciation and that if the assessee does not claim the depreciation, the Assessing Officer has no powers to allow depreciation. The Assessing Officer did not find merit in the stand taken by the assessee company and according to him, the assessee co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee claims depreciation. The Supreme Court also referred to the Board s Circular dated 31-8-1965 which provided that depreciation could not be allowed where the required particulars have not been furnished and no claim for depreciation has been made in the return. In such a case, the Assessing Officer is required to compute the income without allowing depreciation. There is no mandatory duty on the Assessing Officer to allow depreciation if the assessee does not want to claim it. The provision for claiming of depreciation is apparently for the benefit of the assessee and if the assessee does not wish to avail of the benefit for some reasons, such benefit cannot be forced upon him. The Supreme Court further observes that it is for the assessee to see if the claim of depreciation is to his advantage. 5. The ld. counsel for the assessee also strongly relied on the following ITAT decisions : i. Medley Pharmaceuticals Ltd. v. ITO [2001] 71 TTJ 328 (Mum.) ii. Beta Nephthol (P.) Ltd. v. Dy. CIT [1994] 50 TTJ 375 (Indore) iii.ITAT, Mumbai SMC Bench order dated 16-7-2003 in the case of Rubinsha Exports (P.) Ltd. v. Dy. CIT in IT Appeal No. 2362/Mum./ 2003. The ld. counse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... distinct dichotomy between cases of computation of normal income and computation of income where the assessee claims the benefit of deduction under Chapter VI-A. The ld. CIT DR submitted that the Hon ble Bombay High Court have further categorically held that the profits and gains of an industrial undertaking, claiming deduction under Chapter VI-A have got to be computed as per the provisions of sections 29 to 43A and if the assessee claims relief under Chapter VI-A, then it is not open to the assessee to disclaim depreciation allowance. The ld. CIT DR, again drawing support from the abovementioned Bombay High Court decision, argued that Chapter VI-A is a separate and independent code by itself for computing the special deduction. The ld. CIT DR especially invited our attention to certain observations made by the Hon ble Bombay High Court in the case of IRCL (supra) which may be reproduced below : Page 101 of the Report : Chapter VI-A refers to deductions to be made in computing total income. Chapter VI-A refers to special types of deductions. Chapter VI-A refers to special deductions to be made for computing total income. Section 80A(1) states that in computing the total incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der Chapter VI-A in which section 80HH falls. Profits and gains of a newly established undertaking, therefore, have got to be computed as per the provisions of section 29 to section 43A and if the assessee claims relief under Chapter VI-A of the Act, then it is not open to the assessee to disclaim depreciation allowance. This is because Chapter VI-A is an independent code by itself for computing these special types of deductions. In other words, one must first calculate the gross total income from which one must deduct a percentage of incomes contemplated by Chapter VI-A. That such special incomes were required to be computed as per the provisions of the Act, viz., section 29 to section 43A, which included section 32(2). Therefore, one cannot exclude depreciation allowance while computing profits derived from a newly established undertaking for computing deductions under Chapter VI-A. The CIT DR also pointed out that the Supreme Court decision in the case of Mahendra Mills (supra ) was duly considered by the Bombay High Court and it was observed by the High Court that the controversy in Mahendra Mills case (supra) was not concerning deduction under Chapter VI-A and therefore t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n under section 80HH. The ld. counsel pointed out that in that case, the assessee claimed depreciation allowance while computing gross total income, but while claiming deduction under section 80HH, depreciation was excluded from the income of the undertaking. The ld. counsel invited our attention to the following observations of the Hon ble High Court which are extracted from page 102 of the Report : In this case, the assessee has claimed depreciation allowance. It is important to note that in cases of computation of normal income, without seeking benefit of special deduction under Chapter VI-A, an assessee is free not to claim depreciation in view of the judgment of the Supreme Court in the case of CIT v. Mahendra Mills [2000] 243 ITR 56, but if the assessee claims depreciation, then such depreciation will be set off as any other expenses against gross income. Further, if such an assessee claims deduction under Chapter VI-A, then to calculate profits and gains of newly established undertaking, depreciation allowance has got to be set off against the gross income of newly established undertaking to arrive at the profits computed in accordance with the provisions of the Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . counsel reinforces his argument by inviting our attention to the following observations of the Hon ble Bombay High Court : Page 105 of the Report : The point at issue is amply clear from the illustration given hereinabove under the caption point at issue . The illustration indicates that the assessee has not disclaimed depreciation. The point, therefore, to be noted is that the assessee has also claimed depreciation, but at a later stage and, therefore, the judgment of the Supreme Court in Mahendra Mills case (2000) - 243 ITR 56 has no application. Page 106 of the Report : In any event, in this case, on the facts, the assessee claims depreciation of ₹ 75 from the balance income of ₹ 80 and, therefore, the judgment of the Supreme Court in Mahendra Mills case [2000] - 243 ITR 56 has no application. The ld. counsel for the assessee forcefully submitted that in the peculiar circumstances of that case, the Hon ble Bombay High Court held that the judgment of the Hon ble Supreme Court in the case of Mahendra Mills (supra) has no application. It is argued that the Hon ble Supreme Court decision in the case of Mahendra Mills ( supra) would squarely apply to a ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Report, it is clearly stated that in that case the assessee had claimed depreciation allowance and the Hon ble High Court observed that if the assessee claims depreciation, then such depreciation will be set off as any other expenditure against the gross total income. The High Court further observed that if such an assessee (i.e., the assessee who has claimed depreciation) claims deduction under Chapter VI-A, depreciation allowance has got to be set off against the gross total income of the industrial undertaking. The illustration given at page 103 of the Report presents the facts of that case clearly. In that case, the assessee claimed deduction for depreciation from the gross total income, but, while claiming the benefit of section 80HH, the assessee contended that the deduction under section 80HH be allowed on the gross income without allowing depreciation. Again at page 105 of the report, the Hon ble High Court observed that the illustration indicates that the assessee had not disclaimed depreciation, and therefore, the High Court went on to observe, the Supreme Court judgment in the case of Mahendra Mills ( supra) has no application. Again at page 106 of the Report, the High C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ner disturb the position that in the absence of a claim by the assessee, depreciation cannot be forced upon the assessee. In this case, at page 384 of 50 TTJ, the Tribunal reproduced the observations of the Bombay High Court from the case of CIT v. Shri Someshwar Sahakari Sakhar Karkhana Ltd. [1989] 177 ITR 4431, as under : The provisions, therefore, prescribe two preconditions to the allowance of a deduction for depreciation. The first, which is implicit, is that the assessee should have asked for it. The second, which is explicit, is that the prescribed particulars should have been furnished. If either of these conditions is not fulfilled, the deduction cannot be allowed by the ITO. The Tribunal observed that even though the second precondition is dispensed with by the omission of section 34, the first precondition, which is implicit that the assessee should have asked for depreciation, still exists. The Tribunal also refers to the Board s Circular No. 29D.XIX-14 1965 dated 31-8-1965, wherein the same view was expressed. 10. Similar issue came up for decision before the ITAT, SMC Bench, Mumbai, in the case of Rubinsha Exports (P.) Ltd. ( supra). It was held that deprec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urn that he did not want it. After examining the judgments of the various High Courts and of this Court in CIT v. Dharampur Leather Co. Ltd. [1966] 60 ITR 165, the Court said (page 450) : In our view, to sum up on the first issue, the assessee has a choice to claim or not to claim a deduction on account of depreciation. If he chooses not to claim it, the ITO is not entitled to allow a deduction on account of depreciation. At page 67 of the Report, following observations of the Hon ble Gujarat High Court in the case of CIT v. Arun Textile [1991] 192 ITR 700 , have been reproduced from page 705 of the Report : The provisions of section 32 are intended to give benefit to the assessee for claiming deductions in respect of depreciation on the type of assets mentioned therein. Furthermore, a mere claim to deduction would not be enough since the deductions are to be allowed subject to the provisions of section 34 which required necessary particulars to be furnished in the prescribed form. Therefore, until a claim is made for allowing deductions of the nature covered under section 32 along with necessary particulars, there would hardly be any occasion for the ITO to allow any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that it was notionally allowed to him. A thing is allowed when it is claimed. A subtle distinction is there when we examine the language used in section 16 and that of sections 34 and 37 of the Act. It is rightly said that a privilege cannot be to a disadvantage and an option cannot become an obligation. From the above discussion, it is clear that if the assessee has not claimed depreciation, the same cannot be allowed while computing the gross total income. The principles of interpretation for computing gross total income cannot be different while computing the gross total income in a case where deduction under Chapter VI-A is claimed. As mentioned above, the depreciation is not allowable and cannot be thrust upon the assessee under section 32 if no claim has been put by the assessee. The same rule shall apply while computing gross total income for the purpose of section 80- IA. This view is further strengthened by the fact that Explanation 5 has been inserted under section 32 by the Finance Act, 2001 w.e.f. 1-4-2002. This Explanation provides that section 32 shall apply whether or not the assessee has claimed the deduction in respect of depreciation, in computing his total ..... X X X X Extracts X X X X X X X X Extracts X X X X
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