2010 (4) TMI 1075 - AT - Income Tax

Summary

Issues Involved:
1. Depreciation determination by the Assessing Officer (AO).
2. Non-claim of depreciation for Assessment Years 1996-97 to 2000-2001.
3. Applicability of the Bombay High Court judgment in Indian Rayon Corporation Limited vs. CIT.
4. Consideration of Bombay Tribunal orders in similar cases.
5. Claim of depreciation for the first time in A.Y. 2001-2002.
6. Statement by AO regarding allowance of depreciation u/s 80IA/80IB.
7. Computation of depreciation for years 1996-97 to 2001-2002.
8. Supreme Court judgment in CIT vs. Mahendra Mills.
9. Amendment to the Income Tax Act by insertion of Explanation 5 to Section 32.
10. Allowance of appellant's claim for depreciation.

Summary:

1. Depreciation Determination by AO:
The Learned Commissioner of Income Tax (Appeals), Valsad, upheld the depreciation determined by the AO at Rs. 1,36,23,238/- as against the depreciation of Rs. 1,46,57,811/- claimed by the appellant.

2. Non-claim of Depreciation for Assessment Years 1996-97 to 2000-2001:
The appellant company had not claimed depreciation for the Assessment Years 1996-97 to 2000-2001 and claimed depreciation in accordance with the provisions of law for the first time for the Assessment Year 2001-2002 and subsequently for the Assessment years 2002-2003, 2003-04, 2004-05, and 2005-06.

3. Applicability of Bombay High Court Judgment:
The Ld. C.I.T. (A) upheld the action of the AO applying the ratio of the Bombay High Court judgment in the case of Indian Rayon Corporation Limited vs. CIT 261 ITR 98, despite the appellant's contention that the ratio was limited to the peculiar facts of that case.

4. Consideration of Bombay Tribunal Orders:
The Ld. C.I.T. (A) did not follow the orders of the Bombay Tribunal in the cases of Plastiblends India Ltd. and Kabra Extrusion Technik Ltd., where the Tribunal had considered the scope and applicability of the Bombay High Court judgment in Indian Rayon Corporation Limited vs. CIT.

5. Claim of Depreciation for the First Time in A.Y. 2001-2002:
The Ld. C.I.T. (A) upheld the AO's order regarding the claim of depreciation, not appreciating that the appellant had claimed depreciation for the first time in A.Y. 2001-2002 and had not claimed depreciation in the Assessment Years 1996-97 to 2000-2001.

6. Statement by AO Regarding Allowance of Depreciation u/s 80IA/80IB:
The Ld. C.I.T. (A) did not hold that the AO was wrong in making the statement regarding the relevance of the Bombay High Court decision for the purpose of correct treatment of allowance of depreciation in cases u/s 80IA/80IB.

7. Computation of Depreciation for Years 1996-97 to 2001-2002:
The Ld. C.I.T. (A) upheld the computation of depreciation made by the AO, stating that the ratio of the Bombay High Court judgment in Indian Rayon Corporation Limited vs. CIT 261 ITR 98 was applicable even to prior years.

8. Supreme Court Judgment in CIT vs. Mahendra Mills:
The Ld. C.I.T. (A) did not appreciate that the Supreme Court in CIT vs. Mahendra Mills 243 ITR 56 held that "Allowance of depreciation is calculated on the written down value of the assets, which written down value would be the actual cost of acquisition less the aggregate of all the depreciation 'actually allowed' to the assessee for the past years."

9. Amendment to the Income Tax Act by Insertion of Explanation 5 to Section 32:
The Ld. C.I.T. (A) did not appreciate that the amendment to the Income Tax Act by insertion of Explanation 5 to Section 32, to overcome the ratio of the Supreme Court Judgment in CIT vs. Mahendra Mills, came into effect only from 01.04.2002.

10. Allowance of Appellant's Claim for Depreciation:
The Ld. C.I.T. (A) did not allow the appellant's claim for depreciation as computed by the appellant in its return of income.

Tribunal's Decision:
The Tribunal, following its own decision in the assessee's case for AY 2002-03 and other similar cases, concluded that the AO