2006 (9) TMI 345 - AT - Income Tax

Summary

Issues involved:
The judgment deals with the issue of whether depreciation can be forcibly granted to an assessee u/s 32 of the Income Tax Act, 1961, even if the claim for depreciation was expressly withdrawn by filing a revised return for the assessment year 1999-2000.

The assessee appealed against the order of the CIT(A) which upheld the Assessing Officer's decision to grant depreciation despite the assessee withdrawing the claim by filing a revised return. The main contention was that prior to the insertion of Explanation 5 to section 32 of the Act, depreciation was not a mandatory deduction. The assessee argued that the CIT(A) wrongly interpreted the decision of the Hon'ble Supreme Court in the case of Mahendra Mills Ltd. The assessee's representative cited relevant case laws to support the argument that unless the assessee claimed depreciation, the Assessing Officer cannot grant it.

The Departmental Representative contended that the assessee had initially claimed depreciation in the original return filed for the assessment year. However, the assessee later withdrew the claim in the revised return. The representative argued that the assessee cannot simply withdraw the claim through a revised return and cited various court decisions to support this stance. It was also argued that the Explanation 5 to section 32 is declaratory in nature and should be treated as retrospective.

The Tribunal noted that the Special Bench decision in Vahid Paper Converters v. ITO was not applicable to the case as the assessee did not claim deduction under Chapter VI-A of the Act. Referring to the decision in CIT v. Mahendra Mills, it was established that the assessee can validly revise its return to withdraw the claim of depreciation. The Tribunal held that the Explanation 5 to section 32 is not retrospective in nature and does not apply to assessments of earlier years. Therefore, depreciation cannot be forced upon the assessee, and the appeal was allowed in favor of the assessee.

In conclusion, the Tribunal ruled in favor of the assessee, holding that depreciation cannot be thrust upon the assessee while computing the total income for the relevant assessment year. The judgment clarified that the newly added Explanation 5 to section 32(1) of the Act is not retrospective in nature and shall apply only from April 1, 2002, not to assessments of earlier years.