1997 (2) TMI 33 - HC - Income Tax

Summary

Issues:
Entitlement to additional depreciation arising from the revision of actual cost under section 43A of the Income Tax Act, 1961 for the assessment year 1977-78.

Detailed Analysis:

1. Background and Dispute:
The case involves an assessee, a company, who acquired plant and machinery from abroad with a loan from the Industrial Development Bank of India. Due to foreign exchange rate fluctuations, there was an increase in expenditure in a previous year. The Income Tax Officer (ITO) disallowed the additional expenditure as capital in nature under section 43A of the IT Act. The assessee contended that extra depreciation should be granted from the inception or alternatively, as a consolidated total in the assessment year 1977-78. The CIT(A) and the Tribunal upheld the ITO's decision, leading to the current reference.

2. Legal Arguments:
The assessee's counsel relied on the Supreme Court decision in CIT vs. Arvind Mills Ltd., arguing that depreciation should be allowed based on the actual cost under section 43A. The Department's counsel opposed allowing depreciation from earlier years in the current assessment year. The Supreme Court in Arvind Mills Ltd.'s case held that depreciation should be based on the actual cost of the asset, considering any subsequent increase in cost due to devaluation.

3. Court's Decision:
The Court reframed the question to focus on whether the assessee is entitled to additional depreciation for the assessment year 1977-78 due to the revision of actual cost under section 43A. Relying on the principle from Arvind Mills Ltd.'s case, the Court held in favor of the assessee, allowing additional depreciation based on the Supreme Court's decision. However, the Court clarified that the assessee cannot claim total or consolidated extra depreciation from earlier years in the current assessment year, nor can they reopen earlier assessments for depreciation. The Court answered the reframed question in the affirmative, favoring the assessee, with no costs awarded.

This judgment clarifies the entitlement to additional depreciation under section 43A of the IT Act, emphasizing the application of the Supreme Court's decision in determining depreciation based on actual costs and previous depreciation allowed.