2008 (2) TMI 908 - AT - Income Tax

Summary

Issues Involved:
1. Allowance of depreciation not claimed by the assessee.
2. Exclusion of DEPB/Special Import Licence receipts from business profits under clause (baa) of Explanation to section 80HHC of the Act.

Summary:

1. Allowance of Depreciation Not Claimed by the Assessee:
The primary issue was whether the Assessing Officer (AO) was justified in allowing depreciation that the assessee did not claim for the assessment years 1994-95 to 1997-98. The AO recomputed the Written Down Value (WDV) and depreciation for assessment years 1998-99 to 2004-05 during reassessment u/s 153A and assessment u/s 143(3). The CIT(A) upheld the assessee's right not to claim depreciation for the years 1998-99 to 2001-02, citing the Supreme Court's decision in CIT v/s Mahendra Mills, 243 ITR 56, which stated that depreciation must be calculated on the WDV of assets determined by deducting depreciation actually allowed, not notionally allowed. However, the CIT(A) allowed depreciation for the years 2002-03 to 2004-05 based on initial cost, adjusted for additions or deletions in the block of assets.

The Revenue argued that Explanation 5 to Section 32(1) was retrospective and applicable for all assessment years, citing the decision of ITAT Mumbai Bench in Mandhana Exports P. Ltd. v/s ACIT, 82 ITD 306. The CIT-DR also referenced the Bombay High Court's decision in Indian Rayon Corporation Ltd v/s CIT, 261 ITR 98, which held that depreciation must be allowed for computing deductions under Chapter VI-A, regardless of whether it was claimed by the assessee.

The Tribunal concluded that for computing gross profits for deductions under Chapter VI-A, depreciation must be allowed as per sections 29 to 43D, including section 32. The Tribunal set aside the CIT(A)'s order and restored the AO's order, which computed depreciation notionally for assessment years 1994-95 to 1997-98 to determine the WDV for 1998-99 and subsequent years.

2. Exclusion of DEPB/Special Import Licence Receipts:
The issue of excluding DEPB/Special Import Licence receipts from business profits under clause (baa) of Explanation to section 80HHC was not decided in this appeal. The CIT(A) had amended his order u/s 154, and the Revenue's appeals on this issue were pending in ITA No. 4313 to 4319/Del/2006.

Conclusion:
The appeals filed by the Revenue were allowed, and the order pronounced in the open court on 08.2.2008.