2011 (11) TMI 440 - HC - Income Tax

Depreciation in respect of leased asset - Tribunal held that claim now made is for the year 1997-1998, which is beyond the block period, depreciation is claimed in the regular assessment and since the depreciation had been allowed in the earlier assessment year disallowance of the depreciation was erroneous - Held That - Assessee would be entitled to claim depreciation in respect of leased assets. The question as to whether the leased assets were acquired and depreciation is claimed in respect of the block period or subsequent thereto, is kept open to be urged before the first appellate authority. If the first appellate authority comes to the conclusion on the basis of the material on record that would be produced by the assessee that the said acquisition is subsequent to the block assessment, the depreciation can be granted in regular assessment - Decided partly in favor of assessee.

Issues:
1. Entitlement to claim depreciation in respect of leased assets for the assessment year 1998-1999.

Analysis:
The High Court dealt with the issue of whether the assessee would be entitled to claim depreciation in respect of leased assets for the assessment year 1998-1999. The revenue challenged the order passed by the Income Tax Appellate Tribunal (ITAT) dated 23.12.2005, which allowed the appeal filed by the assessee regarding depreciation claim. The revenue contended that the assessing officer rightly rejected the claim for depreciation as the block assessment was pending, and the appellate authority had held that since the block assessment was under consideration, the depreciation claim could not be allowed at that stage. The Tribunal held that the claim for depreciation was for the year 1997-1998, which was beyond the block period, and since depreciation had been allowed in the earlier assessment year, disallowance of depreciation was erroneous. The High Court considered the arguments presented by both parties and scrutinized the material on record, including previous court orders and the pending block assessment before the first appellate authority.

The Court observed that ownership of the assets had been transferred through a lease, granting the lessee leasehold rights. However, the owner could still claim depreciation under the Income-tax Act, subject to certain conditions. The Court noted that depreciation could only be granted after ascertaining the Written Down Value (WDV) at the end of the relevant assessment year. The Tribunal's conclusion that the depreciation claim was beyond the search period was found to be incorrect, as the year of acquisition was within the relevant assessment year. The Court emphasized the need for clarity on the date of acquisition and whether it fell within the block assessment period. Consequently, the Court set aside the ITAT's order and remanded the matter to the first appellate authority for further consideration.

In the final order, the High Court allowed the appeal in part, holding that the assessee was entitled to claim depreciation in respect of leased assets. The Court kept open the question of whether the leased assets were acquired and depreciation claimed during the block period or after, to be determined by the first appellate authority based on the material provided by the assessee. If the acquisition was found to be subsequent to the block assessment, depreciation could be granted in the regular assessment. The Court's decision aimed to ensure a fair assessment based on the relevant facts and legal provisions, emphasizing the importance of accurate determination of depreciation claims in compliance with the Income-tax Act.

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