2012 (10) TMI 290 - HC - Income Tax

Disallowance of Depreciation u/s 32(1) - Held that - A plain reading of the Explanation 5 of section 32(1)inserted by Finance Act, 2001 w.e.f. 1.4.2002 that depreciation shall apply wherever the assessee may or may not have claimed deduction in respect of depreciation in computing the income - AO is duty bound to allow depreciation even without there being claim by the assessee wherever the same is admissible to the assessee - in favour of the assessee. Allowance is mandatory u/s 40 (a)(ia) - Held that - Observations recorded by the Tribunal at the time of hearing that the assessee fairly stated that the assessee was statutorily obliged to deduct tax at source out of rent paid by him but it was not deducted at source by the assessee and, therefore, the provisions of section 40(a)(ia) were applicable and as no material is presented to come to a different conclusion from what has been recorded by the Tribunal or to put it differently, it cannot be said that the Tribunal had recorded the observations noted above erroneously - against assessee.

Summary

Issues:
1. Whether the Tribunal's action for declining the claim and allowance of Depreciation u/s 32(1) Exp.5 w.e.f. 01.04.2002 can be entertained when the ground was not raised before CIT(A)?
2. Whether the allowance is mandatory u/s 40(a)(ia) while considering the provisions of Section 194I proviso in the determination of 'Chargeable Income'?

Analysis:

Issue 1:
The appeal under Section 260A of the Income Tax Act, 1961 challenged the Tribunal's order regarding the allowance of depreciation. The Explanation 5 to Section 32(1) of the Act clarifies that depreciation provisions apply whether or not the assessee claimed the deduction. The court held that the Assessing Officer must allow depreciation even without a claim by the assessee if admissible. The Tribunal erred in rejecting the claim, and the case was remanded to the Assessing Officer for computation of the allowance, subject to Section 32 conditions.

Issue 2:
Regarding the second issue, the Tribunal had disallowed certain expenses under Section 40(a)(ia) based on the assessee's failure to deduct tax at source from rent payments. The Tribunal's observations indicated the applicability of Section 40(a)(ia) due to the failure to deduct tax. The revenue contended that the assessee admitted to the failure, making the provision applicable. The court noted that the Tribunal's recording of the admission was not erroneous, and thus, the appeal on this issue was dismissed. The appellant was advised to seek legal remedies available in accordance with the law.

In conclusion, the appeal was disposed of, with the first issue decided in favor of the assessee for the allowance of depreciation and the second issue dismissed based on the Tribunal's observations regarding the failure to deduct tax at source.