2012 (10) TMI 358 - AT - Income Tax

Depreciation on P&M claim at lessor rate than eligible Assessee wrongly claim depreciation at lessor rate in 3CD - AO had also disallowed the claim on the basis of Tax audit report CIT(A) upheld the same on the basis of Goetze (India) Ltd and state that assessee had to alter its claim, he should have filed a revised Form 3CD, which was not done - Held that - As per the provision of sec. 32(1) & 32 (1) (i) depreciation as per mention in act shall be allowed whether claim by assessee or not. Since the assessee had only sought to claim a higher rate of depreciation then claimed, no revised return of income was required to be filed. Therefore grievance of the assessee in this regard is justified and is accepted as such. Appeal allowed in favour of assessee Trial production v/s commercial production Matter decided on the basis of relevant books of accounts and production records which are not produced by assessee Held that - As the matter has not be examined by the lower authorities in its proper perspective, Therefore, restore the matter to the file of the AO for deciding the issues raised. Decision case remand back to AO

Issues Involved:
1. Disallowance of depreciation on trial run expenditure for A.Y.s 2004-05 to 2007-08.
2. Allowance of depreciation on Plant & Machinery (power plant) at 10% instead of 25% for A.Y. 2005-06.

Detailed Analysis:

1. Disallowance of Depreciation on Trial Run Expenditure:
The primary issue in all the appeals concerns the disallowance of depreciation on trial run expenditure for A.Y.s 2004-05 to 2007-08. The Assessing Officer (AO) disallowed the claim based on a prior assessment year (2003-04) decision, which concluded that the expenditure was not for trial production but commercial production, thus not eligible for capitalization and subsequent depreciation.

The Tribunal had previously remitted the matter back to the AO for A.Y. 2003-04, instructing a fresh examination of whether the production was trial or commercial. The Tribunal emphasized that determining the nature of production (trial vs. commercial) is a factual question requiring examination of books, production records, and quality control reports. The Tribunal noted that the assessee failed to produce relevant documents to substantiate the claim that the production was trial and not commercial.

For A.Y.s 2004-05 and 2007-08, the CIT (A) upheld the AO's decision against the assessee. However, for A.Y.s 2005-06 and 2006-07, the CIT (A) remitted the matter back to the AO. The Tribunal, aligning with its earlier decision for A.Y. 2003-04, remitted the matter back to the AO for A.Y.s 2004-05 and 2007-08 as well, directing a fresh decision in accordance with the law and the Tribunal's observations. For A.Y.s 2005-06 and 2006-07, the Tribunal upheld the CIT (A)'s remand order.

2. Allowance of Depreciation on Plant & Machinery at 10% Instead of 25%:
The second issue pertains to the allowance of depreciation on Plant & Machinery (power plant) at 10% instead of 25% for A.Y. 2005-06. The assessee had shown an addition to Plant & Machinery, but in Form 3CD, it was shown as an addition to "building." Consequently, the AO allowed depreciation at 10%, the rate applicable to buildings. The CIT (A) upheld this decision, citing the Supreme Court's decision in 'Goetze (India) Ltd. vs. Commissioner of Income-tax', which mandates that any new claim must be made through a revised return.

The assessee argued that the addition was indeed to Plant & Machinery and the error in Form 3CD was inadvertent. The assessee also cited Explanation 5 to Section 32 (1) and various judicial precedents, arguing that the AO is obligated to allow the correct rate of depreciation regardless of the claim made in the return.

The Tribunal agreed with the assessee, noting that the claim for a higher rate of depreciation is not a new claim but a modification of an existing one. The Tribunal referred to 'KKSK Leather Processors (P) Ltd.' and 'Hero Honda Finlease Ltd.', which held that the AO must allow the correct depreciation whether or not claimed by the assessee. The Tribunal concluded that 'Goetze (India) Ltd.' was not applicable in this context as it pertains to new claims, not modifications.

Therefore, the Tribunal accepted the assessee's claim for depreciation at 25% and directed the AO to allow the higher rate of depreciation. The issue of initiation of penalty proceedings u/s 271 (1) (c) was deemed consequential.

Conclusion:
The appeals for A.Y.s 2005-06 and 2006-07 were partly allowed, and those for A.Y.s 2004-05 and 2007-08 were allowed, with directions for fresh examination and decision by the AO in accordance with the Tribunal's observations and the law. The order was pronounced in the open court on 13.07.2012.

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