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Issues Involved:
1. Whether the assessee was entitled to withdraw the claim for depreciation by revised return. 2. Whether the assessee had the option to choose between claiming depreciation and forgoing it to reduce tax liability. Summary: Issue 1: Withdrawal of Depreciation Claim by Revised Return The assessee-firm initially claimed depreciation on machinery in its original return but withdrew this claim in a revised return. The Income-tax Officer (ITO) allowed the depreciation despite the withdrawal, leading to an appeal by the assessee. The Appellate Assistant Commissioner upheld the ITO's decision, citing that depreciation was a statutory charge necessary for computing correct profit. However, the Income-tax Appellate Tribunal (ITAT) found that the assessee could choose to forgo the depreciation claim to reduce its tax burden. The High Court agreed with the ITAT, stating that the assessee had the right to withdraw the claim for depreciation in the revised return, and the ITO should not have allowed it against the assessee's intention. Issue 2: Option to Claim or Forgo Depreciation The High Court examined whether the assessee had the option to claim or forgo depreciation u/s 32(1) of the Income-tax Act, 1961. The Court noted that depreciation is intended to benefit the assessee and should be allowed only if claimed with the necessary particulars as required u/s 34(1). The Court highlighted that the term "allowed" in section 32(1) implies that the deduction must be claimed by the assessee. The Court rejected the Revenue's argument that the ITO must allow depreciation to arrive at the correct taxable income, emphasizing that the choice to claim depreciation lies with the assessee. The Court also referenced the Central Board of Revenue's Circular, which directed that if no claim for depreciation is made, the ITO should estimate income without allowing depreciation. The Court disagreed with the Allahabad High Court's decision in Ascharajlal Ram Parkash v. CIT [1973] 90 ITR 477, which suggested that the ITO must allow depreciation if relevant particulars are known, even if not claimed. The Court instead aligned with the Punjab and Haryana High Court's decision in Beco Engineering Co. Ltd. v. CIT [1984] 148 ITR 478, which held that once a revised return is filed, the original return is substituted, and the ITO cannot consider the original return for depreciation claims. The Court also agreed with the Bombay High Court's decision in CIT v. Shri Someshwar Sahakari Sakhar Karkhana Ltd. [1989] 177 ITR 443, which stated that depreciation should be allowed only if claimed and with the necessary particulars furnished. Conclusion: The High Court answered both questions in the affirmative, supporting the ITAT's decision that the assessee could withdraw the depreciation claim and choose the course beneficial to reduce its tax liability. The reference was disposed of with no order as to costs.
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