2014 (1) TMI 81 - AT - Income Tax

Disallowance of depreciation - Held that - M/s. Universal Exports in itself is a distinct person assessable to income tax - The claim of the assessee company is only on the profit of the proprietary concern which is to be added to its net profit at the end of the year - It maintains its books of accounts separately - The assessee cannot be allowed once against depreciation from the profits so determined - Decided against assessee.

Summary

Issues:
Depreciation claim disallowed due to inclusion in another entity's accounts.

Analysis:
The judgment by the Appellate Tribunal ITAT Mumbai involved two separate appeals by the assessee against orders of the Ld. CIT(A)-III, Mumbai for assessment years 2006-07 & 2007-08. The appeals were heard together as they dealt with identical issues related to the disallowance of depreciation. The assessee, engaged in manufacturing and exporting PP Woven Sacks, claimed depreciation on the ground that it was shown in the accounts of another entity, Universal Exports.

During scrutiny assessment proceedings, the Assessing Officer noted that the assessee had deducted depreciation of Rs. 51,80,558 from the net profit, attributing it to M/s. Universal Exports. The assessee explained that Universal Exports was its proprietary concern, maintaining separate accounts and filing returns independently. However, the AO rejected the claim, stating that Universal Exports was a separate entity with its own tax considerations and had already accounted for the depreciation in its returns.

The Ld. CIT(A) upheld the AO's decision, emphasizing that Universal Exports had already considered the depreciation while declaring a loss. The assessee contended that Universal Exports was a 100% proprietary concern, and depreciation should be allowed. The Departmental Representative supported the lower authorities' findings.

The Tribunal analyzed the situation, acknowledging that Universal Exports was a distinct entity with separate books and tax obligations, despite being a proprietary concern of the assessee. The Tribunal emphasized that the assessee's right was limited to the profit earned by Universal Exports, which had to be computed independently. As the depreciation was claimed and debited in Universal Exports' accounts, the Tribunal upheld the disallowance, stating that the assessee could not claim depreciation twice on the same profits. Ultimately, the appeals were dismissed, affirming the lower authorities' decisions.

In conclusion, the Tribunal's judgment centered on the disallowance of depreciation claimed by the assessee, as it was already accounted for in the separate accounts of Universal Exports, a distinct entity despite being a proprietary concern of the assessee. The decision highlighted the importance of maintaining separate tax considerations for different entities, leading to the dismissal of the appeals.