2014 (11) TMI 407 - AT - Income Tax

Excess rate of depreciation - energy saving devices scope the term before due date - according to the AO was assessee has not exercised its option under second proviso to Rule 5(1A) for claiming depreciation under Rule 5(1) and Appendix 1 before filing the return of income u/s 139(1) - Held that - The meaning of the term before due date shall be understood as it is understood by a man of ordinary prudence - Before due date simply refers and means that not after the expiry of due date - If the requisite act is done before the last day expires then it will simply be said that before due date - When the time of filing the return is available to the assessee till the last moment of the due date then the whole of that day is available to the assessee and due date expires only when the last day is expired - the option exercised on the due date is nothing but before the due date as the same is not after the due date revenue is not consistent with regard to assessee s claim of depreciation - Be that as it may, as depreciation claimed by assessee is in terms with the statutory provisions, AO was not justified in interfering with the same thus, the order of the CIT(A) is upheld Decided against revenue.

Summary

Issues Involved:
1. Allowance of assessee's claim of depreciation.
2. Compliance with the second proviso to Rule 5(1A) for claiming depreciation.

Issue-wise Detailed Analysis:

1. Allowance of Assessee's Claim of Depreciation:
The appeals by the department concern the allowance of the assessee's claim of depreciation by the Commissioner of Income-tax (Appeals) [CIT(A)]. The assessee, an Indian company engaged in the manufacture of white crystal sugar, alcohol, and power generation, filed its return of income declaring a loss under normal provisions and book profit under section 115JB of the Income-tax Act. The Assessing Officer (AO) later issued a notice under section 148, suspecting excess depreciation claims leading to income escapement. The assessee claimed depreciation as per Rule 5(1) of the Income-tax Rules using the Written Down Value (WDV) method. The AO, however, restricted the depreciation by applying Rule 5(1A), leading to a higher total income determination. The CIT(A) allowed the assessee's claim, which the department contested.

2. Compliance with the Second Proviso to Rule 5(1A) for Claiming Depreciation:
The core issue is whether the depreciation claimed under Rule 5 and Appendix 1 in the return of income complies with the second proviso to Rule 5(1A). The AO disallowed the claim, stating the assessee did not exercise the option as required. The assessee argued that claiming depreciation in the return itself amounted to exercising the option, citing the ITAT Chennai Bench decision in KKSK Leather Processors (P) Ltd. vs. ITO. The CIT(A) accepted this argument, and the department appealed.

Analysis and Judgment:

Factual Background and Submissions:
- The assessee purchased plant and machinery post-September 2002, starting commercial operations in AY 2003-04, and claimed 80% depreciation as per Appendix 1 of Rule 5.
- The AO applied Rule 5(1A) and Appendix 1A, granting only 8.25% depreciation, citing the assessee's failure to exercise the option under the second proviso to Rule 5(1A).
- The assessee contended that claiming depreciation in the return and accounts sufficed as exercising the option, as no specific mode was prescribed.

Tribunal's Consideration:
- The Tribunal noted that section 32(1)(i) allows depreciation on assets of power generation undertakings, with Rule 5(1A) specifying rates in Appendix 1A, and the second proviso allowing an option for Appendix 1 rates if exercised before the return filing due date.
- No prescribed mode for exercising the option exists. Hence, claiming depreciation in the return and accounts suffices.
- The Tribunal referenced the ITAT Chennai Bench's decision, affirmed by the Madras High Court, which held that exercising the option in the return is valid and no separate procedure is required.

Conclusion:
- The Tribunal found the assessee complied with the second proviso by claiming depreciation in the return and accounts.
- The AO's disallowance was unjustified, and the CIT(A)'s order was upheld.
- The department's appeals were dismissed, affirming the assessee's right to claim depreciation as per Appendix 1, with the option exercised in the return being sufficient.

Final Pronouncement:
- Both appeals by the department were dismissed, and the CIT(A)'s orders were upheld.