2014 (11) TMI 635 - HC - Income Tax

Eligibility for 100% depreciation on vapour absorption heat machine Validity of rectification order u/s 154 Held that - The Tribunal rightly was of the view that the AO lacked jurisdiction to exercise the power u/s 154 of the Act - Vapour Absorption System is included in Energy Saving Devices specified in Para-III, 3(iii) D(b) of Appendix-I to the Income Tax Rules, 1962 and is eligible for 100% depreciation - When there is a specific provision in the Income Tax Rules allowing depreciation at 100% to Vapour Absorption System and the same was granted by the Assessing Officer at the first instance, the subsequent proceedings for rectification under Section 154 of the Act by merely stating that Vapour Absorption Heat Pump is a part of the Centralized Air Conditioner and liable for depreciation at 25%, without giving any reasons, runs counter to Para-III, 3(iii) D(b) of Appendix-I to the Income Tax Rules, 1962 the order of the Tribunal is upheld and as such no substantial question of law arises Decided against revenue.

Summary

Issues:
1. Whether a vapour absorption machine qualifies as an energy-saving device for 100% depreciation?
2. Whether the rectification order under Section 154 of the Income Tax Act was justified regarding the depreciation rate for a vapour absorption machine?

Analysis:

Issue 1:
The respondent, engaged in hotel management, filed a return for the assessment year 2000-2001, declaring income under Section 115JA of the Income Tax Act. The Assessing Officer initially allowed 100% depreciation on the Vapour Absorption Machine, an energy-saving device. However, through a subsequent order under Section 154 of the Act, the depreciation was recomputed at 25%. The Commissioner of Income Tax (Appeals) relied on the Income Tax Rules, specifically Appendix-I, which includes vapour absorption systems as energy-saving devices eligible for 100% depreciation. The Tribunal held that the issue of depreciation rate for the Vapour Absorption Machine was debatable and required detailed examination, concluding that the Assessing Officer lacked jurisdiction under Section 154. Consequently, the Tribunal dismissed the Revenue's appeal and allowed the assessee's cross-objection.

Issue 2:
The Revenue challenged the Tribunal's decision, arguing that the vapour absorption machine was part of a centralized air conditioner and should only be eligible for 25% depreciation. However, the Court rejected this argument, citing the specific provision in the Income Tax Rules that allows for 100% depreciation on Vapour Absorption Systems. The Court emphasized that the Assessing Officer had initially granted 100% depreciation, and the subsequent attempt at rectification lacked justification as it contradicted the relevant provisions in the Income Tax Rules. Therefore, the Court upheld the Tribunal's decision, stating that no substantial question of law arose for consideration in the appeals and subsequently dismissed the appeals without costs.

In conclusion, the Court affirmed the Tribunal's decision regarding the eligibility of the Vapour Absorption Machine for 100% depreciation and found no legal basis to overturn the Tribunal's ruling.