2015 (10) TMI 1090 - HC - Income Tax

Depreciation claim waived - assessee had taken the benefit of investment allowance under Section 32A - whether the assessing authority was entitled to compute the income by allowing depreciation even though the assessee has not made any claim for such depreciation? - Held that - When the claim for depreciation was once waived by the assessee and he chose to avail himself of the benefit of investment allowance under Section 32A of the Income Tax Act, he could not at a subsequent stage revive the claim for depreciation during the assessment year 1984-85. Moreover, there is a statutory bar contained in Section 32A, which provides that no deduction shall be allowed under Section 32A in respect of any machinery or plant, the whole of the actual cost of which is allowed as a deduction (whether by way of depreciation or otherwise) in computing the income chargeable under the head Profits and gains of business or profession of any one previous year. When the assessee has opted to take advantage of investment allowance, rather than deduction of the whole amount of actual cost by way of depreciation, he is now estopped from contending otherwise. - Decided against assessee. Assessment U/s. 41(2) - Held that - The order under challenge passed by the learned Tribunal holding that in the absence of any benefit having been availed by the asessee on account of depreciation, the question of any assessment under Section 41(2) of the Income Tax Act could not arise is affirmed.

Summary

Issues:
1. Claiming depreciation on gas cylinders for assessment year 1984-85.
2. Validity of revised return filed by the assessee.
3. Assessment under Section 41(2) of the Income Tax Act.

Claiming Depreciation on Gas Cylinders for Assessment Year 1984-85:
The case involved an assessee-company engaged in manufacturing and selling industrial gases, which imported gas cylinders during the assessment year 1978-79. Initially, the company claimed 100% depreciation on the cylinders but later withdrew the claim. Subsequently, the company desired to claim depreciation for the assessment year 1984-85, stating that the cylinders were used for business purposes in that year, and no depreciation was allowed in earlier years. The Assessing Officer rejected the claim, which was upheld by the CIT (Appeals) and the Tribunal. The court observed that once the assessee opted for investment allowance under Section 32A of the Income Tax Act and waived the claim for depreciation, they could not revive the depreciation claim later. The statutory bar in Section 32A prevented the assessee from claiming depreciation for the assessment year 1984-85. As a result, the first question regarding the option to claim depreciation was answered in the negative, rendering the second question regarding the validity of the revised return unnecessary. The reference was disposed of accordingly.

Validity of Revised Return Filed by the Assessee:
The court addressed the issue of the validity of the revised return filed by the assessee, wherein they voluntarily withdrew the claim for depreciation. The court noted that once the assessee opted for investment allowance under Section 32A and waived the depreciation claim, they could not later revive the claim for depreciation. As the first question regarding claiming depreciation was answered in the negative due to the statutory bar in Section 32A, the court deemed the second question regarding the validity of the revised return as unnecessary to decide. Therefore, the court concluded that the revised return filed by the assessee, withdrawing the depreciation claim, was valid and binding, and the assessment for the year 1984-85 stood as per the revised return.

Assessment under Section 41(2) of the Income Tax Act:
In another aspect of the case, the Tribunal held that since the assessee had not actually availed the deduction of depreciation under the Income Tax Act, the question of assessment under Section 41(2) did not arise. However, it was noted that the Tribunal had rejected the allowance of depreciation for the assessment year 1984-85, with the matter referred to the High Court. The court directed that if the assessee had been allowed any depreciation in subsequent proceedings for the assets, the charge of profit under Section 41(2) should be made accordingly. As the reference failed, the court affirmed the Tribunal's decision that in the absence of the assessee benefiting from depreciation, no assessment under Section 41(2) was applicable, leading to the dismissal of the appeal.

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