2008 (9) TMI 10 - HC - Income Tax

Deduction under Section 80 HHC & 80IB claimed without deducting depreciation while arriving at eligible profits and gains - Profits and gains of a newly established undertaking have to be computed as per the provisions of section 29 to section 43A and if the assessee claims relief under Chapter VI-A of the Act, then it is not open to the assessee to disclaim depreciation allowance - claim for allowance of deduction without taking into consideration the current depreciation, is rejected

Summary

Issues Involved:
1. Principle of consistency in ITAT decisions.
2. Applicability of the Vahid Papers Converters case.
3. Option to claim depreciation under Section 32 of the Income Tax Act, 1961.

Detailed Analysis:

1. Principle of Consistency in ITAT Decisions:
The assessee argued that the ITAT should have adhered to the principle of consistency and followed the decisions of co-ordinate benches in previous assessment years (1997-98 to 2000-01). They contended that if the ITAT disagreed with earlier decisions, it should have referred the matter to a larger bench. The court dismissed this contention, stating that the ITAT was bound by the decision of the larger bench in the Vahid Papers Converters case. The court emphasized that judicial discipline necessitates following decisions of benches with greater numerical strength or higher judicial authority, even if it means deviating from the principle of consistency.

2. Applicability of the Vahid Papers Converters Case:
The assessee claimed that the Vahid Papers Converters case was distinguishable. However, the court found this argument unsustainable. The Vahid Papers Converters case dealt with the law as it stood from 1.4.1988 to 31.3.2002, covering multiple assessment years, including the relevant ones. The ITAT had determined that depreciation must be charged when calculating eligible profits and gains for deductions under Sections 80 IB and 80 HHC, irrespective of the amendment introduced by the Finance Act, 2001. Therefore, the court upheld the ITAT's reliance on this case.

3. Option to Claim Depreciation under Section 32:
The assessee argued that it had an option to claim depreciation under Section 32 and that depreciation could not be imposed while determining eligible profits for deductions under Sections 80 IB and 80 HHC. The court rejected this argument, explaining that the scheme of the Act requires income to be computed in accordance with Sections 30 to 43D, which includes depreciation under Section 32. The court noted that while an assessee can opt out of claiming depreciation for normal income computation, this option is not available when claiming special deductions under Chapter VI-A. The court distinguished the present case from the Mahindra Mills case, noting that Mahindra Mills dealt with a period when Section 34 was still in effect, which required particulars to be furnished for claiming depreciation. The court found the Cambay Electric Supply Industrial Company Ltd. case more relevant, where the Supreme Court held that unabsorbed depreciation must be deducted when calculating eligible profits for deductions.

The court also referred to the Bombay High Court's decision in Indian Rayon Corporation Ltd., which reiterated that Chapter VI-A constitutes a separate code for computing special deductions and that depreciation must be considered when computing profits for such deductions.

Conclusion:
The court upheld the ITAT's decision, finding no fault in its application of the law. The appeals were dismissed, and no substantial question of law was found for consideration.