2018 (12) TMI 39 - HC - Income Tax

Depreciation of leased assets - admission of claim at the appellate stage - bonafide omission - whether a claim raised for the first time before the Appellate Authority, which claim was not available in the return filed before the AO, nor a revised return within the time stipulated; could be considered in appeal? - Held that - It is to be noticed that the appellant was quite conscious of the fact that there could be no depreciation claimed on leased assets under the Act since no such claim was made in the returns filed. Hence, the claim not having been raised cannot be said to be a bonafide omission. The depreciation of leased assets having not been specifically claimed, the assessee was entitled to claim business expenditure, of the lease rent, which they had not claimed in the return. There was no such expenditure shown in the Profit Loss Account. The learned Counsel specifically refers to the balance sheet as produced by the assessee, along with the audit report to contend that the rent outflow is specifically indicated there. That would not facilitate a consideration of the issue as a bona fide omission; since the claim was not raised due to sheer negligence and it had not even figured in the profit and loss account. It was not the subject matter of assessment. This is not a case which comes under the cover of the facts being evident from the records, which would enable consideration of the claim at the appellate stage. - Decided in favour of the Revenue

Summary

Issues involved:
1. Whether a claim raised for the first time before the Appellate Authority, not available in the return filed before the Assessing Officer, nor in a revised return, could be considered in appeal.

Analysis:
1. The case involved a firm engaged in software development claiming exemption under Section 10A of the Income Tax Act, which was declined. In the first appeal, a claim for business expenditure on lease rent was made before the First Appellate Authority. However, the claim was not considered by the Authority or the Tribunal, citing the decision in Goetze (India) Ltd. The appellant argued that the claim should be allowed based on various Supreme Court decisions and a judgment of the High Court in a related case.

2. Referring to the decision in Kedarnath Jute Mfg.Co.Ltd., it was established that the assessee's entitlement to a deduction depends on the law, not the assessee's understanding. However, it was emphasized that the claim must be made in returns or supported by assessment records. The judgment in Gurjargravures Private Ltd. highlighted that new grounds could be raised in appeal under certain circumstances, but the subject matter of assessment must be considered. The case of NTPC Ltd. also supported the principle that claims must be part of the subject matter of assessment.

3. In the context of Goetze (India) Ltd., it was clarified that claims not raised in the return could not be considered by the Assessing Officer. The judgment reiterated the importance of claims being part of the assessment records for consideration in appeal. The First Appellate Authority found the claim for lease rent expenditure not decipherable from the accounts, as it was not reflected in the Profit & Loss Account, despite being shown in the balance sheet.

4. The appellant's argument that depreciation on leased assets was not claimed due to confusion with the Companies Act was rejected, as the claim was not raised in the returns filed. The Court affirmed the Tribunal's decision, stating that the claim for lease rent expenditure could not be considered at the appellate stage due to lack of evidence in the assessment records. The appeal was rejected, favoring the Revenue.

5. The judgment emphasized the importance of claims being evident from the records and forming part of the subject matter of assessment for consideration in appeal. In this case, the claim for lease rent expenditure was not raised in a timely manner and lacked sufficient evidence to support its consideration.