2019 (2) TMI 47 - AT - Income Tax

Deduction u/s 80IC - demerger of assessee company - Assessing Officer was of the opinion that by virtue of Explanation-7 to Section 43(1), the cost of asset should be reduced by the deferred government grants - disallowance of depreciation - Held that - Admittedly, demerger took place in the year 2006 and thereafter whether the depreciation is to be allowed on the actual cost of demerged assets or the cost is to be reduced by any government grant received by the demerged company should have been examined in the assessment year 2007-08 and thereafter, year after year, depreciation is to be allowed on WDV. These facts are not available on record. We, therefore, direct AO to examine what happened in the preceding years. If in the preceding years the depreciation was not claimed or this issue was not considered and the facts of the case warrant the consideration of this issue in the year under consideration, then Assessing Officer will consider the same in the light of the decision of Hon ble Apex Court in the case of Meghalaya Steels Ltd. (2016 (3) TMI 375 - SUPREME COURT). If the claim of depreciation of the assessee is allowed, then the assessed income will turn into negative income and there will be no question of claim u/s 80IC - Appeal allowed for statistical purposes.

Summary

Issues involved:
1. Disallowance of depreciation claimed by the assessee.
2. Claim of deduction u/s 80IC and the audit report in Form 10CCB.

Detailed Analysis:
1. The primary issue in this case revolved around the disallowance of depreciation claimed by the assessee. The Assessing Officer disallowed the depreciation claimed by the assessee, amounting to ?3,96,19,664, as the entire assets were purchased out of government grants. This disallowance resulted in the assessment of total income at ?1,47,71,522. On appeal, the assessee challenged this disallowance, but the learned CIT(A) upheld the Assessing Officer's decision. The assessee then appealed against this decision, arguing that the issue was similar to a previous case involving Abhisar Buildwell Pvt. Ltd., which was also demerged from the same company. The ITAT directed the matter to be restored to the file of the Assessing Officer for further examination. The Assessing Officer was instructed to review the depreciation claim in light of previous years' assessments and relevant legal precedents, such as the decision of the Hon'ble Apex Court in the case of CIT Vs. Meghalaya Steels Ltd.

2. The second issue pertained to the claim of deduction u/s 80IC and the submission of the audit report in Form 10CCB. The assessee claimed deduction u/s 80IC and submitted the audit report, which the learned CIT(A) directed the Assessing Officer to allow as per law. The Revenue appealed against this direction, but the ITAT upheld the CIT(A)'s decision, stating that the audit report in Form 10CCB could be submitted before the appellate authority, especially in cases where a loss claimed in the return of income was converted into positive income. The ITAT agreed with the CIT(A)'s direction to allow the deduction u/s 80IC as per law, rendering the Revenue's appeal academic. The appeals were deemed to be allowed for statistical purposes, and the decision was pronounced in open court on 28.01.2019.