2019 (10) TMI 779 - HC - Income Tax

Depreciation on the fixed assets acquired on transfer scheme 2003 - as not yet finalized/ascertained on the fact that the actual assets are not identifiable and not being used as well as their full title have not been transferred to the assessee - reforming and restructuring the power sector in the State. - HELD THAT - It is not in dispute that the UPPCL was divided into four new distribution Companies under the Transfer Scheme, 2003 by Government notification dated 12.8.2003. The assessee is one of the four distribution Companies. It is further not in dispute that the Transfer Scheme, 2003 provided for the assets, which included the fixed assets, but no break up of assets values and itemwise was provided in the Transfer Scheme, 2003, as such the assessee had appointed an auditor to make itemwise opening balance of the assets and liabilities, which according to the assessee themselves was submitted by the auditors to them on 4.12.2015. The contention of the counsel for the Department regarding the depreciation, which has been disallowed by the assessing officer on the balance assets acquired on the date of Transfer Scheme, 2003, as the assets was was not identifiable at the relevant point of time, needs consideration. The auditors themselves had submitted report to the respondent-assessee on 4.12.2015 and the assets so acquired under the Transfer Scheme, 2003 came to be identifiable only in the assessment year 2016-17. The said fact has also not been denied by the counsel for the respondent-assessee. Matter needs to be examined afresh for the claim of depreciation by the assessing officer, in the light of the auditor s report providing itemwise accounting of assets and liabilities on 4.12.2015. Thus, the matter is remitted back to the assessing authority to reconsider and verify the records and pass fresh order, as far as claim of depreciation on the assets claimed by the respondent-assessee, pursuant to the Scheme of 2003.

Summary

Issues:
Appeals under Section 260-A of the Income Tax Act challenging orders of the Income Tax Appellate Tribunal for various assessment years regarding depreciation claimed on fixed assets acquired under the Transfer Scheme 2003.

Analysis:
1. The appeals before the High Court arose from orders of the Income Tax Appellate Tribunal for different assessment years, all questioning the entitlement to claim depreciation on fixed assets acquired under the Transfer Scheme 2003.

2. All the appeals raised the same legal question, consolidated under one leading appeal for the assessment year 2007-08.

3. The primary legal issue revolved around whether the Income Tax Appellate Tribunal was justified in allowing depreciation on fixed assets acquired under the Transfer Scheme 2003, despite the assets not being finalized, identifiable, or fully transferred to the assessee.

4. The case background involved the restructuring of the power sector in Uttar Pradesh through the formation of distinct entities like UPPCL, UPRVUNL, and UPJVNL, along with the subsequent transfer of assets from UPSEB to KESCO and then to four new distribution companies under the Transfer Scheme 2003.

5. The Department contended that depreciation should only be allowed for assets owned, wholly or partly, and used for business purposes, emphasizing that assets acquired post the Transfer Scheme 2003 were identifiable and depreciable, unlike those transferred under the scheme.

6. The Respondent argued that the assessing officer wrongly disallowed depreciation, citing approvals by the CIT(A) and Tribunal for previous years and the completion of itemwise asset valuation by auditors.

7. The High Court noted that while the assets acquired under the Transfer Scheme 2003 were not identifiable initially, the auditors' report in 2015 provided itemwise asset details, making them identifiable only in the subsequent assessment year 2016-17.

8. Consequently, the Court remitted the matter back to the assessing authority to reevaluate the depreciation claim based on the auditors' report, directing a fresh assessment within three months from the date of the order.

This detailed analysis of the judgment from the Allahabad High Court addresses the legal issues, factual background, arguments presented by both parties, and the Court's decision to remit the matter for fresh assessment based on the auditors' report.