2020 (4) TMI 489 - AT - Income Tax

Depreciation u/s 32 - conversion of partnership firm into private limited company - assessee-company claimed depreciation on the enhanced value of assets as per the revaluation of assets made as on 30.06.2007 by the firm - HELD THAT - Since the issue has been decided by the ITAT in earlier year in assessee's favour the disallowance of depreciation by the AO for this year is not sustainable as the same is consequential to the depreciation allowed and WDV of assets in earlier year. Therefore, following the order of the Coordinate Bench in assessee s own case for AY 2009-10 I 2019 (3) TMI 1764 - ITAT MUMBAI wherein held assessee is entitled to depreciation on the enhanced cost at which the assessee has taken over the assets and direct the AO to allow the depreciation as claimed by the assessee - Decided in favour of assessee.

Summary

Issues Involved:
1. Disallowance of depreciation claimed by the assessee.
2. Treatment of Original Cost of Fixed Assets for depreciation calculation.

Issue 1: Disallowance of Depreciation Claimed by the Assessee:
The appeal filed by the assessee pertains to the assessment year 2010-11 challenging the order of the Commissioner of Income Tax (Appeals)-10, Mumbai regarding the disallowance of depreciation. The Assessing Officer (AO) determined the total income under normal provisions and book profit under section 115JB of the Income Tax Act 1961. The AO found discrepancies in the depreciation claimed by the assessee after the conversion of a partnership firm into a private limited company. The AO noted that the assessee revalued its assets on 30.06.2007 as a firm but did not claim depreciation on the revalued assets for the relevant assessment years. The AO disallowed a portion of the depreciation claimed by the assessee based on various provisions of the Income Tax Act, including section 32(1)(ii) and Rule 5 of the Income Tax Rules, 1962. The AO calculated the allowable depreciation at a lower amount compared to the claim made by the assessee, resulting in a disallowance of a significant sum. The Commissioner of Income Tax (Appeals) upheld the AO's decision, leading to the appeal before the Appellate Tribunal ITAT Mumbai.

Issue 2: Treatment of Original Cost of Fixed Assets for Depreciation Calculation:
The second ground of appeal by the assessee questioned the treatment of the Original Cost of Fixed Assets for depreciation calculation. The assessee argued that the Written Down Value (WDV) for allowing depreciation should be based on the enhanced value of assets paid by the assessee company, rather than the WDV of the assets prior to revaluation. The AO and the Commissioner of Income Tax (Appeals) disagreed with the assessee's interpretation, leading to the disallowance of a portion of the claimed depreciation. However, the Appellate Tribunal ITAT Mumbai, in its detailed analysis, referred to previous judgments in the assessee's own case for AY 2009-10 and AY 2011-12. The Tribunal held that the assessee was entitled to claim depreciation on the enhanced cost at which the assets were acquired by the assessee company. By following the precedent set in earlier years and considering the specific provisions of the Income Tax Act, the Tribunal allowed the appeal filed by the assessee, thereby overturning the decisions of the lower authorities.

In conclusion, the Appellate Tribunal ITAT Mumbai allowed the appeal filed by the assessee, setting aside the orders of the lower authorities regarding the disallowance of depreciation claimed by the assessee and the treatment of the Original Cost of Fixed Assets for depreciation calculation. The Tribunal's decision was based on the interpretation of relevant provisions of the Income Tax Act and previous judgments in the assessee's own case, ensuring consistency in the application of tax laws and principles.