2006 (1) TMI 169 - AT - Income Tax

Summary

Issues Involved:
Disallowance of depreciation claimed by the assessee for the block period 1988-89 to 1998-99 under s. 158BC of the IT Act based on a search conducted under s. 132 of the IT Act.

Analysis:

1. Disallowance of Depreciation Claimed by the Assessee:
The appeal by the Revenue was against the order of the CIT(A)II for the block period 1988-89 to 1998-99. The AO disallowed the depreciation claimed by the assessee on the building used for business, which was later granted by the CIT(A). The Revenue contended that the assessee never claimed depreciation on the building in regular returns and misallocated unexplained cash as business income for each year to claim depreciation. The Departmental Representative argued that the claim was not in accordance with s. 132(4A) of the IT Act as there was no business income involved. However, the counsel for the assessee supported the CIT(A)'s order.

2. Nature of Business and Assessment Findings:
The preamble of the assessment order described the assessee's business as dealing in dry fruits, and the assessment noted undisclosed taxable income post a search under s. 132 of the IT Act. The Tribunal found merit in the assessee's position that the Revenue's grounds were misconceived, emphasizing the business nature of the assessee dealing in kirana goods and being assessed for sales tax. The claim of no business income involvement by the Revenue was deemed meritless.

3. Depreciation Claim and Legal Precedents:
The CIT(A) considered various High Court and Tribunal decisions while granting relief on depreciation. Despite the assessee not claiming depreciation in prior years, the current depreciation for the block period was deemed allowable. Citing a Pune Bench Tribunal decision, it was highlighted that Chapter XIV-B of the IT Act for block assessment proceedings did not override all provisions of the Act. The CIT(A) called for detailed reports before granting relief, and after thorough consideration, no infirmity was found in the relief granted. The Revenue's appeal was dismissed, upholding the CIT(A)'s decision.

In conclusion, the ITAT Bangalore-A dismissed the Revenue's appeal against the order of the CIT(A)II regarding the disallowance of depreciation claimed by the assessee for the block period 1988-89 to 1998-99. The judgment emphasized the business nature of the assessee and the legal validity of the depreciation claim despite not being made in prior years, ultimately upholding the relief granted by the CIT(A).