1987 (5) TMI 55 - AT - Income Tax

Actual Cost Assessment Proceedings Backward Area Computing Depreciation Deduction In Respect Development Allowance

Summary

Issues:
1. Whether the subsidy received by the assessee should be deducted from the written down value of assets for computing depreciation.
2. Whether the assessee fulfilled the conditions under section 35CC for claiming deduction of rural development expenses.

Detailed Analysis:

1. The first issue pertains to whether the subsidy received by the assessee should be deducted from the written down value of assets for computing depreciation. The Income-tax Officer had reduced the written down value of buildings and plant and machinery by the amount of subsidy received by the assessee. However, the CIT(A) held that the subsidy amount should not be deducted for computing depreciation. The Appellate Tribunal, in line with the decision of the Special Bench in Pioneer Match Works v. ITO, concluded that the subsidy was not meant to meet the cost of specific assets but was a general incentive to encourage industries in particular areas. Therefore, the subsidy amount was not to be deducted from the written down value of assets for depreciation purposes. The Tribunal upheld the CIT(A)'s decision, rejecting the department's appeal on this ground.

2. The second issue revolves around the deduction claimed by the assessee for rural development expenses under section 35CC. The Income-tax Officer disallowed the claim as the particulars were not furnished along with the return of income as required under sub-section (3) of section 35CC. The CIT(A), however, relying on a decision of the Allahabad High Court, held that filing the particulars during assessment proceedings before the Inspecting Assistant Commissioner was sufficient compliance with the provision. The department appealed this decision. The Tribunal analyzed the requirement of filing the statement of expenditure "along with the return of income" under section 35CC(3). It held that the provision should be construed as directory and not mandatory, emphasizing the need for prompt filing of the statement. Drawing parallels with past court decisions on similar provisions, the Tribunal concluded that the assessee had fulfilled the conditions for claiming the deduction under section 35CC. Therefore, the Tribunal confirmed the CIT(A)'s order and rejected the department's appeal on this issue.

In conclusion, the Appellate Tribunal upheld the decisions of the CIT(A) on both issues, ruling in favor of the assessee in each instance and dismissing the department's appeal.