2004 (10) TMI 271 - AT - Income Tax

Summary

Issues:
1. Appeal against the order of CIT(A) regarding addition of fixed assets and depreciation claim.

Analysis:

Issue 1: Addition of Fixed Assets and Depreciation Claim
The case involved an appeal by the Revenue against the CIT(A)'s order regarding the addition of fixed assets and depreciation claim for the assessment year 1995-96. The CIT, Shimla, set aside the original assessment under section 263 and directed the AO to pass a fresh assessment order based on specific directions related to pre-operative expenses, R&D expenses, and deduction under section 80-IA of the IT Act. The AO, during reassessment proceedings, restricted the depreciation claim to the original amount, rejecting the higher claim made by the assessee. The assessee contended that complete details of additions to fixed assets were provided to the AO, but the claim was rejected. The CIT(A) upheld the AO's decision, stating that the claim of depreciation could not be revised during reassessment proceedings. The Tribunal noted that the CIT(A) did not direct the AO to recompute depreciation for Unit II, and therefore, the AO did not err in rejecting the revised claim. The Tribunal also considered the applicability of Explanation 5 inserted by the Finance Act, 2001, and concluded that it did not apply retroactively, supporting the decision of the CIT(A) in dismissing the appeal.

The Tribunal further addressed the argument of the principles of natural justice not being followed by the AO in reframing the assessment. However, since this issue was not raised before the CIT(A), it was not adjudicated upon. The Tribunal emphasized that the assessee could only claim depreciation if legally entitled to do so in the assessment framed by the AO based on the CIT(A)'s directions under section 263. The Tribunal cited the decision in CIT vs. Mahendra Mills to support this principle. Additionally, the Tribunal highlighted the decision of the Hon'ble Kerala High Court regarding the retrospective application of Explanation 5, affirming that it did not apply to the assessment year in question. Consequently, the Tribunal confirmed the CIT(A)'s order and dismissed the appeal filed by the assessee.

In conclusion, the Tribunal upheld the decision of the CIT(A) and rejected the grounds of appeal raised by the assessee, emphasizing that the claim of depreciation could not be revised during reassessment proceedings and that Explanation 5 did not have retrospective effect for the relevant assessment year. The appeal filed by the assessee was ultimately dismissed.