1984 (5) TMI 109 - AT - Income Tax

Summary

Issues Involved:
1. Validity of the revised return filed by the assessee.
2. Obligation of the Income Tax Officer (ITO) to allow depreciation even if not claimed by the assessee.
3. Application of the Madras High Court decision in Dasaprakash Bottling Co.'s case.
4. Priorities for allowance of depreciation and other deductions under the Income-tax Act.
5. Binding nature of the Central Board of Direct Taxes (CBDT) Circular on the ITO.

Detailed Analysis:

1. Validity of the Revised Return Filed by the Assessee:
The assessee, a public limited company manufacturing chemical fertilizers, initially filed a return disclosing a business loss, including depreciation. Before the assessment was completed, a revised return was filed withdrawing the claim for depreciation to secure the benefit of set-off of unabsorbed development rebate. The ITO rejected this revised return, considering it invalid. The Tribunal, however, concluded that the revised return is valid under Section 139(5) of the Income-tax Act, 1961, as it corrected a "wrong statement" in the original return. The Tribunal emphasized that a revised return completely effaces and obliterates the original return, making it the basis for assessment.

2. Obligation of the ITO to Allow Depreciation Even if Not Claimed by the Assessee:
The ITO argued that depreciation must be allowed to arrive at the correct profit of a particular year. However, the Tribunal held that depreciation is a statutory allowance subject to the fulfillment of certain statutory requirements, including the furnishing of prescribed particulars. If these requirements are not met, the ITO cannot allow depreciation. The Tribunal noted that allowing depreciation without the prescribed particulars would be against the legislative intent and the statutory mandate of Section 34 of the Act.

3. Application of the Madras High Court Decision in Dasaprakash Bottling Co.'s Case:
The revenue contended that the Madras High Court decision in Dasaprakash Bottling Co.'s case mandated the ITO to allow depreciation even if not claimed by the assessee. The Tribunal distinguished the present case from Dasaprakash Bottling Co.'s case, noting that in the latter, the assessee had furnished the prescribed particulars under protest, whereas in the present case, the assessee explicitly withdrew the claim for depreciation and did not furnish the prescribed particulars in the revised return. The Tribunal concluded that the ITO cannot look into the particulars filed with the original return once a revised return is filed and accepted as valid.

4. Priorities for Allowance of Depreciation and Other Deductions Under the Income-tax Act:
The Tribunal acknowledged the statutory priorities for the allowance of depreciation and other deductions. However, it emphasized that these priorities apply only when the claims are made by the assessee. If the assessee chooses not to claim certain deductions, the ITO cannot force these deductions upon the assessee. The Tribunal reasoned that forcing claims on an unwilling assessee would be impractical and contrary to the legislative intent of providing time-bound reliefs.

5. Binding Nature of the CBDT Circular on the ITO:
The Tribunal referred to CBDT Circular No. 29-D (XIX-14), which instructed that in cases where the required particulars are not furnished and no claim for depreciation is made in the return, the ITO should estimate the income without allowing depreciation. The Tribunal held that this circular is binding on the ITO, as affirmed by the Supreme Court in the case of K.P. Varghese. Therefore, the ITO's insistence on allowing depreciation despite the assessee's withdrawal of the claim was contrary to the CBDT's instructions.

Conclusion:
The Tribunal upheld the Commissioner (Appeals)'s decision, endorsing the view that the assessee has the discretion to claim or not claim depreciation. The revised return filed by the assessee was valid, and the ITO could not allow depreciation without the prescribed particulars. The Tribunal's decision aligns with the legislative intent and the CBDT's binding instructions, ensuring that the statutory provisions are applied correctly and fairly.