2024 (5) TMI 348 - AT - Income Tax

Deduction u/s 80IAB on the disallowance of depreciation on Water-use Rights (Intangibles Asset) - As per revenue payment cannot be considered to be on account of acquisition of capital asset as right to use water neither diminishes nor enhances by any means. The Government has just given a facility to the assessee to use the same and the assessee has clearly tried to claim the depreciation on the same, this cannot be allowed - HELD THAT - As decided in assessee own case we agree with the contention of the Id, counsel that such an enhancement of profit by way of disallowance of depreciation would be eligible for deduction u/s. 80IAB and this position is now set at rest by CBDT Circular No. 37/2016 dated November 2, 2016, wherein the CBDT has accepted that if disallowance leading to enhancement in the profits of eligible business, then deduction under Chapter-VIA of the Act is admissible on the profits so enhanced by the disallowance. Accordingly, we direct the Assessing Officer to allow the deduction u/s. 80IAB on the disallowance of depreciation and gave consequential relief. In view of our aforesaid direction, the issue raised on merits on allowability of depreciation on intangible assets is purely academic - Appeal of the assessee is allowed.

Summary

Issues:
The judgment involves the rejection of a claim for depreciation on Water-use Rights (Intangibles Asset) for A.Y. 2017-18 under Section 143 (3) r.w.s. 144 C r.w.s. 144B of the Income Tax Act, 1961.

Facts and Decision:
During the previous year, the assessee capitalized assets as intangibles by making a payment to Gujarat Industrial Development Corporation (GDC) for water supply and drainage connection. The assessee claimed depreciation on the capitalized amount, which was disallowed by the Assessing Officer (AO) on the basis that the right to use water does not diminish or enhance and cannot be considered an acquisition of a capital asset. The AO held that no depreciation could be allowed on the payment made. The Coordinate Bench in a previous case of the assessee had granted relief in a similar matter, where the payment for water supply connection and drainage connection was capitalized under intangible assets. The Coordinate Bench observed that the payment was not on account of acquisition of a capital asset, and therefore, no depreciation was allowable.

Legal Arguments and Ruling:
The counsel for the assessee argued that if the disallowance of depreciation is allowed, the assessee is eligible for deduction under Section 80IAB, leading to an enhancement of profit. The CBDT circular dated 02.11.2016 was cited to support this argument. The Tribunal agreed with the counsel, stating that the enhancement of profit by disallowance of depreciation would be eligible for deduction under Section 80IAB. Consequently, the Tribunal directed the Assessing Officer to allow the deduction under Section 80IAB on the disallowed depreciation, providing relief to the assessee. As a result, the issue of depreciation on intangible assets became academic, and no separate adjudication was required. The appeal of the assessee was allowed based on the above considerations.

Conclusion:
The Tribunal granted relief to the assessee by allowing deduction under Section 80IAB on the disallowed depreciation of intangible assets. The decision was based on the previous ruling in the assessee's own case and the CBDT circular. As a result, the appeal of the assessee was allowed, and no separate order was deemed necessary.