2024 (6) TMI 1211 - AT - Income Tax

Disallowance of claim of depreciation on assets acquired by the assessee from a demerged company - assessee came into existence as a result of demerger - depreciation claimed on the written down value of assets as standing in the books of the erstwhile company on the date of demerger and acquisition by the assessee - DR submitted that in terms of explanation 10 to section 43(1) of the Act, the actual cost of such assets has to be determined after reducing the cost mat by the Central Government through Central Excise Exemption. HELD THAT - The factual position in these appeals are identical to the facts involved in the case of Abhisar Buildwell Pvt. Ltd. 2019 (8) TMI 107 - DELHI HIGH COURT as held that since excise refund is in the nature of revenue receipt forming part of profits and gains arising from the business, it cannot be reduced from the cost of plant machinery Therefore, we are of the considered opinion that assessee s claim of depreciation is allowable. Even, otherwise also, the disallowance of depreciation would only enhance the profit of the assessee, which is otherwise eligible for claim of deduction u/s 80IC of the Act. In fact, in case of Abhisar Buildwell Pvt. Ltd. (Supra), Hon ble jurisdictional High Court has expressed the aforesaid view. As FAA has directed the AO to allow assessee s claim of depreciation after verifying, if the assets have been brought in the books of the assessee on the closing WDV from the demerged company as on the effective date of demerger and depreciation has been claimed on such WDV year after year as per law. If it is found to be so, claim should be allowed. In our view, the Revenue should not have any grievance against such directions as it is in consonance with the directions of the Tribunal, while deciding the earlier year s appeals of the present assessee. Appeals of the Revenue are dismissed.

Summary

Issues involved:
Deletion of disallowance of claim of depreciation in separate orders of Learned Commissioner of Income Tax (Appeals) for Assessment Years 2011-12, 2012-13, 2013-14, and 2016-17.

Analysis:

1. The appeals by the Revenue pertain to the deletion of disallowance of claim of depreciation. The Assessing Officer disallowed the depreciation claim based on the assets acquired by the assessee from a demerged company, considering the assets' actual cost to be nil due to excise duty exemption. The First Appellate Authority decided in favor of the assessee, citing past decisions supporting the claim.

2. The Departmental Representative argued that the excise duty exemption should reduce the actual cost of assets, referencing a Supreme Court decision. In contrast, the assessee's counsel contended that the depreciation was claimed based on the written down value of assets from the demerged company, supported by past Tribunal decisions and a High Court order confirming a similar case.

3. The Tribunal examined the case, considering the demerger details and the nature of excise duty exemption. Referring to a similar case involving another company, the Tribunal noted that the excise duty exemption should have been adjusted before the demerger, not after. Previous Tribunal decisions supported the view that excise refund is a revenue receipt and should not reduce the cost of assets for depreciation purposes.

4. The Tribunal upheld the First Appellate Authority's decision, stating that the assessee's depreciation claim was allowable. The Tribunal emphasized that the disallowance would only increase the profit, eligible for deduction under the Income Tax Act. The direction to allow depreciation after verification of asset transfer and depreciation calculation was deemed appropriate, in line with previous Tribunal decisions.

5. Ultimately, considering the facts and circumstances, the Tribunal dismissed the Revenue's appeals, upholding the decision of the First Appellate Authority in all assessment years. The grounds raised by the Revenue were rejected, and the appeals were dismissed.

This comprehensive analysis highlights the key arguments, legal interpretations, and precedents considered in the judgment regarding the deletion of disallowance of claim of depreciation across multiple assessment years.