2012 (6) TMI 178 - HC - Income Tax

Whether ITAT is legally correct in holding that each item below Rs.5000/- is a self unit and, therefore, the depreciation @ 100% is allowable in place of 25%, ignoring the fact that these items are parts of a bigger composite unit where all expenditure to bring the assets into working conditions is to be included in determining the actual cost of fixed asset for the purpose of grant of depreciation Held that - assessee purchased certain items which were debited to plant and machinery account as the cost of which was less than Rs. 5000/-each. - Assessing Officer disallowed the depreciation on such items on the ground that it is the composite value of all items is to be taken which will be determinative of the cost of assets and not the item wise cost of these items. assessment order even the Ld. Assessing Officer has mentioned that the assessee filed the details of the additions to the plant and machinery as these are below Rs. 5000/-. There is specific finding in the assessment order that as per the table shown in the (A) & (B) in the assessment order, the assessee is entitled to depreciation at 100%. - appeal filed by revenue dismissed.

Summary

Issues:
- Allowability of rate of depreciation to the assessee-Board.

Analysis:
The case involves an appeal by the revenue under Section 260A of the Income Tax Act, 1961 against the order of the Income Tax Appellate Tribunal regarding the allowability of depreciation at 100% on items valued below Rs.5000 each. The revenue contended that depreciation should be allowed at the normal rate of 25% as these items were part of a bigger unit. The Tribunal accepted the appeal, ruling that each item below Rs.5000 was a self unit and eligible for 100% depreciation.

The facts of the case state that the assessee claimed depreciation at 100% on switch gears, including cable connections, totaling Rs.39,68,74,587. The Assessing Officer disagreed, asserting that each asset was part of a bigger unit and should be depreciated at 25%. The Commissioner of Income Tax (Appeals) upheld this decision, but the Tribunal overturned it, allowing 100% depreciation on individual items below Rs.5000.

The main contention was whether the items below Rs.5000 each could be considered as separate units for depreciation purposes. The revenue argued that the total value of all items should determine depreciation, citing a Bombay High Court judgment. However, the Tribunal found each item to be a self unit and part of a bigger unit, justifying 100% depreciation.

The Tribunal's decision was supported by the fact that the items below Rs.5000 were treated as separate units by the assessee and allowed in the original assessment. The judgment cited by the revenue involved a different scenario where all expenditure for bringing assets into working condition was included in determining depreciation, unlike the present case. Consequently, the substantial question of law was answered against the revenue, and the appeal was dismissed.