2013 (4) TMI 455 - HC - Income Tax

Explanation 5 added the Section 32 of the Income Tax Act, 1961 - Partly disallowance of depreciation - Depreciation to be computed on the basis of actual cost of the assets without reducing the depreciation of earlier years - Held that - The Tribunal by the impugned order while upholding the order of the CIT(A) records the fact that the parties appearing before it had agreed that the issue of allowing higher depreciation then that claimed in the earlier Assessment Years, was concluded by the decisions of the Coordinate Bench of the Tribunal for the earlier Assessment Year wherein depreciation was allowed only to the extent claimed by the Respondent. We notice that the assessment for the earlier years were final as held by the Tribunal - Therefore, without disturbing the written down value of Plant & Machinery for the earlier years, it would not be possible to change the opening written down value of its Plant & Machinery for the subject Assessment Years - The Explanation 5 added to Section 32 of the Act would be applicable w.e.f. 1st April, 2002 and could not unsettle the Assessment Orders for earlier years which are final and accepted both by the Revenue as well as the Assessee - In these circumstances, the position in law being self evident, as held by the Tribunal - we see no reason to entertain the proposed question of law - All the three appeals are dismissed in favour of Assessee.

Summary

Issues:
- Whether the Tribunal was justified in allowing depreciation to be computed on the basis of actual cost of the assets without reducing the depreciation of earlier years allowed to the Assessee even though not claimed by it and thereby ignoring Explanation 5 to Section 32 of the Income Tax Act.

Analysis:
1. The Assessing Officer disallowed part of the claim for depreciation for the Assessment Years 2003-04, 2004-05, and 2005-06, stating that in earlier years, depreciation not claimed was thrust upon the Assessee, resulting in a lower written down value of Plant & Machinery and consequently lower allowable depreciation in the subject years.

2. The Commissioner of Income Tax (Appeal) and the Tribunal had set aside the depreciation thrust upon the Assessee for earlier years based on a decision of the Apex Court in a specific case.

3. The Revenue argued that Explanation 5 to Section 32 of the Income Tax Act, added w.e.f. April 1, 2002, allows depreciation even if not claimed by the assessee, necessitating a recomputation of the written down value of Plant & Machinery and restricting depreciation.

4. The Tribunal, in its order, upheld the decision of the CIT(A) and held that the issue of higher depreciation than claimed in earlier years was settled by previous Tribunal decisions, making it impossible to reopen assessments for earlier years and invoke Explanation 5 to Section 32.

5. The Tribunal maintained that assessments for earlier years were final, and without disturbing the written down value of Plant & Machinery for those years, changing the opening written down value for the subject years was not feasible. The Tribunal concluded that Explanation 5 could not unsettle final assessment orders accepted by both the Revenue and the Assessee.

6. The High Court agreed with the Tribunal's reasoning, stating that the law was self-evident, and there was no need to consider the proposed question of law. Consequently, all three appeals by the Revenue were dismissed with no order as to costs.