2016 (11) TMI 894 - SC - Income Tax

Entitlement for depreciation under Section 44A(2) - Held that - Admittedly, the proviso to Section 44AD of the Income Tax Act, 1961, is applicable to the appellant-assesse in view of the fact that its income for the assessment year in question, i.e. 2009-2010, is above ₹ 40,00,000/- (Rupees forty lakhs only). If that is so, the bar to the entitlement for depreciation under Section 44A(2) of the Act will not apply. Grant of depreciation under Section 32 of the Act would, therefore, become mandatory. The above facts have been over looked by the High Court in holding that Section 44AD is applicable to the case of the appellant-assessee. We, therefore, set aside the order of the High Court as well as the order of the assessment and direct that necessary steps be taken in accordance with law so far as the assessment year 2009-2010 is concerned.

Summary

Issues:
1. Applicability of Section 44AD of the Income Tax Act, 1961.
2. Entitlement for depreciation under Section 44A(2) of the Act.
3. Grant of depreciation under Section 32 of the Act.
4. High Court's oversight in applying Section 44AD.
5. Setting aside the High Court's order and assessment.
6. Directions for necessary steps for the assessment year 2009-2010.
7. Condonation of delay in other related cases.
8. Verification of income for applicability of Section 44AD.
9. Possibility of modification based on income verification.

Analysis:
1. The Supreme Court addressed the issue of the applicability of Section 44AD of the Income Tax Act, 1961, to the appellant-assessee due to their income exceeding ?40,00,000 for the assessment year 2009-2010. The Court clarified that if this provision applies, the bar to depreciation entitlement under Section 44A(2) does not stand, making grant of depreciation under Section 32 mandatory.

2. The Court noted that the High Court overlooked the applicability of Section 44AD to the appellant-assessee's case. Consequently, the Supreme Court set aside the High Court's order and the assessment, directing the authorities to take necessary steps in compliance with the law for the assessment year 2009-2010.

3. In other related cases, the Court condoned the delay and granted leave. The order from the main appeal governed these cases as well. However, if upon verification, the income of the assessee(s) is below ?40,00,000, the proviso to Section 44AD would be relevant. In such a scenario, the respondents were allowed to seek modification of the order.

4. The appeals in all cases were disposed of accordingly, ensuring that the correct application of Section 44AD and its implications on depreciation entitlement were upheld. The Court's decision aimed at rectifying oversights and ensuring proper assessment based on income thresholds specified in the Income Tax Act, 1961.