2017 (12) TMI 1010 - SC - Income Tax

Disallowance of Depreciation - appellant is a charitable institution u/s 12A AO held that the assessee claims expenditure for acquisition of assets claiming depreciation in the computation of income though the appellant enjoys a 100% write off of the cost of assets resulting in double deduction of capital expenditure assessee contented that the system of allowing depreciation was followed by the assessee for several years - Held that - On perusal of the judgment of the High Court 2012 (4) TMI 115 - KERALA HIGH COURT we find that though the question of law is answered in favour of the Revenue. However, at the same time, the appellant was granted relief in the following terms We find force in this contention because assessee cannot be taken by surprise by disallowing depreciation which was being allowed for several years and to demand tax for one year after making dis-allowance. We feel assessee should be allowed to write back the depreciation for this year and even for previous and then allow the same to be carried forward for application for subsequent years. It is for the assessee to write back depreciation and if done the assessing officer will modify the assessment determining higher income and allow recomputed income with the depreciation written back by the assessee to be carried forward for subsequent years for application for charitable purposes. Since the High Court has also already given the benefit for other assessment years we do not find any reason to interfere with the order passed by the High Court. Appeal dismissed.

Summary

Issues:
1. Interpretation of law regarding depreciation allowance.
2. Granting relief to the appellant for depreciation write-back.
3. High Court's decision and dismissal of the appeal.

Interpretation of Law Regarding Depreciation Allowance:
The Supreme Court, comprising A. K. Sikri and Ashok Bhushan, JJ., reviewed a case where the High Court answered a legal question favoring the Revenue. However, the appellant was granted relief due to the issue of disallowing depreciation after allowing it for several years. The Court acknowledged that the assessee should be permitted to write back the depreciation for the concerned year and even for previous years. The judgment highlighted that the assessing officer should adjust the assessment by determining a higher income and allowing the recomputed income with the depreciation written back by the assessee to be carried forward for subsequent years for charitable purposes.

Granting Relief to the Appellant for Depreciation Write-back:
The Court emphasized the principle that an assessee should not be taken by surprise by disallowing depreciation that had been consistently allowed in previous years. The judgment underscored the importance of allowing the assessee to write back depreciation for the relevant year and even for preceding years. It was clarified that the assessing officer should modify the assessment to reflect a higher income and permit the recomputed income with the written-back depreciation to be carried forward for subsequent years for charitable purposes. The Court upheld the benefit granted by the High Court for other assessment years, leading to the dismissal of the appeal.

High Court's Decision and Dismissal of the Appeal:
The Supreme Court, based on the High Court's decision and the relief granted to the appellant, concluded that there was no justification to interfere with the High Court's order. Consequently, the appeal was dismissed. Additionally, the Court noted that an application for intervention was not pursued as the case's merits were not examined. The judgment, therefore, affirmed the High Court's ruling and the relief provided to the appellant regarding the depreciation issue, ultimately resulting in the dismissal of the appeal.