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TMI Blog2004 (2) TMI 691X X X X Extracts X X X X X X X X Extracts X X X X ..... /s 32 by the Finance Act, 2001 w.e.f. 1-4-2002. This Explanation provides that section 32 shall apply whether or not the assessee has claimed the deduction in respect of depreciation, in computing his total income. It has been held by the Courts that Explanation 5 is prospective in operation and will therefore apply for the assessment year 2002-03 and subsequent years. Thus, we hold that the ld. CIT(A) was not justified in confirming the Assessing Officer s action in allowing depreciation which has not been claimed by the assessee. The Assessing Officer is, therefore, directed not to allow depreciation. In the result, the assessee s appeal stands partly allowed. - S.R. CHAUHAN, JUDICIAL MEMBER AND K.K. BOLIYA, ACCOUNTANT MEMBER S.E. Dastur for the Appellant Boota Singh for the Respondent ORDER Per K.K. Boliya, A.M. This appeal has been filed by the assessee against the order dated 14-7-1999 of CIT(A)-XL, Mumbai. The first ground of appeal is as under : In the facts and circumstances of the case, the CIT(A) erred legally and factually in upholding the decision of the Assessing Officer and in upholding the conclusion drawn by the Assessing Officer in the assessment order and finall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e claim for depreciation must be made and must be allowed by the Assessing Officer. Once again, on the strength of various cases and Board s Circulars, it was argued before the CIT(A) that if the assessee company does not claim depreciation, such depreciation cannot be thrust upon it by the Assessing Officer. The ld. CIT(A) rejected this argument mainly on the ground that most of the judgments relied upon by the assessee company related to assessment years prior to the assessment year 1988-89. The ld. CIT(A) took the view that after deletion of section 34 from the Income-tax Act, w.e.f. 1-4-1988, the legal position has undergone material change. The ld. CIT(A), therefore, upheld the order of the Assessing Officer on this issue. 4. The ld. counsel appearing on behalf of the assessee company contended before us that the controversy has been settled by the Hon ble Supreme Court in the case of CIT v. Mahendra Mills [2000] 243 ITR 561. In the above case, the ld. counsel for the assessee pointed out that the Hon ble Supreme Court observed that the language of the provisions of sections 32 and 34 of the Income-tax Act is specific and without any ambiguity. Section 32 mandates allowance of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowing depreciation and the ld. CIT(A) was not right in confirming the Assessing Officer s action. 6. Joining the issue, the ld. CIT DR heavily relied on the Bombay High Court decision in the case of Indian Rayon Corpn. Ltd. (IRCL) v. CIT [2003] 261 ITR 981. On the strength of the aforesaid judgment of the Hon ble Bombay High Court, it is forcefully argued by the CIT DR that the Supreme Court decision in the case of Mahendra Mills (supra) has no applicability to the assessee s case, which is distinguishable on facts. It is pointed out that in the case of Mahendra Mills (supra), the simple issue was as to whether depreciation not claimed by the assessee can be thrust upon him, even though the details as required under section 34 were not filed by the assessee. There was no question of allowing special deduction in respect of income of any industrial undertaking. In the present case, the assessee has claimed deduction under section 80-IA and in this situation, the Hon ble Bombay High Court decision in the case of IRCL (supra) would squarely apply. Referring to the ratio of the Hon ble Bombay High Court, the ld. CIT DR submitted that income-tax is charged on the total income computed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... own that where the gross total income of an assessee includes profits and gains derived from such industrial undertaking then, there shall be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to 20%. In other words, where the gross total income of an assessee includes certain types of income falling in clause (c) hereinabove then, while computing the total income of the assessee, a deduction of 20% is required to be made from profits of such undertaking computed as per the Act. In this case, we are concerned with income derived from a newly established industrial undertaking in a backward area. In other words, in cases where the gross total income includes profits from a newly established undertaking, one has to compute such profits and gains derived from the newly established undertaking in backward area in accordance with the provisions of the Act so as to form part of the gross total income and after so computing, one must deduct 20% thereof from the gross total income to arrive at the total taxable income. This is the ratio of the judgment of the Supreme Court also in the case of Cambay Electric Supply Industrial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT [2002] 82 ITD 306 . The CIT DR pointed out that in this case, the ITAT have duly considered the Hon ble Supreme Court decision in the case of Mahendra Mills (supra) in the context of omission of section 34 w.e.f. 1-4-1988. The ITAT observed that the position is altogether different after the omission of section 34 from the IT Act and thereafter there is no condition to furnish any information or details to be eligible to claim depreciation. It was held by the ITAT that after omission of section 34, deduction under section 80-I has to be allowed after deducting depreciation as the gross total income has to be computed in accordance with the provisions of Income-tax Act and depreciation is a permissible deduction under section 32. The ld. CIT DR, therefore, contended that the ld. CIT(A) has rightly decided the issue. 7. In his rejoinder, the ld. counsel for the assessee submitted that the facts in the case of IRCL ( supra) decided by the Hon ble Bombay High Court have to be properly considered before rushing to any assumption that the ratio laid down in the case of Mahendra Mills ( supra) will not apply to a case where deduction under Chapter VI-A is claimed by the assessee. The l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 113 ITR, 84], under section 80HH. Consequently, the Assessing Officer has computed deduction under section 80HH, which is reduced from the gross total income leaving the taxable profit at ₹ 20. Computation of deduction under section 80HH by the assessee - The assessee sets off ₹ 20 (i.e., 20 per cent deduction under section 80HH) against the gross income of ₹ 100, without depreciation. Hence, the assessee applies 20% benefit of ₹ 20 under section 80HH leaving the balance profits at ₹ 80 from which the assessee sets off ₹ 75 as depreciation and returns taxable profit of ₹ 5. This illustration shows that the assessee had not disclaimed depreciation. This illustration illustrates the basic controversy. From the above, the ld. counsel for the assessee submitted that the Hon ble Bombay High Court, in the case of IRCL (supra) was faced with a situation where the assessee duly claimed depreciation and sought to exclude such depreciation only for the purposes of claiming deduction under section 80HH. The ld. counsel, further, invited our attention to page 105 of the Report where the Hon ble High Court observed that Shri R.V. Desai, ld. Senior coun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... supra) clarifies the position that the ratio of the case of Mahendra Mills ( supra) would be applicable only to a case where no deduction under Chapter VI-A has been claimed. The ld. CIT DR has forcefully emphasized the observations of the Hon ble Bombay High Court to the effect that Chapter VI-A is a separate code in itself and therefore before allowing any deduction under Chapter VI-A, the profits and gains of the industrial undertaking have to be computed in accordance with the provisions of the Income- tax Act which would mean that depreciation allowable under section 32 has to be mandatorily allowed irrespective of the fact whether the assessee has put up a claim or not for deduction of depreciation allowance. We have meticulously gone through the Hon ble Bombay High Court decision in the case of IRCL (supra ) to consider the applicability of the ratio of this case to the assessee s case in preference to the ratio of the Hon ble Supreme Court in the case of Mahendra Mills ( supra). It must be mentioned that the ratio laid down by the Court in a particular case flows from the peculiar facts of that case. Therefore, the ratio would be applicable to a case wherein the facts are s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the legal position has really undergone a change and therefore the Supreme Court decision in the case of Mahendra Mills (supra) will not apply. A few Tribunal decisions have been cited before us on this aspect of the controversy. In the case of Medley Pharmaceuticals Ltd. (supra), the ITAT, Mumbai Bench has held that as long as section 34 was on the Statute book, there existed two conditions for allowing depreciation under section 32 i.e., making of a claim and furnishing all the prescribed particulars. The Tribunal has referred to the judgments of various High Courts which have been approved by the Supreme Court in the case of Mahendra Mills ( supra) with the conclusion that both the conditions are cumulative. If either of the two conditions is not fulfilled, the Assessing Officer cannot force the depreciation allowance on the assessee. In the absence of a claim by the assessee, depreciation cannot be thrust upon him, even if the particulars are available with the Assessing Officer. It was held by the Tribunal that after the omission of section 34, depreciation cannot be thrust upon the assessee in the absence of a claim. The Tribunal, therefore, concluded that the assessee s clai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted before the Tribunal in the case of Mandhana Exports (P.) Ltd. (supra). It was further observed that in the case of Mandhana Exports (P.) Ltd., the Tribunal did not consider that there exist two preconditions. The Tribunal, in the case of Rubinsha Exports (P.) Ltd. (supra) has considered these facts and has also referred to another ITAT decision in the case of Royal Biam, rendered on 6-9-2002, wherein a view was taken that if the assessee did not claim depreciation, it cannot be allowed. 11. On a careful consideration of the available ITAT decisions read with Hon ble Supreme Court decision in the case of Mahendra Mills (supra) we concur with the view that both the conditions are cumulative and even after deletion of section 34, if no claim is made by the assessee, the depreciation cannot be thrust upon him. We would further like to clarify and substantiate our conclusion by referring to some relevant portions from the case of Mahendra Mills ( supra), which are reproduced below : Page 67 of the Report : In CIT v. Shri Someshwar Sahakari Sakhar Karkhana Ltd. [1989] 177 ITR 443 (Bom.), two issues were raised. One issue was whether the assessee had a choice in the matter of claiming ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee does not want the benefit, it cannot be thrust upon it. There is no provision which makes it compulsory on the part of the ITO to make deductions in all cases. If it were incumbent on the ITO to make compulsory deductions irrespective of whether the assessee claimed or not, the statutory requirement of making the claim along with necessary particulars and the provision for allowing it would be unnecessary. At page 79 of the Report, the Hon ble Supreme Court has observed as under : The provision for claim of depreciation is certainly for the benefit of the assessee. If it does not wish to avail that benefit for some reason, benefit cannot be forced upon it. It is for the assessee to see if the claim of depreciation is to his advantage. Rather the ITO should advise him not to claim depreciation if that course is beneficial to the assessee. Following observations of the Hon ble Supreme Court at page 80 are also of significance : We get support from the earlier decision of this Court in Dharampur Leather Co. Ltd. s case [1966] 60 ITR 165 . Allowance of depreciation is calculated on the written down value of the assets, which written down value would be the actual cost of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... legally and factually in confirming the decision of the Assessing Officer in adding back an amount of ₹ 2,72,583 being disallowance of depreciation in respect of Delhi office property, though the premises were used by the company for the business. 13. These grounds are not pressed by the ld. counsel for the assessee. Therefore, on these points, the order of the ld. CIT(A) stands confirmed. 14. The ground No. 4 is as under : The ld. CIT(A) has erred legally and factually in holding that the ground regarding computation of deductions under section 80-IA is infructuous as it is linked with the grounds in connection with allowance of depreciation. 15. This ground is only consequential to ground No. 1 and the Assessing Officer is directed to allow deduction under section 80-IA without deducting depreciation. 16. The ground No. 5 is as under : The ld. CIT(A) has erred legally and factually in upholding the decision of the Assessing Officer in assessing interest earned on SBI Bonds as income from other sources. 17. This ground is also not pressed by the ld. counsel for the assessee and therefore the same stands rejected as not pressed. 18. In the result, the assessee s appeal stands ..... X X X X Extracts X X X X X X X X Extracts X X X X
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