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TMI Blog2024 (10) TMI 80X X X X Extracts X X X X X X X X Extracts X X X X ..... or losses in the preceding years, the allowance of claim of depreciation of earlier years in the impugned year or the year to which it pertained was clearly a tax neutral exercise. There is therefore no loss of revenue to the department by allowing the claim of prior period depreciation in the impugned year. The assessee could not have been denied depreciation in preceding years for not having claimed so and if so allowed, there is no loss of Revenue to the Department as noted above by us. There is no prejudice therefore caused to the Revenue and exercise of revisionary jurisdiction, therefore, in the present case is, unwarranted since it fails to satisfy the twin primary conditions of the assessment order being erroneous and causing prejudice to the Revenue, both of which conditions need to be satisfied for a valid exercise of revisionary power u/s 263 of the Act. We do not agree with the ld.Pr.CIT of the assessment order being erroneous causing prejudice to the Revenue for having allowed the claim of prior period depreciation and the order passed by the ld.Pr.CIT, therefore, on this count is set aside. Issue of tax deducted at source on rent not being examined by the AO . - Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... calculated by the learned Pr. CIT being contrary to law may kindly be deleted. Alternatively: If the Disallowance of Depreciation of Rs.1,68,21,472/- due to rectification of assets is confirmed, then the appellant humbly prays that appellant may kindly be granted deduction of the said depreciation in earlier years in view of depreciation, being mandatory deduction as per section 32 of the Act. (III) Disallowance u/s 40(a)(ia) of Rs. 58,56,612/- on account of short deduction of IDS on rent expenses as calculated by the learned Pr. CIT being contrary to law may kindly be deleted. (IV) Initiation of penalty proceedings may kindly be quashed. 3. Perusal of the order of the ld.Pr.CIT reveals that the assessment order passed in the case of the assessee under section 143(3) of the Act for the impugned assessment year i.e. Asst. Year 2018-19, was found to be erroneous causing prejudice to the Revenue on two counts viz; i) Incorrect allowance of claim of depreciation pertaining to prior period amounting to Rs.1,68,21,472/-; ii) Non-examination of the issue of rent payment of Rs.58,56,612/- on the aspect of non-deduction of tax at source there on by the AO. 4. Taking up the first issue of in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... overnment Authorities towards permission for use of land for laying pipelines, along with cost of pipelines and depreciation was charged on useful life of assets in books of accounts. In current year, assessee company has changed the Method of accounting where by such assets are considered as ROU/ROW as intangible assets in books of accounts, Based upon change in accounting policy, assessee has also made similar changes in Block of Assets of Income Tax wherein assets are reclassified as Intangible Assets from Plant machinery. Due to such change in books of accounts and similar treatment in Income Tax, Assessee has claimed further depreciation of Rs 1,68,21,472/- under other deduction in ITR filed by it and claimed that assessee has wrongly claimed lower depreciation in earlier years hence it is entitled to such Prior Year Depreciation in current year. 4.1 It is found at assessee has already claimed depreciation on similar assets considering it as part of Block of Assets of Plant machinery. Simply because assessee has changed method of accounting in books of accounts, similar treatment| has been provided in Income Tax which is not in accordance with provisions of law. It is observed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsequence to this change in accounting policy, the intangible assets of the assessee was increased by Rs.11,20,19,420/- and plant machinery decreased by the said amounts, and as a consequence of re- classification of the assets from plant machinery to intangible assets, the rate of depreciation eligible/applicable thereon was 25% as opposed to earlier rate of depreciation applied on plant machinery at 15%. The assessee reworked the WDV of these re- classified assets as on first of April of the impugned year applying the increased rate of depreciation, and the short depreciation claimed as a consequence in the earlier years was accordingly claimed in the impugned year. The contention of the ld.counsel for the assessee was that higher depreciation of earlier years claimed in the impugned year was based upon the change in accounting policy in the impugned year; that therefore, the expenditure on account of increased depreciation had crystalized in the impugned year, and therefore allowable in terms of section 37(1) read with section 32 of the Act. 7. The assessee had also contended to the AO that in case the AO did not agree with the contention of the assessee, he may allow the amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 37(1) of the Act, allowing only expenditures incurred during the year, for denying this claim of earlier years. 12. The fact of the matter to be kept in mind is that the assessee had during the impugned year changed its accounting policy for accounting of land user rights acquired from the government for laying pipelines, which was earlier accounted for as Plant and Machinery along with cost of pipelines, to Intangible asset of Right of User/ Right of Way. That as a result the WDV of Plant and Machinery as at the beginning of the year was reduced by the value of such reclassified intangible assets contained therein creating thus a new block of asset of intangible assets attracting higher rate of depreciation of 25% as opposed to 15% applied on Plant and Machinery. The assessee also had recalculated the WDV of this new block of asset by applying the higher rate of depreciation applicable from the beginning, i.e since the acquisition of the ROU/ ROW. And the difference between the WDV derived from Plant and Machinery and the actual WDV so worked out of the intangible asset was claimed as prior period depreciation in the impugned year. 13. Having so brought out the pertinent facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actually allowed to him under this Act or under the corresponding provisions of the Indian Income-tax Act, 1922 (11 of 1922) in respect of any previous year relevant to the assessment year commencing before the 1st day of April, 1988; and (b)by the amount of depreciation that would have been allowable to the assessee for any assessment year commencing on or after the 1st day of April, 1988 as if the asset was the only asset in the relevant block of assets, so, however, that the amount of such decrease does not exceed the written down value; (ii) in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, 1989, the written down value of that block of assets in the immediately preceding previous year as reduced by the depreciation actually allowed in respect of that block of assets in relation to the said preceding previous year and [as further adjusted by, (A) the increase or the reduction referred to in item (i), not being increase on account of acquisition of goodwill of a business or profession; (B) the reduction by an amount which is equal to the actual cost of the goodwill falling within that block as decreased by (a) the amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assification of asset in totality, considering the circumstances in which it was effected and then proceeded to find whether there was any error in the order of the AO causing prejudice to the Revenue in allowing the claim of prior period depreciation to the assessee. The finding of the Ld.PCIT therefore that the claim of prior period depreciation was not tenable in terms of section 32 of the Act, is not completely and palpably convincing. 15. In fact, Ld.Counsel for the assessee has demonstrated before us that considering the reclassification of asset in totality the view taken by the AO that the claim of the assessee of prior period depreciation was allowable is a plausible view. 16. As is evident from the facts noted above the claim of earlier years depreciation arose on account of change of accounting policy of the assessee, treating user rights of land acquired from government for laying pipelines earlier treated as Plant and Machinery to treating it as intangible asset of Right to Use/ Right of Way in the impugned year. 17. During the course of hearing before us, the ld.counsel for the assessee contended that the effect of change in accounting policy with respect to the depre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of change in accounting policy as in the present case. Ld.Counsel for the assessee has demonstrated AS 16 issued by the ICAI to provide for dealing with such situation by claiming all previous year depreciation, accruing on account of change in policy, in the year in which change is effected. Therefore the allowance of claim of prior period depreciation to the assessee arising on account of change in accounting policy appears to be plausible view. 20. On the finding that there is no prejudice caused to the Revenue by allowing claim of prior period depreciation. 21. During the course of hearing before us, ld.counsel for the assessee was specifically asked to demonstrate, whether this claim of prior period depreciation was a tax neutral exercise, whether allowed in the impugned year or in the respective years to which the depreciation pertained. The ld.counsel for the assessee in response submitted that it was a company assessee paying taxes at a fixed rate .A detailed table was filed before us showing that the assessee had paid taxes in all the preceding year and by allowing depreciation of prior periods in the relevant earlier years to which it pertained would have resulted in re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is no loss of Revenue to the Department as noted above by us. There is no prejudice therefore caused to the Revenue and exercise of revisionary jurisdiction, therefore, in the present case is, unwarranted since it fails to satisfy the twin primary conditions of the assessment order being erroneous and causing prejudice to the Revenue, both of which conditions need to be satisfied for a valid exercise of revisionary power u/s 263 of the Act. 24. For the above reasons, therefore, we do not agree with the ld.Pr.CIT of the assessment order being erroneous causing prejudice to the Revenue for having allowed the claim of prior period depreciation amounting to Rs. 1,68,21,472/-, and the order passed by the ld.Pr.CIT, therefore, on this count is set aside. 25. Taking up next issue, the same relates to the issue of tax deducted at source on rent not being examined by the AO. The ld.counsel for the assessee fairly agreed that the same was not examined during the assessment proceedings. But he pointed out that it was explained to the ld.Pr.CIT that the assessee had deducted TDS on rent on which provisions of TDS was applicable pointing out that while the assessee had claimed rent expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X
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