Commissioner of Income Tax-III vs Hiralal Industries

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K.S. Jhaveri, J.—Since, the issue involved in both the appeals is common, they are heard together and disposed of by this common judgment.

These are appeals by the appellant-Revenue, seeking to challenge the order of the learned ITAT, Ahmedabad Bench ''D'', Ahmedabad (for short, ''the Tribunal''), Dated: 22.08.2005, rendered in ITA No. 438/Ahd. 2001 for A.Y. 1996-97 and ITA No. 437/Ahd. 2001 for A.Y. 1997-98, whereby, the Tribunal dismissed the appeals filed by the appellant-revenue.

The brief facts of the case are that the respondent-assessee filed its return of income for the relevant assessment years. Pursuant thereto, the case of the assessee was selected for scrutiny for the relevant A.Y.s. At the end of the scrutiny, the concerned AO granted the benefit of depreciation to the assessee for both the relevant A.Ys., though, same was not claimed by the assessee. The assessee, therefore, approached the learned CIT(A) by filing separate appeals for each assessment year and the learned CIT(A) allowed both the appeals filed by the assessee. Being aggrieved with the same, the Revenue approached the Tribunal, wherein, it passed the impugned order dismissing both the appeals. Hence, the present appeals.

At the time of admitting this appeal, this Court framed the following common question of law, which arise in both the appeals;

"(A) Whether the Appellate Tribunal was justified in law in holding that the claim of depreciation cannot be thrust upon the assessee ignoring the fact that this decision pertain to the position of law existing prior to 01-04-1988?"

At the very outset, Mr. Patel, learned Advocate for the respondent-assessee in both the appeals, invited our attention to the decision of the Apex Court in Commissioner of Income Tax Vs. Mahendra Mills, , wherein, the Apex Court observed as under at Para-39;

"39. We get support from the earlier decision of this Court in Dharampur Leather Co. Ltd.''s case (supra). Allowance of depreciation is calculated on the written down value of the assets, which written down value would be the actual cost of acquisition less the aggregate of all deductions ''actually allowed'' to the assessee for the past years. ''Actually allowed'' does not mean ''notionally allowed''. If the assessee has not claimed deduction of depreciation in nay past year it cannot be said that it was notionally allowed to him. A thing is ''allowed'' when it is claimed. A subtle distinction is there when we examine the language used in section 16 and that sections 34 and 37. It is rightly said that privilege cannot be to a disadvantage and an option cannot become an obligation."

Mr. Patel, also invited our attention to a decision of this Court in "Surat Textile Mills Ltd. vs. ITO", [2014] 46 taxmann.com 419 (Gujarat), this Court, in similar circumstances, observed and held as under;

"As per the Assessing Officer, the petitioner was required to first claim the depreciation of the current year before claiming set off of the unabsorbed depreciation of business loss of the earlier period. The Supreme Court in the case of Commissioner of Income Tax Vs. Mahendra Mills, held that language of section 32 and 34 of the Act is specific and admits of no ambiguity. It does not place any mandatory duty on the Assessing Officer to allow depreciation if the assessee does not want to claim that. The provision for claim of depreciation is certainly for the benefit of the assessee. If he does not wish to avail of that benefit for some reason, the benefit cannot be forced upon him.

Explanation 5 to section 32(1) introduced with effect from 1.4.2002 now provides that for removal of doubts, it is declared that the provisions of the said subsection shall apply whether or not the assessee has claimed the deduction in respect of depreciation in computing his total income. Thus, the compulsion of claiming depreciation arose with introduction of the said explanation.

In the case of Commissioner of Income Tax Vs. Kerala Electric Lamp Works Ltd. and Crompton Greaves Ltd., , Kerala High Court held that explanation 5 would be applicable only from 1.4.2002. The Revenue''s contention that the explanation merely clarified the position and would therefore be applicable to all pending proceedings was not accepted on the premise that such explanation cannot take away the effect of declaration of law made by the Supreme Court in the case of Mahendra Mills (supra). It was observed that the memorandum explaining the said provisions also clarified that the same will take effect from 1.4.2002. Accordingly, when the assessee had not made claim for depreciation for the assessment year 1989-90, it was held that the Assessing Officer was not justified in allowing such deduction.

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Reverting back to the facts of the case, we may recall that the sole ground on which the Assessing Officer desires to reopen the assessment is that the assessee did not claim depreciation of the current year while seeking set off of the unabsorbed business loss of earlier years. This, according to the Assessing Officer, would enable the assessee to claim depreciation selectively and prolong the claim beyond eight years. In view of the legal position clarified by different High Courts, what the assessee had done was well within thin the legal framework. It was open for the assessee not to claim depreciation till the amendment was made by explanation 5 in section 32(1) of the Act which had the effect only from 1.4.2002. That being the position, the very belief of the Assessing Officer that income chargeable to tax had escaped assessment lacks validity."

Relying on the aforesaid decisions of the Apex Court as well as of this Court, Mr. Patel, learned Advocate for the assessee, prayed that in view of the above settled legal position, present appeal be dismissed.

Mr. Mehta, learned Advocate for the appellant-Revenue, is not in a position to dispute the aforesaid settled legal position nor has he shown any judgment of the Apex Court taking a contrary view, then, the one taken by the Apex Court in CIT vs. Mahendra Mills/Arun Textile ''C''/Humphreys/Glassgow Consultants".

In view of the fact that the question raised in this appeal is already answered by the Apex Court as well as this Court in favour of the assessee and that the case of the assessee is squarely covered by the same, we do not deem it necessary to give any further detailed reasons.

In the result, both the appeals are DISMISSED. The question of law framed in these appeals is answered against the appellant-revenue and in favour of the respondent-assessee, accordingly. No order as to costs.