Modvat credit cannot be denied solely for an original depreciation claim when the revised return was accepted and depreciation was not allowed.

Mere disclosure of depreciation in an original income-tax return does not, by itself, justify denial of Modvat credit where the revised return excluding the relevant value has been accepted and depreciation has not actually been allowed by the Income-tax Department. The Tribunal treated the accepted revised return, the assessee's accounting position, and the coordinate bench view as requiring fresh examination of the facts and the income-tax record. The matter was therefore sent back for reconsideration rather than decided solely on the basis of the original depreciation claim.

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Issues: Whether Modvat credit could be denied merely because depreciation had been claimed in the income-tax return, and whether the matter required fresh consideration in light of the accepted revised return and the earlier coordinate bench decision.

Analysis: The Tribunal noted that the assessee had stated that depreciation was initially claimed but later not pursued, and that the Modvat credit element had been adjusted while the income-tax proceedings also showed acceptance of the revised position. Relying on the coordinate bench view, the Tribunal accepted that mere filing of a return claiming depreciation on the full value was not by itself sufficient to disallow credit, particularly where the revised return excluding the relevant value had been accepted by the Income-tax Department and depreciation had not been allowed. The Tribunal therefore held that the issue required fresh appreciation of facts and reconsideration of the income-tax record and the accounting practice followed by the assessee.

Conclusion: The issue was remanded for reconsideration, and the assessee succeeded in having the impugned order set aside.

Ratio Decidendi: Where depreciation is not actually allowed by the Income-tax Department and the revised return has been accepted, a mere claim of depreciation in the original return does not, by itself, justify denial of Modvat credit.

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