2002 (10) TMI 68 - HC - Income Tax

Depreciation claim withdrawn in revised return for AY 1988-89: s.32(1) not mandatory; Revenue appeal dismissed.

Whether depreciation had to be allowed despite withdrawal of the claim in a revised return for AY 1988-89 was decided by applying the then-binding SC ... Valid revised return - withdrawal of claim - allowability of depreciation where not claimed - effect of judicial interpretation prior to statutory amendment - retrospective effect of statutory amendment - Explanation 5 to section 32(1) of the Income-tax Act, 1961Valid revised return - withdrawal of claim - allowability of depreciation where not claimed - Explanation 5 to section 32(1) of the Income-tax Act, 1961 - Whether depreciation need be allowed for assessment year 1988-89 where the assessee withdrew the claim for depreciation by filing a revised return - HELD THAT: - The court applied the principle that where an assessee files a valid revised return expressly withdrawing a claim (here, depreciation) the assessment made on the basis of the revised return need not consider the earlier claim. The court relied on the Supreme Court's decision in CIT v. Mahendra Mills which held that the privilege to claim depreciation cannot be converted into an obligation and that a withdrawn claim in a valid revised return is not to be allowed. The court further held that the subsequent insertion of Explanation 5 to section 32(1) by the Finance Act, 2001 (effective from April 1, 2002) does not affect the law applicable to years prior to that amendment; the Explanation operates prospectively from its effective date and cannot be treated as retrospectively overruling the Supreme Court's interpretation for earlier assessment years. Consequently, for AY 1988-89, where the assessee did not persist with the depreciation claim in the revised return, there was no obligation on the assessing authority to allow depreciation.Depreciation need not be allowed for AY 1988-89 because the assessee withdrew the claim by filing a valid revised return; the later statutory Explanation is prospective and does not alter the law for prior years.Final Conclusion: The reference is answered against the Revenue: the Tribunal was correct in upholding the Commissioner (Appeals) that depreciation need not be allowed for AY 1988-89 where the assessee withdrew the claim by filing a revised return; the post-2002 Explanation does not affect the law for prior years. The High Court of Madras ruled that if an assessee withdraws a claim for depreciation in a revised return, the assessment based on that revised return is valid. The court cited a Supreme Court judgment and explained that a subsequent amendment to the Income-tax Act does not affect the earlier court ruling. Therefore, for the assessment year 1988-89, the assessee was not entitled to depreciation as it was withdrawn in the revised return. The Tribunal's decision upholding this was correct. The judgment favored the assessee and went against the Revenue.