Depreciation claim withdrawn in revised return was not allowable for earlier assessment years; later Explanation 5 was not retrospective.

Depreciation for assessment year 1988-89 was treated as not allowable where the assessee had withdrawn the claim in a valid revised return, and the assessment could proceed on that basis. The governing principle reflected the Supreme Court's position that a withdrawn depreciation claim need not be allowed in assessment when the revised return omits it. Explanation 5 to section 32(1), inserted by the Finance Act, 2001 with effect from 1 April 2002, was held not to operate retrospectively and therefore did not alter the position for earlier assessment years. The disallowance of depreciation was therefore legally sustained.

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Issues: Whether depreciation could be disallowed for assessment year 1988-89 when the assessee had withdrawn the claim in the revised return, and whether Explanation 5 to section 32(1) of the Income-tax Act, 1961 altered the position for periods prior to 1 April 2002.

Analysis: The governing principle was that, for the relevant assessment year, depreciation was not required to be allowed where the assessee had not claimed it in the revised return. The Supreme Court had already held that, if a valid revised return withdrew the depreciation claim, assessment on that basis was proper. The subsequent insertion of Explanation 5 by the Finance Act, 2001 with effect from 1 April 2002 did not operate retrospectively and could not displace the law declared for earlier years.

Conclusion: The assessee was not entitled to depreciation for assessment year 1988-89, and the disallowance of the claim was in law.

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