Tribunal allows assessee's appeal, emphasizes importance of proper inquiry and avoiding changes of opinion.

The Tribunal allowed the assessee's appeal, setting aside the CIT-III's orders on both issues. The Tribunal emphasized that it had not expressed any view on the nature of expenses or the allowance of depreciation, leaving the decisions to the lower authorities. It highlighted the importance of proper inquiry and avoiding changes of opinion in such matters.

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Issues:
1. Disallowance of depreciation on Research & Development expenses
2. Disallowance of depreciation on Non-factory building

Analysis:

Issue 1: Disallowance of depreciation on Research & Development expenses
The appellant contested the disallowance of depreciation amounting to Rs.1,80,58,339/- on Research & Development expenses claimed as revenue expenditure. The Assessing Officer (A.O.) had initially allowed depreciation @ 25% on these expenses, considering them as capital in nature due to enduring benefit. The appellant argued that no asset was generated from these expenses, thus they should be treated as revenue expenditure. The CIT-III, Baroda directed the A.O. to withdraw the depreciation, stating that no asset existed for depreciation to be allowed. The appellant challenged this decision, asserting that the A.O.'s order had merged with the CIT(A) and the CIT-III did not have jurisdiction to reconsider the matter. The Tribunal held that the A.O. had already considered the nature of expenses and allowed depreciation, making the CIT-III's direction a change of opinion. The Tribunal set aside the CIT-III's order, leaving the decision on the nature of expenses and depreciation allowance to the lower authorities.

Issue 2: Disallowance of depreciation on Non-factory building
The appellant also contested the disallowance of depreciation on a Non-factory building, arguing that the A.O. had allowed depreciation even after the CIT-III's order under section 263. The Revenue argued that depreciation cannot be claimed on assets that do not exist. The Tribunal noted that the A.O. had allowed depreciation without proper inquiry, and the CIT-III's direction was considered a change of opinion. Consequently, the Tribunal set aside the CIT-III's order, allowing the appellant's appeal on this issue.

In conclusion, the Tribunal allowed the assessee's appeal, emphasizing that it had not expressed any view on whether the expenses were capital or revenue in nature, or on the allowance of depreciation. The lower authorities were granted the freedom to make decisions in accordance with the law, highlighting the importance of proper inquiry and avoiding changes of opinion in such matters.

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