2014 (1) TMI 497 - HC - Income Tax

Court affirms ITAT decision allowing depreciation on machinery for assessee despite lower income rate

Commissioner of Income Tax, Chandigarh Versus M/s Naresh Kumar Gupta, Chandigarh.

The High Court upheld the Income Tax Appellate Tribunal's decision to allow depreciation on machinery for the assessee, despite their income being ... Whether claim of depreciation is allowed when income is estimated - Held that:- A statutory impediment was introduced by way of amendment on 1.4.1994 in Section 44AD(2) of the Income Tax Act, 1961 - The assessment in the present reference pertains to 1989-90 thereby clearly proving that in the assessment in dispute, there was no impediment on the right of the assesse to claim depreciation even if his income has been calculated on net profit of 8% - Decided in favour of assessee. Issues:- Whether the Income Tax Appellate Tribunal was correct in allowing depreciation on machinery when a lower net profit rate of 8% on contract receipts had been upheld and no account books were maintainedRs.Analysis:The High Court was presented with the question of law referred by the Income Tax Appellate Tribunal regarding the allowance of depreciation on machinery in a case where the assessee's income was assessed at a net profit rate of 8% without maintaining account books. The counsel for the revenue argued that since no account books were maintained and the assessee was assessed at a lower net profit rate, the ITAT erred in allowing depreciation on machinery. However, the Court, after hearing the arguments, found no error of jurisdiction or law in the decision of the ITAT.The counsel for the revenue failed to identify any provision that would prevent an assessee from claiming depreciation when their income is assessed based on a net profit rate. It was acknowledged that an amendment introduced a statutory impediment on claiming depreciation in certain cases, but this amendment was applicable from a later date and did not impact the assessment in question, which pertained to the year 1989-90. Therefore, the Court concluded that there was no legal impediment for the assessee to claim depreciation even with a net profit rate of 8%.Based on the above analysis, the High Court disposed of the reference by ruling against the revenue and upholding the right of the assessee to claim depreciation on machinery despite the lower net profit rate applied in the assessment. The judgment clarified that in the absence of any specific legal provision restricting the allowance of depreciation in such circumstances, the assessee was entitled to avail of depreciation benefits as per the applicable laws at the time of assessment.