Assessee Free to Skip Depreciation Under Sections 32(1)(ii) and 34(1); Officer Cannot Force or Restore Claim

HC held that depreciation under section 32(1)(ii), read with section 34(1), is a matter of choice for the assessee and not mandatory. The assessee may elect to claim or not to claim depreciation, and if it chooses not to, the Income-tax Officer lacks jurisdiction to thrust the allowance upon it. The departmental duty under the Board's circular is limited to advising taxpayers of available reliefs, not unilaterally granting them. HC further held that an assessee can change its position before completion of assessment; a revised return and accompanying letter withdrawing a depreciation claim must be respected, and the officer cannot rely on the original return to allow depreciation.

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Issues Involved:
1. Whether the assessee has a choice in claiming depreciation.
2. Whether the Income-tax Officer can allow depreciation based on the original return when the revised return withdraws the claim.

Summary:

Issue 1: Assessee's Choice in Claiming Depreciation

The court examined whether the assessee has the discretion to claim or not claim depreciation. The relevant provisions under the Indian Income-tax Act, 1922, and the Income-tax Act, 1961, were analyzed. Section 10(2)(vi) of the 1922 Act and section 34(1) of the 1961 Act both use the terms "allowance" and "allowed," suggesting that a claim or application by the assessee is necessary for the deduction to be granted. The court concluded that the assessee has the choice to seek or not seek the allowance of depreciation, and the Income-tax Officer can only allow the deduction if the prescribed particulars have been furnished by the assessee. The court disagreed with the Madras High Court's judgment in Dasaprakash Bottling Co. v. CIT [1980] 122 ITR 9, which supported the Revenue's view that the Income-tax Officer could grant depreciation regardless of the assessee's claim.

Issue 2: Income-tax Officer's Reliance on Original Return

The court addressed whether the Income-tax Officer could rely on the original return to allow depreciation when the revised return explicitly withdrew the claim. The court referred to the judgment in Beco Engineering Co. Ltd. v. CIT [1984] 148 ITR 478, where it was held that if the assessee did not claim depreciation in the revised return, the Income-tax Officer could not grant it. The court also cited a circular from the Central Board of Revenue, which stated that if the required particulars were not furnished and no claim for depreciation was made, the Income-tax Officer should estimate the income without allowing depreciation. The court concluded that the Income-tax Officer was not justified in granting a deduction for depreciation based on the original return when the revised return withdrew the claim.

Conclusion:

The court held that the assessee has the choice to claim or not claim a deduction on account of depreciation. If the assessee chooses not to claim it, the Income-tax Officer cannot allow the deduction. Furthermore, if the assessee withdraws the claim for depreciation in a revised return before the assessment, the Income-tax Officer cannot rely on the original return to grant the deduction. The question in ITR No. 111 of 1976 was answered in favor of the assessee, stating that the Income-tax Officer had no power or jurisdiction to impose depreciation allowance upon the assessee. No order as to costs.

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