Tribunal upholds higher depreciation claim on energy-saving devices, dismisses department's appeal.

The Tribunal upheld the CIT(A)'s decision, allowing the Assessee's claim for higher depreciation at 80% on energy-saving devices. The Tribunal found that the Assessee had properly exercised the option under the second proviso to Rule 5(1A) in the return of income, as per statutory provisions. The AO's attempt to restrict the claim was deemed unjustified, and the department's appeal was dismissed. The decision was rendered on 4th September 2015.

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Issues Involved:
1. Validity of the Assessee's Claim for Depreciation at 80% on Energy Saving Devices.
2. Compliance with the Second Proviso to Rule 5(1A) of the Income Tax Rules.

Issue-wise Detailed Analysis:

1. Validity of the Assessee's Claim for Depreciation at 80% on Energy Saving Devices:

The primary issue in this case revolves around the Assessee, a company engaged in the generation of power, claiming depreciation at a higher rate of 80% on energy-saving devices. Initially, the Assessee filed a return declaring a loss and book profit, which was accepted by the Assessing Officer (AO). However, the AO later reopened the assessment, arguing that the higher depreciation rate was wrongly allowed and restricted the claim to 8.24%.

On appeal, the Commissioner of Income Tax (Appeals) [CIT(A)] reversed the AO's decision and allowed the Assessee's claim for depreciation at 80%, citing the decision of the Chennai Bench of the ITAT in the case of KKSK Leather Processors (P) Ltd. vs. ITO. The Revenue, aggrieved by the CIT(A)'s order, appealed to the Tribunal.

The Tribunal, after hearing both sides and reviewing the relevant material, noted that the issue was already decided in favor of the Assessee in its own case for AY 2004-05 and 2009-10 by a coordinate bench. The Tribunal found that the Assessee had claimed depreciation as per Rule 5(1) and Appendix-1 in its return, which was reflected in its accounts and the return filed under Section 139(1) of the Income Tax Act.

2. Compliance with the Second Proviso to Rule 5(1A) of the Income Tax Rules:

The core issue was whether the Assessee's claim for depreciation under Rule 5 and Appendix-1 in the return of income could be considered as compliance with the second proviso to Rule 5(1A). The AO disallowed the claim, stating that the Assessee had not exercised any option. In contrast, the Assessee argued that the claim made in the accounts and the return of income amounted to exercising the option, as no specific mode or method for exercising such an option was prescribed under the statute.

The Tribunal examined the relevant statutory provisions, noting that Section 32(1)(i) of the Act provides for depreciation on assets of an undertaking engaged in power generation. Rule 5(1A) allows for depreciation at the percentage specified in Appendix-1A, with the second proviso allowing an option to claim depreciation as per Appendix-1, provided the option is exercised before the due date of filing the return under Section 139(1). The Tribunal found no prescribed mode or manner for exercising this option, concluding that computing depreciation in accordance with Appendix-1 in the accounts and claiming it in the return suffices.

The Tribunal also referenced the decision of the ITAT Chennai Bench in KKSK Leather Processors (P) Ltd. vs. ITO, which held that the claim made in the return and reflected in the books of account and audit report is sufficient to exercise the option under the second proviso to Rule 5(1A). The Tribunal further noted that the Hon'ble Madras High Court in CIT vs. M/s Kikani Exports Pvt. Ltd. upheld this view, stating that no separate letter or intimation is required if the option is exercised in the return of income.

The Tribunal affirmed that the Assessee had exercised its option in terms of the second proviso to Rule 5(1A) in the return of income for AY 2003-04 and subsequent years. The AO was duty-bound to allow the Assessee's claim for depreciation. The Tribunal also highlighted the inconsistency in the department's acceptance of the Assessee's claim in some subsequent assessment years.

Conclusion:

The Tribunal upheld the CIT(A)'s order allowing the Assessee's claim for higher depreciation at 80% on energy-saving devices, dismissing the department's appeal. The Tribunal reiterated that the Assessee's method of claiming depreciation was in line with statutory provisions and that the AO was not justified in restricting the claim. The decision was pronounced in the open court on 4th September 2015.

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