2018 (3) TMI 376 - AT - Income Tax

Tribunal Upheld Depreciation Allowance for Dhule Unit, Dismissed Revenue Appeals

The Tribunal upheld the CIT(A)'s decision to allow depreciation for the Dhule unit for AYs 2006-07 to 2008-09, dismissing the revenue's appeals. The ... Allowing the depreciation in respect of Dhule Power Unit claimed by the assessee u/s 154 - Held that:- It is well settled that the depreciation is to be granted to the assessee mandatorily irrespective of claim made by the assessee in the return of income. It is not in dispute that the assessee had not made any claim of depreciation in respect of its Dhule Power Plant for the Asst Years 2006-07 to 2008-09. Hence applying the provisions of Explanation 5 to section 32(1) of the Act, depreciation is to be granted to the assessee in the proceedings u/s 154 of the Act for the Asst Years 2006-07 to 2008-09. We find that the ld AO having applied the very same provision (i.e Explanation 5 to section 32 of the Act) for the Asst Year 2009-10, ought to have applied the same for the Asst Years 2006-07 to 2008-09 also in the interest of justice. We find that the ld CITA had rightly granted relief to the assessee in this regard. - Decided against revenue. With regard to the allowability of book losses in the rectification proceedings u/s 154 of the Act, which were offered to tax by the assessee in the respective returns of income and assessed as such, we find that the veracity of the said losses requires investigation of facts and enquiries by the ld AO and only after such verification , the ld AO could come to a conclusion that the said losses are genuine and is allowable. Hence we hold that the ld CITA had rightly rejected this plea of the assessee that the same cannot be done u/s 154 by placing reliance on the decision of T.S.Balaram vs Volkart Bros (1971 (8) TMI 3 - SUPREME Court). No infirmity in the order of the ld CIT-A in this regard. Accordingly, the cross objections of the assessee are dismissed for the Asst Years 2006-07, 2007-08 and 2008-09. Issues Involved:1. Whether the CIT(A) was justified in allowing depreciation in respect of Dhule Power Unit claimed by the assessee under section 154 of the Income Tax Act, 1961.2. Whether the assessee is entitled to claim the allowability of losses in the proceedings under section 154 of the Act for the Assessment Years 2006-07 to 2008-09, which were originally offered to tax by the assessee in the returns of income.Issue-wise Detailed Analysis:1. Allowing Depreciation in Respect of Dhule Power Unit:The primary issue in these appeals is whether the CIT(A) was justified in allowing depreciation for the Dhule Power Unit claimed by the assessee under section 154 of the Income Tax Act, 1961. The assessee did not initially claim depreciation for the Dhule Power Plant in its returns for the Assessment Years 2006-07 to 2008-09. During the assessment for AY 2009-10, the AO observed that the assessee was engaged in generating and supplying electricity from its Dhule and Sangli plants. The AO allowed depreciation for the Dhule unit in AY 2009-10 based on Explanation 5 to section 32(1) of the Act, which mandates depreciation allowance whether or not claimed by the assessee. Consequently, the assessee filed rectification petitions under section 154 for the preceding years to claim depreciation. The AO rejected these petitions, but the CIT(A) allowed the claims, referencing the jurisdictional High Court's decision in Bridge & Roof Co. (India) Ltd vs CIT, which supports rectification for apparent errors. The CIT(A) directed the AO to allow depreciation for the Dhule unit for AYs 2006-07 to 2008-09, recognizing the mistake as apparent from the record.2. Claiming Allowability of Losses:The interconnected issue raised in the cross-objections is whether the assessee can claim the allowability of losses for the Dhule unit in the rectification proceedings under section 154 for AYs 2006-07 to 2008-09. The assessee had initially added back the losses of the Dhule unit in its original returns but later sought to rectify this by not adding back the losses in the revised computation. The CIT(A) held that the issue of allowability of losses requires deep investigation and is contentious, thus falling outside the purview of section 154. The CIT(A) cited the Supreme Court's decision in T.S. Balram vs Volkart Bros, which states that a mistake apparent from the record must be obvious and not require long-drawn arguments or investigations. Therefore, the CIT(A) upheld the AO's decision to reject the rectification petitions concerning the losses.Judgment Summary:The Tribunal upheld the CIT(A)'s decision to allow depreciation for the Dhule unit for AYs 2006-07 to 2008-09, dismissing the revenue's appeals. The Tribunal agreed that the non-allowance of depreciation was a mistake apparent from the record, rectifiable under section 154. However, the Tribunal also upheld the CIT(A)'s decision to reject the assessee's claim for allowability of losses in the rectification proceedings, as it required further investigation and was not an apparent error. Consequently, both the revenue's appeals and the assessee's cross-objections were dismissed.Conclusion:The Tribunal's order confirms that depreciation must be allowed mandatorily under section 32(1) of the Income Tax Act, even if not claimed, and such non-allowance is rectifiable under section 154. However, issues requiring detailed investigation, such as the allowability of losses, cannot be addressed under section 154.