Depreciation on demerged assets requires prior-year verification before written down value computation; section 80IC deduction sustained.

Depreciation on assets acquired on demerger required verification of how those assets were treated in earlier assessment years and whether depreciation had to be computed on written down value under Explanation 7 to section 43(1); the issue was therefore remitted for fresh examination by the Assessing Officer. Deduction under section 80IC was allowed because the audit report in Form 10CCB was treated as filed and examined, and the direction to allow the claim as per law was sustained.

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Issues: Whether depreciation on the assets acquired on demerger was to be disallowed under Explanation 7 to Section 43(1) of the Income-tax Act, 1961, and whether deduction under Section 80IC of the Income-tax Act, 1961 could be allowed on the basis of Form 10CCB.

Analysis: The claim for depreciation turned on the effect of the demerger, the treatment of the assets in the preceding years, and whether the depreciation had thereafter to be worked on written down value. As the record did not show what had happened in the earlier assessment years after the demerger, the matter required verification by the Assessing Officer. The direction to allow deduction under Section 80IC was upheld, with the audit report in Form 10CCB treated as having been filed and examined.

Conclusion: The depreciation issue was restored to the Assessing Officer for fresh examination in the light of the earlier years and the relevant precedents. The direction to allow deduction under Section 80IC as per law was upheld.

Final Conclusion: The matter was not finally determined on the depreciation claim and was sent back for factual verification, while the direction concerning Section 80IC was sustained.

Ratio Decidendi: Where the allowability of depreciation on demerged assets depends on the treatment adopted in earlier assessment years, the issue must first be examined with reference to the prior years and the applicable written down value mechanism before a final decision is made.

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