2022 (7) TMI 585 - AT - Income Tax

Tribunal directs reexamination of disallowed depreciation claim on revalued building cost

M/s. Sogefi MNR Filtration India Private Limited Versus DCIT, Circle – 12 (2), Circle – 12 (3), Bengaluru.

M/s. Sogefi MNR Filtration India Private Limited Versus DCIT, Circle – 12 (2), Circle – 12 (3), Bengaluru. - TMI Issues:- Whether the Revenue authorities were justified in restricting the claim of the Assessee for depreciation on the value of the building as revalued prior to conversion of the partnership firm into a private limited company.Analysis:1. The Assessee, engaged in the manufacturing business, revalued its Land and Building before converting the partnership firm into a private limited company. The revaluation reserve was credited to partners' accounts.2. Upon conversion, all assets and liabilities were transferred to the company at book value. The company repaid unsecured loans using funds received from a business transfer agreement with M/s.Filtrauto, SA, France.3. The Assessee claimed depreciation on the revalued building in its income tax return for the year ended March 2009. However, the AO disallowed the claim, stating depreciation is allowed only on the actual cost of the asset.4. The Assessee contended that the revalued value should be considered for depreciation. The CIT(A) upheld the AO's decision, disallowing the excess depreciation claimed.5. The Tribunal noted that the disputed disallowance of depreciation in multiple assessment years was due to the revaluation of the building. Section 32(1) requires depreciation on the Written Down Value (WDV) of the asset.6. The Tribunal referred to Explanation 3 to Section 43(1) regarding the determination of actual cost in cases of asset transfer. Notably, the AO did not invoke this provision in the assessment order.7. Citing a similar case where the High Court allowed depreciation on revalued assets, the Tribunal directed the AO to reexamine the issue in light of the High Court's decision, allowing the Assessee an opportunity to present its case.8. Consequently, the Tribunal allowed the Assessee's appeals for statistical purposes, emphasizing the need for a fresh examination of the depreciation claim based on the revalued building cost.This detailed analysis of the judgment highlights the key arguments, decisions, and legal provisions involved in the case regarding the claim of depreciation on the revalued building by the Assessee.