2001 (1) TMI 213 - AT - Income Tax

Tribunal Upholds Assessee's Right to Depreciation Claim, Rejects Revenue's Arguments

The Tribunal ruled in favor of the assessee, holding that the Assessing Officer cannot impose depreciation without the assessee's claim, even in the ... Depreciation as an elective allowance - allowance cannot be thrust upon the assessee - claim and furnishing of particulars as precondition to deduction - interaction of s. 32 and s. 34 - omission of subsections (1) and (2) of s. 34 and r. 5AA - taxavoidance argument under McDowell not applicable where allowance is declined by assesseeDepreciation as an elective allowance - allowance cannot be thrust upon the assessee - claim and furnishing of particulars as precondition to deduction - Whether the Assessing Officer could compute and deduct depreciation from profits eligible for deduction under section 80-IA when the assessee had not claimed depreciation for the Daman unit. - HELD THAT: - The Tribunal held that depreciation under the Act is a benefit available to the assessee which the assessee may choose to claim or not. Where the assessee elects not to claim depreciation, the Assessing Officer has no power to force that allowance against the assessee's choice. The Supreme Court's decision in Mahendra Mills, approving multiple High Court precedents, treats the making of a claim for depreciation as determinative; absent a claim the AO cannot allow or thrust the allowance even if particulars are available. The Tribunal applied this principle to the admitted fact that the assessee did not claim depreciation in respect of the Daman unit and therefore the AO's reduction of the s. 80-IA deduction by depreciation was impermissible. [Paras 5, 9, 10]Depreciation could not be imposed by the AO where the assessee had not claimed it; the s. 80-IA deduction must be allowed without deducting depreciation.Interaction of s. 32 and s. 34 - omission of subsections (1) and (2) of s. 34 and r. 5AA - taxavoidance argument under McDowell not applicable where allowance is declined by assessee - Whether omission of subsections (1) and (2) of section 34 and of rule 5AA altered the principle that depreciation cannot be allowed in the absence of a claim by the assessee. - HELD THAT: - The Tribunal found that the omission of s. 34(1)/(2) and r. 5AA did not affect the principle laid down in Mahendra Mills. The Supreme Court had interpreted ss. 32 and 34 together to require that deduction under s. 32 be claimed and supported by prescribed particulars; even without the rule, the return form itself required particulars. Further, the Court rejected the Revenue's reliance on McDowell, observing that withholding a claim for depreciation as a matter of taxpayer choice does not constitute tax avoidance and that the AO's duty is to advise, not to force the allowance. Consequently, the statutory omissions did not empower the AO to compute depreciation where the assessee declined to claim it. [Paras 6, 7, 8]The omission of s. 34(1)/(2) and r. 5AA did not permit the AO to thrust depreciation upon the assessee; the principle that depreciation requires a claim remains applicable.Final Conclusion: The Tribunal allowed the appeal, holding that depreciation could not be deducted from the profits of the Daman unit for the purpose of section 80-IA because the assessee had not claimed depreciation; the omission of s. 34(1)/(2) and r. 5AA did not change this result and the McDowell taxavoidance doctrine was inapplicable. Issues:- Whether the AO can thrust depreciation upon the assessee and reduce the profits eligible for deduction under s. 80-IA without the assessee claiming depreciation or furnishing necessary particulars.Analysis:1. The appeal concerns the imposition of depreciation by the AO on the assessee, affecting the deduction under s. 80-IA. The AO reduced the assessee's claim by the amount of depreciation, alleging tax avoidance due to non-claiming of depreciation for the Daman unit.2. The CIT(A) upheld the AO's decision, citing the statutory nature of depreciation under s. 32, post the omission of requirements for furnishing particulars. The Tribunal was then tasked with determining whether the AO could impose depreciation without the assessee's claim and the impact of the omission of statutory provisions.3. The Tribunal referred to the Supreme Court's judgment in CIT vs. Mahendra Mills, emphasizing the assessee's right to choose whether to claim depreciation. Various High Court judgments were cited, supporting the principle that depreciation cannot be thrust upon the assessee. The Tribunal noted that the absence of a claim by the assessee restricts the AO's power to allow depreciation.4. Despite the Revenue's argument that the omission of certain provisions altered the position, the Tribunal reiterated the Supreme Court's stance that the claim for depreciation is solely the assessee's choice. The Tribunal highlighted that even without specific rules, the assessee must make a claim for depreciation to be eligible for the allowance.5. The Tribunal rejected the Revenue's contentions, emphasizing that the assessee's decision not to claim depreciation for the Daman unit was valid. Citing the Mahendra Mills judgment, the Tribunal allowed the assessee's appeal, accepting the deduction under s. 80-IA without reducing it by the unclaimed depreciation amount.6. In conclusion, the Tribunal's decision aligned with the principle that depreciation cannot be imposed on the assessee without a claim, even in the absence of specific statutory requirements. The judgment reaffirmed the assessee's right to choose whether to claim depreciation, ultimately ruling in favor of the assessee's appeal.