Tribunal directs AO to adjust unabsorbed depreciation, recompute investment allowance

The Tribunal allowed the appeal filed by the assessee, directing the AO to adjust the unabsorbed carried forward depreciation as per records without recalculation, recompute the investment allowance considering all eligible expenses, and re-examine the treatment of income from the sale of assets in the block eligible for depreciation.

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Issues:
1. Set off of unabsorbed carried forward depreciation.
2. Investment allowance pertaining to specific assessment years.
3. Treatment of income from the sale of assets in block of assets eligible for depreciation.

Issue 1: Set off of unabsorbed carried forward depreciation:
The appeal concerns the set off of unabsorbed carried forward depreciation for the assessment year 1992-93. The assessee claimed set-off of unabsorbed depreciation at 66-2/3 per cent, amounting to Rs. 5,83,370. However, the AO allowed only Rs. 3,76,022, recalculating the unabsorbed depreciation based on capitalised incidental expenses not considered for depreciation in the previous assessment year. The assessee argued that the AO had no authority to recalculate unabsorbed carried forward depreciation, citing a decision of the Hon'ble Madras High Court. The Tribunal agreed with the assessee, emphasizing that once unabsorbed depreciation is quantified in earlier orders, the assessee has the right to carry it forward without AO interference. The Tribunal directed the AO to adopt the figure of unabsorbed brought forward depreciation as per records, allowing the appeal on this ground.

Issue 2: Investment allowance pertaining to specific assessment years:
The second ground of appeal relates to investment allowance for specific assessment years. The assessee claimed unabsorbed investment allowance for certain years, including costs of plant and machinery, incidental expenses, utilities, and electric equipment. The AO, however, allowed the investment allowance only on the cost of tumbling drier and SS Reactor, ignoring other items. The Tribunal, considering decisions cited by the assessee's representative, held that capitalised expenses are eligible for investment allowance. The AO was directed to recompute the investment allowance accordingly, allowing the appeal on this ground.

Issue 3: Treatment of income from the sale of assets in block of assets eligible for depreciation:
The third ground of appeal concerns the treatment of income from the sale of assets in a block eligible for depreciation. The assessee argued that no profit on the sale of the asset should be assessable as income due to the block of assets concept, where only the sale price should be reduced from the block. The Tribunal found merit in the assessee's contention but noted that the issue was not raised before the AO. Therefore, the Tribunal restored the issue to the AO for re-examination and directed to allow the claim as per the law, treating this ground as allowed for statistical purposes.

In conclusion, the Tribunal allowed the appeal filed by the assessee, directing the AO to adjust the unabsorbed carried forward depreciation, recompute the investment allowance, and re-examine the treatment of income from the sale of assets in the block eligible for depreciation.

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