Revenue fails to disallow depreciation on assets from demerged company despite Central Excise Exemption arguments under section 43(1)

ITAT Delhi dismissed Revenue's appeals regarding disallowance of depreciation on assets acquired from demerged company. Assessee claimed depreciation on written down value as per books of erstwhile company on demerger date. Revenue argued actual cost should be reduced by Central Excise Exemption per section 43(1) explanation 10. Tribunal followed Delhi HC precedent in Abhisar Buildwell case holding excise refund is revenue receipt forming part of business profits, cannot reduce plant machinery cost. Depreciation claim allowed as disallowance would only enhance profits eligible for section 80IC deduction. FAA's direction to verify assets brought at closing WDV from demerged company upheld.

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Issues involved:
Deletion of disallowance of claim of depreciation in separate orders of Learned Commissioner of Income Tax (Appeals) for Assessment Years 2011-12, 2012-13, 2013-14, and 2016-17.

Analysis:

1. The appeals by the Revenue pertain to the deletion of disallowance of claim of depreciation. The Assessing Officer disallowed the depreciation claim based on the assets acquired by the assessee from a demerged company, considering the assets' actual cost to be nil due to excise duty exemption. The First Appellate Authority decided in favor of the assessee, citing past decisions supporting the claim.

2. The Departmental Representative argued that the excise duty exemption should reduce the actual cost of assets, referencing a Supreme Court decision. In contrast, the assessee's counsel contended that the depreciation was claimed based on the written down value of assets from the demerged company, supported by past Tribunal decisions and a High Court order confirming a similar case.

3. The Tribunal examined the case, considering the demerger details and the nature of excise duty exemption. Referring to a similar case involving another company, the Tribunal noted that the excise duty exemption should have been adjusted before the demerger, not after. Previous Tribunal decisions supported the view that excise refund is a revenue receipt and should not reduce the cost of assets for depreciation purposes.

4. The Tribunal upheld the First Appellate Authority's decision, stating that the assessee's depreciation claim was allowable. The Tribunal emphasized that the disallowance would only increase the profit, eligible for deduction under the Income Tax Act. The direction to allow depreciation after verification of asset transfer and depreciation calculation was deemed appropriate, in line with previous Tribunal decisions.

5. Ultimately, considering the facts and circumstances, the Tribunal dismissed the Revenue's appeals, upholding the decision of the First Appellate Authority in all assessment years. The grounds raised by the Revenue were rejected, and the appeals were dismissed.

This comprehensive analysis highlights the key arguments, legal interpretations, and precedents considered in the judgment regarding the deletion of disallowance of claim of depreciation across multiple assessment years.

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