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June 28, 2022

ITAT allows depreciation to be carried forward into subsequent assessment years

by CA Shivam Jaiswal in Income Tax

ITAT allows depreciation to be carried forward into subsequent assessment years

Facts and issues of the cases

This appeal is filed by the Revenue against the order of the Ld. Commissioner of Income Tax (Appeals)-14, New Delhi dated 26.06.2019 for the AY 2016-17. The only grievance of the Revenue in its appeal is that the Ld. CIT(A) erred in allowing depreciation of Rs.2,00,53,867/- u/s 32 of the Act.

The assessee for the AY 2016-17 e-filed his return of income on 14.10.2016 declaring nil income after adjusting brought forward losses of Rs.7,37,804/-. In the course of assessment the Assessing Officer noticed that assessee has reported net income of Rs.7,37,004/- and the same was set off against unabsorbed depreciation of the AY 2015-16. The Assessing Officer noticed that the assessee has not claimed depreciation in respect of the project M/s Him Fresh Produce Company though depreciation was claimed in the AY 2015-16 on the said project. The Assessing Officer proposed to reduce the carry forward of WDV of the assets of M/s Him Fresh Produce Company since there was no reply from the assessee and accordingly reduced the WDV of assets of M/s Him Fresh Produce Company as on 31.03.2016.

 However, since no depreciation has been claimed by the assessee in the original return of income benefit of revised WDV is not given to the assessee placing reliance on the decision of Hon’ble Supreme Court in the case of Goetze India Limited vs. CIT (284 ITR 323). In other words the depreciation on the project Him Fresh Produce Company was not allowed for the current assessment year i.e. 2016-17.On appeal the Ld. CIT(A) directed the AO to compute the depreciation and allow the same to be carry forward as per provisions of the Act and against this order the Revenue is in appeal before us.

The Ld. DR strongly supported the orders of the Assessing Officer and on the other hand, the Ld. Counsel for the assessee supported the order of the Ld. CIT(A). The Ld. Counsel for the assessee further submits that if depreciation is not allowed the WDV of the assets should be carry forward. He submits that there is no justification in reducing the WDV of the assets and in not allowing depreciation to the assessee.

Observation by the court

Heard rival submissions perused the orders of the authorities below.The AO did not allow depreciation on the assets in the project of M/s Him Fresh Produce Company for the reason that the assessee did not claim depreciation in the original return filed placing reliance on the decision of Supreme Court in the case of Goetze India Limited vs. CIT (supra) and at the same time reduced the WDV of the assets while determining the carry forward of WDV of such assets. The Ld. CIT(A) allowed the claim for depreciation and carry forward of WDV of assets in view of Explanation 5 of section 32(1) which was inserted w.e.f. 01.04.2002 and applicable from the AY 2002-03, where allowance for depreciation was made mandatory even if the assessee did not claim depreciation in the return of income.

Court  observed that the Ld. CIT(A) also placed reliance on the decision of Mumbai Bench of the Tribunal in the case of Ibi Kellog India Pvt. Ltd. vs. ITO. The Ld. CIT(A) held that the correct course of action should be to allow depreciation after computing the same on the block of assets as per provisions of the Act and in case the depreciation exceeds the business income then as per the provisions of section 72 of I.T. Act the Assessing Officer should allow the depreciation to be carry forward for set off in succeeding assessment years. We agree with the view of the Ld. CIT(A) and this is the correct position of law. Therefore, Court see no infirmity in the order of the Ld. CIT(A) in directing the AO to compute the depreciation and allow the same to be carried forward as per the provisions of the Act.   Grounds raised by the Revenue are rejected.

Conclusion

In the result, the appeal of the Revenue is dismissed by the court.

ACIT-Vs-Nimit-Kumar-Aneja-ITAT-Delhi

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