COMMISSIONER OF INCOME-TAX v. J. K. INDUSTRIES LTD.
IT Ref. No. 108 of 1993, decided on July 8, 1999.
HIGH COURT OF CALCUTTA
Agarwal, for the Revenue : Dr. Pal, for the Assessee
Y. R. MEENA, J. :
By this reference application made under section 256(1) of the IT Act, 1961, the Tribunal has referred the following questions for our opinion :
For asst. yrs. 1978-79 and 1979-80
“Whether, on the facts and in the circumstances of the case, the Tribunal was justified in upholding the direction of the learned CIT(A) to withdraw the depreciation on assets allowed by the AO, though not claimed by the assessee.”
For asst. yr. 1979-80
“Whether, on the facts and in the circumstances of the case, the Tribunal was justified in upholding the order of the learned CIT(A) directing the computation of capital gain/loss on the sale of assets either by taking into consideration the original cost of the assets or their W.D.V. after giving effect to his appellate order (i.e. withdrawing depreciation) ?”
2. In response to a notice under section 139(2) of the IT Act, the assessee filed the returns on 30th November, 1978, showing loss of Rs. 7,07,39,219. Those returns were revised and the assessee filed a revised return. In that, he reduced the loss to Rs. 6,02,55,970 and thereafter he filed another revised return on 15th January, 1985, showing loss at Rs. 13,87,08,960. The income assessed at a loss of Rs. 6,15,61,180. While computing the income, the AO has allowed depreciation, though neither the assessee has asked for allowance of depreciation nor he has furnished the required details for allowance of depreciation under section 32 r/w section 34 of the Act. In appeal before the CIT(A), the assessee submits that when neither the assessee has claimed depreciation nor the required details were furnished, the AO has wrongfully allowed depreciation. The AO allowed depreciation to the tune of Rs. 3,03,00,691 for the asst. yr. 1978-79 and to the tune of Rs. 2,48,96,503 for the asst. yr. 1979-80.
The grievance of the assessee is that when neither the assessee has claimed depreciation nor the required details were furnished, the AO should not allow depreciation in the years under consideration. The CIT(A) in appeal has allowed the claim of the assessee holding that when neither the assessee claimed for depreciation nor he has furnished the required details, the AO was not justified in allowing the depreciation to the assessee under section 32 of the IT Act. In appeal before the Tribunal, the Tribunal has affirmed the view taken by the CIT(A).
3. In a case when neither the assessee claimed for depreciation nor the required details were furnished, can the AO allow depreciation under section 32 of the Act.
4. The provisions of section 32 provides for allowance of Ac depreciation. Any building, machinery, plant or furniture owned by the assessee, wholly or partly, for the purpose of business and used for the purpose of business, the assessee is entitled for depreciation subject to the provisions of section 34 of the Act. The provisions of section 34 of the Act laid down certain conditions for allowance of depreciation. Rule 5AA of the IT Rules, 1962, prescribes the particulars for depreciation which are necessary to be furnished for allowance of depreciation. But that has come w.e.f. 1st April, 1981, and the relevant assessment years before us are 1977-78 and 1978-79.
5. Dr. Pal, learned counsel for the assessee, submits that particulars which are referred in r. 5AA prior to this, in the written form itself these particulars were required to be furnished if assessee claims depreciation. Therefore, unless these particulars are furnished, no depreciation allowance could be allowed.
6. Learned counsel for the Revenue Mr. Agarwal submits that the particulars are there on the record. Assessee may or may not claim depreciation. Depreciation should be allowed by the AO. He placed reliance on the decision of the Madras High Court in case of Das Prakash Bottling Co. Ltd. vs. CIT (1980) 14 CTR (Mad) 232 : (1980) 122 ITR 9 (Mad) : TC 28R.474 and decision of Allahabad High Court in Ascharajlal Ram Prakash vs. CIT (1973) 90 ITR 477 (All) : TC 28R.472. 7. Learned counsel for the assessee Dr. Pal submits that when it is a statutory requirement that assessee not only claim the depreciation but he should also furnish the details required under section 34(1) without furnishing detail Ac requirements, given in a return form made, for the relevant assessment year, no depreciation can be allowed. He placed reliance on the decision of Bombay High Court in CIT vs. Shri Someshwar Sahakari Sakhar Karkhana Ltd. (1989) 75 CTR (SC) 135 : (1989) 177 ITR 443 (SC) : TC 28R.485 and also he drew our attention towards the finding of ITO, CIT(A) and Tribunal wherein the finding has been given that assessee has not furnished the required details for allowance of depreciation under section 32.
8. In para 10 of the assessment order ITO himself has mentioned that the assessee has neither claimed the depreciation in the return nor it has furnished the prescribed particulars as required under the Act during the year. In para 18 CIT(A) has found and observed that the undisputed facts in this case are that the appellant company did not file the prescribed particulars for any of the three years under appeal. This finding has been confirmed by the Tribunal also. To consider when the required particulars are not before the ITO to allow the depreciation. In the case of Das Prakash Bottling Co. (supra) the fact was before the Madras High Court. The Madras High Court has considered the fact that though the figures have not been furnished in the return as such, but the figures were furnished by the assessee during course of assessment under protest. The Madras High Court has taken the view that once the details and particulars required are furnished by the assessee whether they were furnished under protest or not does not make any difference and depreciation can be allowed. But in the case in hand, admitted facts and admitted case of the Department that the required details have not been furnished by the assessee and that has been borne out from the order of the ITO, the CIT(A) as well as Tribunal. Therefore, the case of Das Prakash Bottling Co. (supra) has no application in the facts and circumstances of this case.
9. In the case of Ascharajlal Ramprakash (supra), the issue before the Allahabad High Court was that though the assessee
has not claimed depreciation whether the AO can allow the depreciation. Allahabad High Court has taken the view that if during the course of assessment proceedings, ITO comes to know that relevant particulars are necessary for grant of depreciation is on the record, the ITO is bound to give effect to it and allow depreciation.
The admitted facts in the case in hand are that necessary particulars are not furnished by the assessee which are necessary to allow the depreciation under section 32.
10. The CIT vs. Someshwar Sahakari Sakhar Karkhana Ltd. (supra), Bombay High Court considered the issue that when assessee has not claimed depreciation, in his revised returns, can the AO allow the depreciation ? Bombay High Court has held that ITO has no power or jurisdiction to allow the depreciation, if allowance has not been claimed nor necessary particulars are furnished.
Bombay High Court in that judgment has referred the Board Circular No. 29D(XIX-14), dt. 31st August, 1965, and also discussed various provisions of the Act. Sec. 10 of 1992 Act and ss. 29, 32 and 34 of the Act of 1961. In what cases that depreciation under section 32 should be allowed, Bombay 19 High Court has even gone to the extent that the assessee has a choice to claim or not to claim a deduction on account of depreciation, if he chooses not to claim it. The ITO is not entitled to allow a deduction on account of depreciation.
11. Allowance of the depreciation is subject to the provisions of section 34(1) of the Act 1961. Sub-section (1) of 19 section 34 provides that the deductions referred in 19 section 32 shall be allowed only if the prescribed particulars 19 have been furnished. Admittedly, the assessee had not furnished the prescribed particulars.
Sec. 34(2) further provides how much depreciation in a 19 particular case is to be computed. The relevant portion of sub-section (2) of section 34 of the Act reads as under :
“34(2) For the purposes of section 32.
(i) The aggregate of all deductions in respect of depreciation made under sub-section (1) or sub-section (1A) of section 32 or under the Indian IT Act, 1922 (11 of 1922), or under any Act repealed by that Act or under the Indian IT Act, 1886 (2 of 1886) shall, in no case, exceed the actual cost to the assessee of the building, machinery, plant, furniture, structure or work, as the case may be.
Explanation : Where capital asset is transferred :
(i) by a holding company to its subsidiary company or by a subsidiary company to its holding company, or
(ii) by a company to another company in a scheme of amalgamation, and the conditions specified in cl. (iv) or cl. (v) or, as the case may be, cl. (vi) of section 47 are satisfied, then, in determining the aggregate, of all deductions in respect of depreciation under this clause. Account shall also be taken of the deductions in respect of depreciation allowed in the case of the company from which the asset has been transferred;
(ii) nothing in cl. (i) or cl. (ii) or cl. (iv) or cl. (v) or cl. (vi) of sub-section (1) of section 32 shall be deemed to 19 authorise allowance for any previous year of any sum in respect of any building, machinery, plant or furniture sold, discarded or destroyed in that year;
(iii) Nothing in cl. (i) of sub-section (1A) of section 32 shall be 19 deemed to authorise the allowance for any previous year of any sum in respect of any structure or work in or in relation to a building referred to in that sub-section which is sold, discarded, demolished or destroyed, or, is surrendered as a result of the determination of the lease or other right of the occupancy in respect of the building in that year.”
Rule 5AA of IT Rules, 1962, prescribes the particulars, required for allowance of depreciation, has been inserted in 1984, and, we are concerned with the asst. yrs. 1977-78 and 1978-79. But, during the relevant year, along with the form of IT return itself, there was a schedule annexed which required that the assessee should furnish some particulars in case the assessee asked for deduction on account of depreciation allowance. The relevant particular of that form is annexed at p. 11 of this judgment.
12. We have perused the order. There is no finding of the ITO that the required particulars referred to in the form of IT return are furnished by the assessee. On the contrary, the ITO himself has stated that the assessee neither has claimed depreciation allowance nor he has furnished the required particulars for depreciation allowance. When the assessee has neither furnished the prescribed particulars nor the particulars necessary for computing depreciation allowance is on record, the AO was not justified in allowing the depreciation allowance without material or without particulars required for depreciation allowance.
When neither the assessee has claimed the depreciation allowance in the years under consideration nor he has furnished required particulars for deduction on account of depreciation allowance nor there was a material on record before the ITO, which is necessary to consider depreciation allowance, the ITO, was not justified in allowing the depreciation to the assessee in the asst. yrs. 1978-79 and 1979-80.
Therefore, we answer the common question in both the years “whether the Tribunal was justified in upholding the direction of the CIT(A) to withdraw the depreciation on assets allowed by the ITO” in the affirmative, that is, in favour of the assessee and against the Revenue.
13. The question referred to in the asst. yr. 1979-80 is whether the Tribunal was justified in upholding the order of the CIT(A) directing computing of capital gain/loss on the sale of assets either by taking into consideration original cost of the assets of their W.D.V. after giving affect to his appellate order”. This question is consequential to the question we have answered earlier. Therefore, we answer this question also in the affirmative, that is, in favour of the assessee and against the Revenue.
The application is, accordingly, disposed of.
RANJAN KUMAR MAZUMDAR, J. :