COMMISSIONER OF INCOME TAX, ROHTAK vs. M/S JAIN AND JAINA FOAM (P) LTD.

Income Tax Appeal No. 289 of 2004 1 IN THE HIGH COURT OF PUNJAB & HARYANA AT CHANDIGARH. --- Income Tax Appeal No. 289 of 2004 Date of Decision: 23.11.2010 Commissioner of Income Tax, Rohtak --- Appellant Versus M/s. Jain & Jaina Foam (P) Ltd.) --- Respondent CORAM: HON’BLE MR. JUSTICE ADARSH KUMAR GOEL HON’BLE MR. JUSTICE AJAY KUMAR MITTAL. --- PRESENT: Ms. Urvashi Dhugga, Standing Counsel for the appellant-Revenue. None for the respondent-assessee. --- AJAY KUMAR MITTAL, J. This appeal under Section 260A of the Income-tax Act, 1961 (for short “the Act’”) has been filed by the Revenue against the order dated 24.3.2004, passed by the Income Tax Appellate Tribunal, Delhi Bench ‘A’, Delhi, (in short “the Tribunal”) in ITA No. 1609/Del/1997 relating to the assessment year 1989-90. The appeal was admitted for determination of the following question of law: “Whether on the facts and in the circumstances of the case, the Hon’ble ITAT has erred in law in holding that the assessee was entitled to a higher rate of depreciation even

Income Tax Appeal No. 289 of 2004 2 when the conditions of Rule 5 of X Schedule were not satisfied and the total income of the assessee under the head “Profits and gains of business or profession” was assessed for a period of 12 months only.” The facts necessary for adjudication, as narrated in the appeal are that the assessee-company is engaged in the business of production of foam from raw material. For the assessment year under consideration, the period of previous year comprised of 21 months, i.e. from 1.7.1987 to 31.3.1989. The assessee filed return of income showing loss of Rs. 7,40,090/-. The assessment under Section 143(3) was, however, finalized at loss of Rs.7,01,889/- after making certain disallowance/ additions. The additions were set aside by the Commissioner of Income Tax (Appeals), [hereinafter referred to as “CIT (A)”] with certain directions including the one to make a fresh assessment. The assessing officer, by order dated 13.7.1995, framed a fresh assessment in terms of Sections 143(3)/250 by determining the total income at Rs. 10,91,407/-. The appeal carried by the assessee against the order dated 13.7.1995 was partly allowed by the CIT(A). As a result, both the Revenue and the assessee preferred their respective appeals before the Tribunal. The Tribunal, vide order dated 24.3.2004 allowed the appeal of the assessee and dismissed that of the Revenue. We have heard learned counsel for the Revenue and perused the record. Learned counsel for the Revenue submitted that the production started from 4.4.1988 and, therefore, the assessee was entitled for depreciation for the period thereafter. According to the Income Tax Appeal No. 289 of 2004 3 learned counsel, the said period being 12 months the depreciation could not be allowed for 21 months even if previous year comprised of 21 months. The learned counsel drew support from the order of the assessing officer and the CIT(A). The point for determination in this appeal is, whether the asssessee was entitled to depreciation for a longer period as the previous year relating to assessment year 1989-90 consisted of 21 months. The relevant portion of Rule 5 of Schedule X of the Act as it existed then reads thus:

“5. Modification in respect of depreciation allowance.- Where the assessee’s income under the head “Profits and gains of business or profession” or under the head “Income from other sources” for a period of thirteen months or more is included in his total income for the transitional previous year, the allowance under clause (ii) of sub-section (1) of section 32 or, as the case may be, under clause (ii) of section 57 in respect of depreciation on block of assets calculated in the manner stated in clause (ii) of sub-section (1) of section 32, shall be increased by multiplying it by a fraction of which the numerator is the number of months in the transitional previous year and the denominator is twelve.” According to the said provision where total income for the transitional previous year of an assessee is for a period longer than 12 months, the depreciation allowance under clause (ii) of sub-section (1) of Section 32 shall be increased by multiplying it by a fraction of which the numerator is the number of months in the transitional previous year and the denominator is twelve. In the present case, the previous year comprised of Income Tax Appeal No. 289 of 2004 4 21 months, therefore, the depreciation allowance had to be worked out by multiplying it by 21/12. The argument of the learned counsel for the Revenue, thus, carries no weight. The Tribunal had recorded as under while allowing the claim of the assessee:- “We have heard the rival counsels on this issue. In our view, the impugned assessment year being 1989-90, which was the transitional year the provisions of the Xth Schedule are relevant. The aforesaid schedule lays down the modification pertaining to the various allowance, inter-alia including depreciation allowance in relation to cases where the previous year is of a period longer than the normal period of 12 months. It is provided therein that in cases where the transitional previous year is longer than 12 months, provisions of the Income Tax Act shall apply subject to modifications. The modifications with respect to the allowance of depreciation are contained in rule 5 of the said schedule according to which the allowance for depreciation is enhanced keeping in view the actual period comprised in the assessment year. Ostensibly, the impugned assessment year for the assessee comprises of a previous year of 21 months and, therefore, the claim of the assessee for higher depreciation having regard to the statutory provisions of the Xth schedule, we do not find any infirmity in the same. In fact, the stand of the revenue to the effect that as the production was started by the assessee on 4/4/1988, the depreciation is to be restricted, is not germane to the issue in hand. Accordingly, we direct the AO to allow the claim of the Income Tax Appeal No. 289 of 2004 5 assessee for higher depreciation. The assessee succeeds accordingly.” In view of the above, this Court is of the opinion that the assessing officer and the CIT(A) had erroneously declined benefit of depreciation allowance for 21 months. The Tribunal had rightly reversed the aforesaid order of the assessing officer and the CIT(A). Accordingly, there is no merit in the appeal and the same is dismissed. (AJAY KUMAR MITTAL) JUDGE (ADARSH KUMAR GOEL) November 23, 2010 JUDGE *rkmalik*