M/S KRISHAN KUMAR SUD vs. COMMISSIONER OF INCOME TAX-II AAYAKAR BHAWAN AMRITSAR

Facts

This appeal by M/s. Krishan Kumar Sud (the assessee) is against the order of the Income Tax Appellate Tribunal (ITAT) dated January 14, 2014. The ITAT had allowed the revenue's appeal, overturning the Commissioner of Income Tax (Appeals) [CIT(A)] order. The CIT(A) had previously set aside the Assessing Officer's (AO) refusal to grant depreciation on plant and machinery for the assessment year 2006-07. The AO had estimated net profits at 7% of gross receipts, which the CIT(A) reduced to 4% and also allowed depreciation. The ITAT's decision was based on a finding that the assessee had not proven the assets were put to use during the impugned year, a finding the High Court noted was contrary to the CIT(A)'s order which referenced prior year particulars.

Held

The High Court held that the Tribunal's finding that the assessee had not brought on record that the assets were put to use during the impugned year was perverse and contrary to the record. The Court noted that the CIT(A)'s order explicitly stated that depreciation was allowable because complete particulars of the written down value, as carried forward from earlier years, were available. Furthermore, the Assessing Officer had not held that the assets were not put to use during the assessment year 2006-07. The Court also rejected the revenue's contention that Section 44AD of the Income Tax Act, 1961, applied, as neither the AO, CIT(A), nor the Tribunal had proceeded under that section, evidenced by the different profit estimation rates applied (7% by AO, 4% by CIT(A), and no specific rate mentioned for the Tribunal's initial assessment). The appeal was allowed, the question of law was decided in favour of the assessee, and the CIT(A)'s order regarding depreciation was restored.

Key Issues

1. Whether, under the given facts and circumstances, the Tribunal is justified in reversing the order of the CIT(A) allowing the claim of depreciation, when it is allowable as per CBDT circulars and judgments, because the use of machinery in earlier years had been accepted? (Question of law and fact, turning on the interpretation of depreciation provisions and evidence of asset usage). Assessee's Contention: The assessee argued that depreciation was allowable because the use of machinery in earlier years had been accepted, and this was supported by CBDT circulars and judgments. The CIT(A) had also allowed depreciation based on complete particulars of written down value carried forward from earlier years. Revenue's Contention: The revenue, through its appeal to the ITAT, contended that the assessee had not brought on record that the assets purchased had been put to use during the impugned year. The ITAT accepted this contention.