PRASIDH FINCAP LTD,NEW DELHI vs. ITO, WARD-20(2), NEW DELHI

ITA No. 1534/Del/2022 & 7966/Del/2018 Prasidh Fincap Ltd value of fixed assets. The assessee also enclosed the return of income filed for AY 2003-04 to prove that no deprecation was even claimed as per Income Tax Act by the assessee on the gross value of fixed assets. We also find that there has been no addition to the value of fixed assets from 31.03.2003 to 31.03.2012. We find that depreciation on those fixed assets was claimed for the first time by the assessee in AY 2012-13.

ITA No. 1534/Del/2022 & 7966/Del/2018 Prasidh Fincap Ltd onwards to the assessee and allow that depreciation loss to be carried forward to subsequent years and such accumulated depreciation loss would be eligible to be treated as current year depreciation u/s 32(2) of the Act eligible for set off against taxable income of the year under consideration. Hence, in either way, there would be no difference in the computation of total income by allowance of the depreciation even if the stand of the revenue is to be accepted on application of Explanation 5 to section 32 of the Act. The value of fixed assets has been retained in the business of the assessee, being used for the purpose of the business of the assessee and duly reflected in the balance sheet of the assessee year on year commencing from 31st March 2003 onwards. Hence, the genuinity of the existence of those assets being used for the purpose of the business is proved beyond reasonable doubt. Accordingly, depreciation would be eligible to the assessee.

“8. The key word in section 43(6)(b) of the 1961 Act is "actually". We quote hereinbelow an important observation, made by this Court on the meaning of the words "actually allowed" in section 43(6)(b) in the case of Madeva Upendra Sinai v Union of India (1975) 98 ITR 209 (SC), which reads as under: "The pivot of the definition of 'written-down value' is the 'actual cost of the assets Where the asset was acquired and also used for the business in the previous year, such value would be its full actual cost and depreciation for that year would be allowed at the prescribed rate on such cost. In subsequent year. depreciation would be calculated on the basis of actual cost less depreciation actually allowed. The key word in clause (b) is actually. It is the antithesis of that which is merely speculative, theoretical or Imaginary. Actually contra-indicates a deeming construction of the word allowed which it qualifies. The connotation of the phrase 'actually allowed" is thus limited to depreciation actually taken into account or granted and given effect to, i.e. debited by the Income-tax Officer against the incomings of the business in computing the taxable income of the assessee, it cannot be stretched to mean 'notionally allowed' or merely allowable on a notional basis. From the above conspectus, it is clear that the essence of the scheme of the Indian Income-tax Act is that depreciation is allowed, year after year, on the actual cost of the assets as reduced by the depreciation actually allowed in earlier years. It follows, therefore, that even in the case of assets acquired before the previous year, where in the past no depreciation was computed, actually allowed or carried forward, for no fault of the assessee the "written-down value" may, under clause (b) of section 43(6), also, be the actual cost of the assets to the assessee." (pp. 223-224) 9. Therefore, this Court has clearly laid down the meaning of the words "actually allowed" in section 43(6)(b) to mean - "limited to depreciation actually taken into account or granted and given effect to, ie., debited by the Income-tax Officer against the incomings of the business in computing the taxable income of the assessee". Answer to Question No. (2) computation of depreciation in cases covered by rule 8 which deals with taxability of composite income.

ITA No. 1534/Del/2022 & 7966/Del/2018 Prasidh Fincap Ltd mean depreciation deducted in arriving at the taxable income or the depreciation deducted in arriving at the world income (composite income). In that case the assessee was a company incorporated in Indore. It owned and ran a textile mill. Until 1-4-1950, when Income- tax Act, 1922 was extended to Part B States including Madhya Bharat of which Indore became a part, the assessee was assessed at Bombay under the Income-tax Act, 1922 as a non-resident and for some years as resident. The assessee was also assessed in Indore under the Indore Industrial Tax Rules, 1927. For those years in which it was assessed as a non-resident under Income- tax Act, 1922, only that part of its profits attributable to the sale proceeds of goods received in British India were brought to tax. For the assessment years in question, in ascertaining the "written down value" of the building, machinery and plant, under paragraph 2 of the Taxation Laws Order, 1950, only the greater of the two depreciations "actually allowed" in British India and in Indore could be taken into account. The ITO took into account the depreciation allowances for the years up to 1944 as computed under Income-tax Act, 1922 for the purposes of ascertaining the world income of the assessee, and for the years 1945 to 1948, he took into account the income as computed under Indore Industrial Tax Rules 1927; and on that basis the ITO arrived at the "written down value" as on 1-1-1949. The assessee contended, inter alia, that in regard to the years up to 1944 only the proportionate depreciation attributable to the taxable income came within the meaning of the words "actually allowed" in the old section corresponding to section 43(6)(b) of the 1961 Act. This contention of the assessee was accepted by the majority judgment which held that in fixing the depreciation allowances for the years in which the assessee was assessed as a non-resident under the Income-tax Act, 1922, the ITO had "actually allowed" only a portion of the amount towards depreciation allowable in assessing its world income. It was further held that the mere fact that in the matter of calculation, the total amount of depreciation was first deducted from the world income (composite income) and thereafter a proportion was struck did not amount to an actual allowance of the entire depreciation in ascertaining the taxable income that accrued in British India. Therefore, it was held, that, the depreciation deducted in arriving at the taxable income alone could be taken into account and not the depreciation taken into account for arriving at the world income (composite income).

ITA No. 1534/Del/2022 & 7966/Del/2018 Prasidh Fincap Ltd the "written down value" should be computed at Rs. 960 and not at Rs. 900 as claimed by the Department.

“4. We find that the issue in question as to whether actual cost should be taken for allowing of depreciation or only market value or notional written down value (WDV) at the commencement of the assessment year is no longer res integra and covered by three judgments of the Supreme Court reported as CIT v. Straw Products Ltd [1966] 60 ITR 156, CIT v Dharampur Leather Co. Ltd.[1966] 60 ITR 165, CIT v. Nandlal Bhandari Mills Ltd. [1966] 60 ITR 173. The relevant portions of the Supreme Court judgment in. Straw Products Ltd.'s case (supra) reads as under:- "The Appellate Assistant Commissioner, disagreeing with the Income-tax Officer, held on appeal that the assessee had not been allowed excess depreciation allowance as per the original assessment and there was no basis for initiating proceedings under section 34 He was of the view that the expression Page | 8

ITA No. 1534/Del/2022 & 7966/Del/2018 Prasidh Fincap Ltd 'actually allowed' could not imply depreciation allowed by a mental phenomenon. The Appellate Tribunal upheld the order of the Appellate Assistant Commissioner and directed the computation of the allowance on that basis. On a reference the High Court by its judgment dated August 22, 1961, answered the question as follows: 'In the circumstances of this case the correct basis for computing written down value of depreciable assets of the company is the one adopted by the Appellate Assistant Commissioner." Mr. A V. Viswanatha Sastri, the learned counsel for the revenue, urges before us that the High Court was wrong in answering the question in favour of the assessee. He urges that the expression 'actually allowed under any laws or rules of a merged State' occurring in paragraph 2 of the Taxation Laws (Merged States) (Removal of Difficulties) Order, 1949, meant allowable under the provisions of the said laws or rules he says that if the income of an assessee is exempted from taxation for a certain number of years, the assessee must be deemed to have claimed depreciation and deemed to have been allowed depreciation according to the provisions of the said laws or rules. He further says it does not matter whether the assessee made a claim or not because it is fair that when the Indian Income-tax Act is applied the assessee should be brought at par with the assessees who had suffered taxation under the Act. We are unable to give such an artificial meaning to the expression 'all depreciation actually allowedunder any laws or rules', and we agree with the High Court that the expression 'actually allowed' is unambiguous and connotes the idea that the allowance was actually given effect to. If it was intended to include any allowance which are not actually allowed then the Central Government would have added a deeming provision as the Legislature did in the Explanation to section 10(5) of the Act." [Emphasis supplied) (p. 160) The judgment in Dharampur Leather Co. Ltd.'s case (supra) having been passed on the same day by the Supreme Court in the Straw Products Ltd.'s case (supra) affirms the view in the Straw Products Ltd.'s case (supra) that the words actually allowed does not include notional allowance. In the Nandlal Bhandari Mills Ltd.'s case (supra) the Supreme Court (per Subha Rao & Sikri, JJ.), held as under:- that in fixing the depreciation allowance for the years in which the respondent was assessed as a non- resident under the Indian Income- tax Act, the tocome- the amount towards depreciation allowatile tax Officer had actually allowed only a portion of in assessing its. world

ITA No. 1534/Del/2022 & 7966/Del/2018 Prasidh Fincap Ltd income. The mere fact that in the malter of calculation the total amount of deperciation was first deducted from the world income and thereafter a proportion was struck did not amount to an actual allowance e of the entire depreciation in ascertaining the taxable income that accrurd in British India. Therefore, the depreciation deducted in arriving at the taxable income alme could be taken into account and not the depreciation taken into account for arriving at the world income" (p. 173) In CIT. Mahendra Mills 20001-243 ITR 56 the Supreme Court after reviewing various decisions including those of its own overruled the views of various High Courts which held that actually allowed would Include notionally allowed and approved the views of other High Courts which held that actually allowed means only actually allowed and not notionally allowed. The head note portion succinctly brings out the ratio of the case and the same reads as under "The language of the provisions of sections 32 and 34 of the Income-tax Act, 1961, is specific and admits of no ambiguity. Section 32 allows depreciation as deduction subject to the provision Section 34 provides that deduction under section 32 shall be allowed only if the prescribed particulars have been furnished, Rule 5AA of the Income-tax of section 34. Rules, 1962, since deleted, provided for the particulars required for the purpose of deduction under section 32. Even in the absence of rule SAA. the return of Income in the form prescribed itself requires particulars to be fumished if the assessee claims depreciation. These particulars are required to be furnished in great detail. There is a circular of the Board dated August 31, 1965, which provides that depreciation could not be allowed where the required particulars have not been furnished by the assessee and no claim for the depreciation has been made in the return. The Income-tax Officer in such a case is required to compute the income without allowing depreciation allowance. The circular of the Board dated April 11, 1955, imposes merely a duty on the officers of the department to assist the taxpayers claiming and securing relief. The officer is in every reasonable way, particularly, in the matter of required to do no more than to advise the assessee. It does not place any mandatory duty on the officer to allow depreciation if the assessee does not want to claim. The provision for claim of depreciation is certainly for the benefit of the assessee. If he does not wish to avail of that benefit for some reason, the benefit cannot be forced upon him. It is for the assessee to see if the claim of depreciation is to his advantage. Income under the head "profits and gains of business or profession" is chargeable to income-tax under section 28 and income under section 29 is to be computed in accordance with the provisions contained in sections 30 to 43A. The argument that since section 32 provides for depreciation it has to be allowed in computing the income of the assessee cannot in all circumstances be accepted in view of the bar Page | 10

ITA No. 1534/Del/2022 & 7966/Del/2018 Prasidh Fincap Ltd contained in section 34. If section 34 is not satisfied and the particulars are not furnished by the assessee his claim for depreciation under section 32 cannot be allowed. Section 29 is thus to be read with reference to other provisions of the Act. It is not in itself a complete code. If the revised return is a valid return and the assessee has withdrawn the claim of depreciation it cannot be granted relying on the original return when the assessment is based on the revised return. Allowance of depreciation is calculated on the written down value of the assets, which written down value would be the actual cost of acquisition less the oggregate of all deductions 'actually allowed to the assessee for the past years. 'Actually allowed' does not mean 'notionally allowed. If the assessee has not claimed deduction of depreciation in any past year it cannot be said that it was notionally allowed to him. A thing is 'allowed' when it is claimed. A subtle distinction is there when we examine the language used in section 16 and sections 34 and 37 of the Act. It is rightly said that a privilege cannot be to a disadvantage and an option cannot become an obligation. The Assessing Officer cannot grant depreciation allowance when the same is not claimed by the assessee." [Emphasis supplied] (p. 56) 5. The counsel for the revenue has strongly relied upon the judgment of the Supreme Court in Saharanpur Electric Supply Co. Ltd. v. CIT 19921 194 ITR 294. We fail to understand as to how the said judgment would apply at all to the facts of the present case. In the said judgment, the Supreme Court has only held that if actual cost is wrongly assessed earlier, then, in the subsequent assessment years the actual cost can be recomputed and the mistake can be corrected. However, the facts of the present case clearly are different because in the earlier assessment years there did not arise any question of calculation of the actual cost because no depreciation was claimed for the earlier years. We, therefore, also fail to understand as to how the assessee is taking advantage of his own wrong as contended by the revenue. In fact, what is wrong which the assessee has done of which he is seeking to take advantage is not understood because, once it is held that depreciation is a privilege and can only be on the basis of actually allowed and not notionally allowed, there does not remain any issue of any wrong by the assessee. There is no wrong and as held by the Supreme Court in the Mahendra Mills' case (supra), it is only a privilege which the assessee may choose to exercise or not. No doubt, statutorily a Legislature can require the actual cost to be computed in a particular way but when that is not so, why should the assessee be deprived the benefit of depreciation with respect to computation of his income when depreciation has not been claimed by the assessee in the earlier years.

ITA No. 1534/Del/2022 & 7966/Del/2018 Prasidh Fincap Ltd on the actual cost of the germplasm seeds and the actual cost incurred by the assessee much before becoming an assessee can still be treated as an actual cost to the assessee when depreciation has to be claimed. With these observations, the appeals are dismissed.”

ITA No. 7966/Del/2018 - AY 2013-14

ITA No. 1534/Del/2022 - AY 2014-15

ITA No. 1534/Del/2022 & 7966/Del/2018 Prasidh Fincap Ltd received by the assessee during the year under consideration. Hence, there cannot be any applicability of provisions of Section 14A of the Act warranting any disallowance thereon. Reliance in this regard is placed on the decision of the Hon’ble Jurisdictional High Court in the case of PCIT vs Era Infrastructure (India) Ltd reported in 141 taxmann.com 289 (Del HC). Respectfully, following the same the ground No. 3 raised by the assessee is allowed.