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Income Tax Appellate Tribunal, : ‘D’ BENCH, KOLKATA
Before: Shri P.M. Jagtap & Shri S.S.Viswanethra Ravi
Shri S.S.Viswanethra Ravi, JM:
This appeal by the Revenue is against the order dt. 20-05-2015 of the CIT-A, 3, Kolkata for the A.Y 2004-05.
The only issue is to be decided as to whether the CIT-A justified in holding that the depreciation on asset was allowable as deduction in the facts and circumstances of the case.
The brief facts relating to the issue in hand are that the assessee is a company and engaged in construction and development of National Highway road under the Prime Minister Quadrilateral Project in the state of West Bengal. The assessee filed its return of income by declaring total loss of Rs.4,54,16,845/-. The said return was processed u/s.143(1)on 19-09-2005. Thereafter, notice u/s. 148 of the Act was issued to the assessee on 22-09-2006. Consequently, notices u/s. 143(2)(ii) and 142(1) of the Act were issued to the assessee fixing the date of hearing on 21-08-2007. In response to which, the ld.AR of the assessee appeared and filed details. The AO
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found that the assessee claimed amortization of direct and indirect expenses regarding transportation, consultancy, repair and depreciation etc, over the concession period from the date of commercial operation. According to AO, the claim of depreciation on certain assets cannot be set off against income from other sources is misplaced and not at all allowable under the law. By placing the reliance on the decision of this Tribunal in assessee’s own case for the A.Y 2003-04, the AO held that the depreciation has to be capitalized along with other expenses and the assessee cannot claim benefit of carry forward on unabsorbed depreciation and set off against interest income by stating as under:- Further, the assessee-company in its audited Balance Sheet has treated all the Direct and Indirect expenses incurred by the company, viz. Transportation, consultancy, repair, depreciation, etc. as capitalized in books and shown' in the National Highway Development account, which as per Schedule 9(D)(iv) of the Balance Sheet, would be amortized by the assessee over the concession period from the date of commercial operation. In view of the above facts, the depreciation on equipment or asset used to construct the highway is itself a capital expenditure till the completion of the same and commencement of commercial operation. In the light of the above discussion, the claim of the assessee with respect to depreciation on certain assets is absolutely misplaced and not at all allowable as far as the law is concerned. Hence, the depreciation claimed in the computation sheet of the I. T. return is disallowed as the same cannot be set off against income from other sources. Hon'ble ITAT also has upheld the view taken by the Department in assessee's own case in AY. 2003- 04 by holding that depreciation has to be capitalized along with other expenses and it cannot be set off against interest income. Further, the assessee in the computation of income has claimed benefit of carry forward of unabsorbed depreciation remaining after adjustment with interest income. As depreciation cannot be allowed as revenue expenditure and has to be capitalized, no carry forward of the same can be allowed either.”
Aggrieved, the assessee before the CIT-A placed its reliance on the order dt. 19-10-2012 of the Hon’ble Calcutta High Court in assessee’s own case for the A.Y 2003-04, ITA No. 447/2007, wherein the Hon’ble High Court set aside the order of Tribunal and directed the assessing officer to allow the claim of depreciation to be set off against interest income by stating as under:- “5. I have gone through the order dated 19.10.2012 passed by the Hon’ble Calcutta High Court in ITA No. 447/2007. This appeal had been filed by the appellant against Tribunal order dated 09.03.2007 in ITA No. 2087 (Kol) of 2006. In its order, the tribunal had accepted the claim of the appellant that its business had been set up. However, it had confirmed the disallowance of depreciation on the ground that as per the method of accounting followed by the assessee, it was itself capitalizing all the expenditure, and, therefore, same treatment was to be given to depreciation as well. Vide is order dated 19.10.2012, Hon’ble Calcutta High Court has allowed the appeal of the appellant and set aside the orders of the authority below with the direction that depreciation may be allowed to be set off against interest income. Respectfully following the decision of
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Hon’ble Calcutta High Court in the appellant’s own case, the assessing officer is directed to allow the claim of depreciation to be set off against interest income. “
The ld.DR relied on the order of the AO. On the other hand, the ld.AR of the assessee has relied on the said order of the Hon’ble High Court of Calcutta in assessee’s own case in ITA No. 447 of 2007 and placed on record the same and also referred to page 10 of the said order. He also argued that the Hon’ble High Court held that the assessee is entitled to claim set off depreciation with interest and prayed to dismiss the grounds of appeal raised by the Revenue.
Heard rival submissions and perused the material available on record. We find that the ld.AR of the assessee has rightly pointed out that the issue in hand is squarely covered in favour of assessee by the said order dt. 19-12-2012 of the Hon’ble High Court of Calcutta in the case of assessee’s own case for the A.Y 2003-04, ITA No.447/2007 by holding with the direction to AO to work out again deduction and setting off of the amount of interest income and to allow carry forward. This Tribunal in assessee’s own case for the A.Y 2005-06 in ITA No. 760/Kol/2011 followed the said order of the Hon’ble High Court of Calcutta. Relevant portion order dt. 23-08- 2013 passed in ITA No. 760/K/2011 for the A.Y 2005-06 in assessee’s own case is reproduced herein below for better understanding:- 3. Learned representatives fairly agree that the issues are covered by Hon’ble Calcutta High Court’s judgment in assessee’s own case for the assessment year 2003- 04 in favour of the assessee, wherein Their Lordships have observed as follows:- “After hearing the learned counsel for the parties and reading the judgment of all the authorities below we feel that the Assessing Officer as well as the CIT (Appeals) disallowed the claim of depreciation because in its own accounting system (mercantile, of course) and also in the profit and loss the assessee itself has shown the aforesaid depreciation was capitalized and this was shown under the heading “National Highway Development Account”. In other words, the authority concerned by necessary implication held that assesseè after having shown in its own account is estopped from claiming depreciation in the Income Tax returns consequently, disallowed carry forward of the balance loss. Therefore, cardinal question to be answered in this appeal is whether in view of the aforesaid capitalization in its account debar the appellant from claiming allowance of depreciation in the return before officer concerned. On fact it is not disputed that the plant and machinery equipments are assets and it was utilized for the business. The above question we have summarized has been answered by the Division Bench of the Madras High Court in case of Commissioner of Income Tax v. Sakthi Soyas Ltd. reported in [2006] 283 ITR 194 (Mad). In that judgment it was held on the principle of law as follows:-
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“Capitalisation of those expenditure in the books of account alone was not the decisive factor in examining an expenditure for the purpose of income-tax. The name given to an expenditure or a nomenclature given to an expenditure in the books of account of the assessee is not the litmus test to decide the exact nature of expenditure for the purpose of income- tax. The purpose of the Companies Act is different from the purpose of the Income- tax Act. Therefore, the classification of those expenses as capital in nature for the purpose of the Companies Act, does not ipso facto make that expenditure a capital expenditure for the purpose of the Income- tax Act.”
In the case before Madras High Court the aforesaid decision was rendered on the factual aspect that assessee therein filed a return of income admitting a total loss of Rs.8,58,4 1,145/ The Assessing Officer disallowed the claim of expenditure to the extent of Rs.20,36,157/- towards crop development expenses on the ground that the same was not considered as a revenue expenditure by the assessee in its accounts. However, the assessee claimed it as revenue in the statement of computation of total income. The Assessing Officer however disallowed the expenses incurred amounting to Rs.16,41,125/- towards advertisement in respect of the Soya products and sales promotional expenses. On fact in those cases authorities below took note of what was stated in the audited account not what was claimed in the returns.
Our High Court in case of Commissioner of Income-Tax v. Berger Paints (India) Ltd. reported in [2002] 254 ITR page 503 while taking note of the old decision of the Supreme Court in case of Kedarnath Jute Manufacturing Co. Ltd. v. CIT and CIT v. India Discount Co. Ltd. reported in [1971] 82 ITR 363 (SC) and [1970] 75 ITR 191 (SC) held that if according to the revenue laws the assessee is entitled to treat a sum as a revenue expenditure, then that legal right of the assessee is not self estopped by the treatment given by the assessee to it in its own books of account.
It appears that the authorities below have heavily relied on the account in view of Section 145 of the Act. In view of sub-section (3) of the same the said sub- section has given ample discretion of the A.O with regard to correctness and completeness of any account of the assessee in case where the method of accounting provided in sub-section (1) or accounting standards as notified under sub-section (2) have not been regularly followed by the assessee, the Assessing Officer may make an assessment in the manner provided in Section 144. We think that the aforesaid sub- section (3) in this case has no manner of application as it is not a case here that the appellant has frequently shifting its accounting process and method. In this case the accounting system is uniform however, while filing returns the depreciation of those assets have been claimed under the provisions of the law in its return.
The aforesaid two pronouncements have clearly answered this question. We feel in this case while making assessment of any returns any deduction is sought for it is the duty of the revenue official to examine not only the account but also substantive right of claiming deduction under the Act on the facts and circumstances of this case. It is not a case that the said assets and properties do not belong to the appellant, therefore depreciation in any assets and properties is a regular phenomenon and deduction on this account is allowable under Section 32 automatically.
It appears that learned Tribunal while reading Section 32 of the Act has accepted the legal principle but unfortunately while granting relief as rightly pointed out by Mr. Khaitan has not allowed the setting off of the interest income as regard the aforesaid amount of depreciation. We therefore allow this appeal and set aside the judgment and order of the authorities below. We direct the A.O. to work out again allowing the deduction and setting off of the amount of interest income and to allow carry forward. Thus the appeal is allowed without any order as to costs.
In view of the above stated esteemed views of Hon’ble Jurisdictional High Court in assessee’s own case, and as agreed to by the parties the matter stands restored to the file of the Assessing Officer in the light and for deciding the matter of above observations. Ordered, accordingly.”
In view of above, we direct the AO to allow the claim of depreciation to be set off against interest income. Therefore, the ground raised by the revenue on this issue is dismissed.
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In the result, the appeal filed by the revenue is dismissed. Order pronounced in the open court on 06-12-2017
Sd/- Sd/- P.M. Jagtap S.S. Viswanethra Ravi Accountant Member Judicial Member
Dated :06-12-2017 PP(Sr.P.S.)
Copy of the order forwarded to:
Appellant/Revenue: The DCIT, Cir-8(1), Aaykar Bhawan 5th Floor, P-7, Chowringhee Square, Kolkata-69. 2 Respondent/Assessee: M/s. Mapex Infrastructure Pvt. Ltd 53A, Mirza Galib Street, Kolkata-16. 3. The CIT(A), Kolkata 4. CIT , Kolkata 5. DR, Kolkata Benches, Kolkata
/True Copy, By order
Sr.P.S, Head of Office ITAT Kolkata