Income Tax Appellate Tribunal - Mumbai
Plastiblends India Ltd. vs The I.T.O. on 10 February, 2004
Equivalent citations: [2005]94ITD295(MUM), (2005)95TTJ(MUM)1062
ORDER
K.K. Boliya, Accountant Member
1. This appeal has been filed by the assessee against the order dated 14.7.99 of CIT(A)-XL, Mumbai. The first ground of appeal is as under:
"In the facts and circumstances of the case, the CIT(A) erred legally and factually in upholding the decision of the AO and in upholding the conclusion drawn by the AO in the assessment order and finally in thrusting depreciation of Rs. 2,67,69,235/- on the assessee company, though depreciation allowance was not claimed by the company.
The depreciation allowance Under Section 32 has not been claimed by the assessee company and the depreciation of Rs. 2,67,69,235/- therefore ought not to be thrust upon the assessee company:"
2. The relevant facts, briefly stated, are that the assessee company is engaged in the business of manufacture of Master Batches and for the AY under appeal, in respect of two industrial undertakings, deduction Under Section 80 IA was claimed by the assessee company with regard to the income of Rs. 1,69,89,298/-. During the course of assessment proceedings, the AO found that the assessee did not claim any depreciation while computing the aforesaid income of Rs. 1,69,89,298/-, even though the assessee was having gross asset base of Rs. 13,02,64,433/- consisting of building, plant and machinery, vehicles, office equipments etc. The AO asked the assessee company to explain as to why the depreciation should not be deducted from the income of the industrial undertakings before allowing deduction Under Section 80 IA. The assessee company relied on a number of Supreme Court and High Court decisions in support of the contention that there is no compulsion on the assessee company to claim depreciation and that if the assessee does not claim the depreciation, the AO has no powers to allow depreciation. The AO did not find merit in the stand taken by the assessee company and according to him, the assessee company deliberately postponed claiming of depreciation for a period of first five assessment years so that greater deduction is admissible Under Section 80 IA. The AO has also mentioned that this amounted to colourable tax planning and the Hon'ble Supreme Court decision in the case of McDowell & Co. v. CTO - 154 ITR 148 applies. Accordingly, the AO calculated and allowed depreciation of Rs. 2,67,69,235/- with the result that the income from the industrial undertakings was reduced to NIL and no deduction Under Section 80 IA was allowed.
3. The assessee company went in appeal before the CIT(A) and reiterated the contentions that the assessee has the option under law to claim or not claim depreciation and it is not mandatory that the claim for depreciation must be made and must be allowed by the AO. Once again, on the strength of various cases and Board's Circulars, it was argued before the CIT(A) that if the assessee company does not claim depreciation, such depreciation cannot be thrust upon it by the AO. The ld. CIT(A) rejected this argument mainly on the ground that most of the judgments relied upon by the assessee company related to AYs prior to the AYs 88-89. The ld. CIT(A) took the view that after deletion of Section 34 from the Income Tax Act w.e.f. 1.4.88, the legal position has undergone material change. The ld. CIT(A), therefore, upheld the order of the AO on this issue.
4. The ld. counsel appearing on behalf of the assessee company contended before us that the controversy has been settled by the Hon'ble Supreme Court in the case of CIT v. Mahendra Mills - 243 ITR 56. In the above case, the ld. counsel for the assessee pointed out that the Hon'ble Supreme Court observed that the language of the provisions of Section 32 and 34 of the IT Act is specific and without any ambiguity. Section 32 mandates allowance of depreciation subject to the provisions of Section 34 and Section 34 lays down that deduction Under Section 32 shall be allowed only if the prescribed particulars have been furnished as provided in Rule 5AA of the IT Rules. It was further observed by the Apex Court that even in the absence of Section 34 read with Rule 5AA, the return of income in the prescribed format requires particulars to be furnished if the assessee claims depreciation. The Supreme Court also referred to the Board's Circular dated 31.8.65 which provided that depreciation could not be allowed where the required particulars have not been furnished and no claim for depreciation has been made in the return. In such a case, the AO is required to compute the income without allowing depreciation. There is no mandatory duty on the AO to allow depreciation if the assessee does not want to claim it. The provision for claiming of depreciation is apparently for the benefit of the assessee and if the assessee does not wish to avail of the benefit for some reasons, such benefit cannot be forced upon him. The Supreme Court further observes that it is for the assessee to see if the claim of depreciation is to his advantage.
5. The ld. counsel for the assessee also strongly relied on the following IT AT decisions:
i. Medley Pharmaceuticals v. ITO - 71 TTJ 328 (Mum.) ii. Beta Nephthol Pvt. Ltd. v. DCIT - 50 TTJ 375 (Indore) iii. ITAT, Mumbai 'SMC' Bench order dated 16.7.2003 in the case of Rubinsha Exports Pvt. Ltd. v. DCIT in ITA No. 2362/Mum/2003.
The ld. counsel for the assessee submitted that deletion of Section 34 from the IT Act does not alter the legal position in anyway because the two conditions which are necessary for allowing depreciation are cumulative. The assessee must claim depreciation allowance and must also furnish the prescribed details Under Section 34. If any of these conditions are absent, the AO has no authority to thrust depreciation on the assessee while computing the total income. It is pointed out that this ratio clearly emerges from the Hon'ble Supreme Court decision as also the various ITAT decisions which have been cited before us. The ld. counsel, therefore, contended that in the present case, the assessee did not claim any depreciation and therefore the AO was not justified in allowing depreciation and the ld. CIT(A) was not right in confirming the AO's action.
6. Joining the issue, the ld. CIT DR heavily relied on the Bombay High Court decision in the case of Indian Rayon Corporation Ltd. (IRCL) v. CIT - 261 ITR 98. On the strength of the aforesaid judgment of the Hon'ble Bombay High Court, it is forcefully argued by the CIT DR that the Supreme Court decision in the case of Mahendra Mills (supra) has no applicability to the assessee's case, which is distinguishable on facts. It is pointed out that in the case of Mahendra Mills, the simple issue was as to whether depreciation not claimed by the assessee can be thrust upon him, even though the details as required Under Section 34 were not filed by the assessee. There was no question of allowing special deduction in respect of income of any industrial undertaking. In the present case, the assessee has claimed deduction Under Section 80 IA and in this situation, the Hon'ble Bombay High Court decision in the case of IRCL would squarely apply. Referring to the ratio of the Hon'ble Bombay High Court, the ld. CIT DR submitted that income tax is charged on the total income computed in accordance with the provisions of IT Act and in cases where the total income comprises profits derived from an industrial undertaking eligible for deduction Under Section 80 IA, such profits of the industrial undertaking have got to be computed separately as laid down by the Supreme Court in the case of Cambay Electric Supply Industrial Co. Ltd. v. CIT - 113 ITR 84. There is a distinct dichotomy between cases of computation of normal income and computation of income where the assessee claims the benefit of deduction under Chapter VI-A. The ld. CIT DR submitted that the Hon'ble Bombay High Court have further categorically held that the profits and gains of an industrial undertaking, claiming deduction under Chapter VI-A have got to be computed as per the provisions of Sections 29 to 43 A and if the assessee claims relief under Chapter VI-A, then it is not open to the assessee to disclaim depreciation allowance. The ld. CIT DR, again drawing support from the abovementioned Bombay High Court decision, argued that Chapter VI-A is a separate and independent code by itself for computing the special deduction. The ld. CIT DR especially invited our attention to certain observations made by the Hon'ble Bombay High Court in the case of IRCL, which may be reproduced below:
"Page 101 of the Report: Chapter VI-A refers to deductions to be made in computing total income. Chapter VI-A refers to special types of deductions. Chapter VI-A refers to special deductions to be made for computing total income. Section 80A(1) states that in computing the total income, there shall be allowed from the gross total income, in accordance with and subject to the provisions of Chapter VI-A, the deductions specified in Section 80C to Section 80VV, which includes Section 80HH, which arises for interpretation, once again in this case. Section 80A(2) states that the aggregate amount of deductions under Chapter VI-A shall not exceed the gross total income of the assessee. Section 80B(5) defines 'gross total income' to mean the total income computed in accordance with the provisions of the Act, before making any deduction under Chapter VI-A. Section 80 HH comes under clause 'C to Chapter VI-A - Deductions in respect of certain incomes. Section 80 HH refers to deduction in respect of profits and gains from newly established industrial undertakings in backward areas. It lays down that where the gross total income of an assessee includes profits and gains derived from such industrial undertaking then, there shall be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to 20%. In other words, where the gross total income of an assessee includes certain types of income falling in clause (c) hereinabove then, while computing the total income of the assessee, a deduction of 20% is required to be made from profits of such undertaking computed as per the Act. In this case, we are concerned with income derived, from a newly established industrial undertaking in a backward area. In other words, in cases where the gross total income includes profits from a newly established undertaking, one has to compute such profits and gains derived from the newly established undertaking in backward area in accordance with the provisions of the Act so as to form part of the gross total income and after so computing, one must deduct 20% thereof from the gross total income to arrive at the total taxable income. This is the ratio of the judgment of the Supreme Court also in the case of Cambay Electric Supply Industrial Company Ltd. v. CIT (1978) 113 ITR 84."
"Chapter VI-A, for the purposes of computing such deductions, constituted a separate code by itself. In order to compute the total taxable income of the assessee, deductions computed Under Section 80 HH have to be reduced from the gross total income of the assessee. The question basically in this matter is concerning computation of deduction under Chapter VI-A in which Section 80 HH falls. Profits and gains of a newly established undertaking, therefore, have got to be computed as per the provisions of Section 29 to Section 43A and if the assessee claims relief under Chapter VI-A of the Act, then it is not open to the assessee to disclaim depreciation allowance. This is because Chapter VI-A is an independent code by itself for computing these special types of deductions. In other words, one must first calculate the gross total income from which one must deduct a percentage of incomes contemplated by Chapter VI-A. That such special incomes were required to be computed as per the provisions of the Act, Viz., Section 29 to Section 43 A, which included Section 32(2). Therefore, one cannot exclude depreciation allowance while computing profits derived from a newly established undertaking for computing deductions under Chapter VI-A."
The CIT DR also pointed out that the Supreme Court decision in the case of Mahendra Mills (supra) was duly considered by the Bombay High Court and it was observed by the High Court that the controversy in Mahendra Mills case was not concerning deduction under Chapter VI-A and therefore that judgment would not apply to the case before the Hon'ble High Court. The ld. CIT DR reiterated that the income derived by an undertaking for the purpose of Section 80 IA has to be computed independently having regard to the provisions of Section 80AB and the definition of 'gross total income' as contained in sub- Section (5) of Section 80 B. It is submitted that in the present case, the Supreme Court decision in the case of Mahendra Mills will not apply and as held by the Hon'ble Bombay High Court in the case of IRCL, even though the assessee has not claimed depreciation, the depreciation admissible Under Section 32 will have to be deducted before allowing deduction Under Section 80 IA., The ld. CIT DR also relied on the ITAT, Mumbai decision in the case of Mandhana Exports Pvt. Ltd. v. ACIT - 82 ITD 306. The CIT DR pointed out that in this case, the ITAT have duly considered the Hon'ble Supreme Court decision in the case of Mahendra Mills (supra) in the context of omission of Section 34 w.e.f. 1.4.88. The ITAT observed that the position is altogether different after the omission of Section 34 from the IT Act and thereafter there is no condition to furnish any information or details to be eligible to claim depreciation. It was held by the ITAT that after omission of Section 34, deduction Under Section 80 I has to be allowed after deducting depreciation as the gross total income has to be computed in accordance with the provisions of IT Act and depreciation is a permissible deduction Under Section 32. The ld. CIT DR, therefore, contended that the ld. CIT(A) has rightly decided the issue.
7. In his rejoinder, the ld. counsel for the assessee submitted that the facts in the case of IRCL, decided by the Hon'ble Bombay High Court have to be properly considered before rushing to any assumption that the ratio laid down in the case of Mahendra Mills will not apply to a case where deduction under Chapter VI-A is claimed by the assessee. The ld. counsel submitted that the following question of law was referred for the opinion of the Hon'ble Bombay High Court in the case of IRCL:
"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in coming to the conclusion that depreciation allowance ought to be deducted while computing the total income for the purposes of deduction Under Section 80 HH."
The ld. counsel pointed out that in that case, the assessee claimed depreciation allowance while computing gross total income, but while claiming deduction Under Section 80 HH, depreciation was excluded from the income of the undertaking. The ld. counsel invited our attention to the following observations of the Hon'ble High Court which are extracted from page 102 of the Report:
"In this case, the assessee has claimed depreciation allowance. It is important to note that in cases of computation of normal income, without seeking benefit of special deduction under Chapter VI-A, an assessee is free not to claim depreciation in view of the judgment of the Supreme Court in the case of CIT v. Mahendra Mills (2000) 243 ITR 56, but if the assessee claims depreciation, then such depreciation will be set off as any other expenses against gross income. Further, if such an assessee claims deduction under Chapter VI-A, then to calculate profits and gains of newly established undertaking, depreciation allowance has got to be set off against the gross income of newly established undertaking to arrive at the profits computed in accordance with the provisions of the Act, which profits would form part of the gross total income and which would be exigible to 20% deduction."
The ld. counsel for the assessee further invited our attention to the following observations contained at page 103 of the Report:
"Before considering the arguments one must be clear on the nature of dispute, which is spelt out by the following illustration:
Computation of deduction Under Section 80 HH according to the AO - The assessee has claimed depreciation of Rs. 75. Therefore, the AO has set off Rs. 75 against the gross income of Rs. 100 derived from newly established undertaking, leaving a balance profit of Rs. 25. This sum of Rs. 25 is exigible to 20% deduction (see the judgment of the Supreme Court in the case of Cambay Electric Supply Industrial Co. Ltd. v. CIT (1978) - 113 ITR 84), Under Section 80 HH. Consequently, the AO has computed deduction Under Section 80 HH, which is reduced from the gross total income leaving the taxable profit at Rs. 20.
Computation of deduction Under Section 80 HH by the assessee - The assessee sets off Rs. 20 (i.e., 20% deduction Under Section 80 HH) against the gross income of Rs. 100, without depreciation. Hence, the assessee applies 20% benefit of Rs. 20 Under Section 80 HH leaving the balance profits at Rs. 80 from which the assessee sets off Rs. 75 as depreciation and returns taxable profit of Rs. 5.
This illustration shows that the assessee has not disclaimed depreciation.
This illustration illustrates the basic controversy."
From the above, the ld. counsel for the assessee submitted that the Hon'ble Bombay High Court, in the case of IRCL, was faced with a situation where the assessee duly claimed depreciation and sought to exclude such depreciation only for the purposes of claiming deduction Under Section 80 HH. The ld. counsel, further, invited our attention to page 105 of the Report where the Hon'ble High Court observed that Shri R.V. Desai, ld. Senior counsel on behalf of the Department pointed out that in any event, in the case of IRCL, the assessee did not disclaim depreciation. On the contrary, the assessee claims deduction of Rs. 75/- in its entirety and had also claimed full deduction Under Section 80 HH at the rate of 20% of the income without adjusting depreciation. The ld. counsel reinforces his argument by inviting our attention to the following observations of the Hon'ble Bombay High Court:
"Page 105 of the Report: The point at issue is amply clear from the illustration given hereinabove under the caption 'point at issue'. The illustration indicates that the assessee has not disclaimed depreciation. The point, therefore, to be noted is that the assessee has also claimed depreciation, but at a later stage and, therefore, the judgment of the Supreme Court in Mahendra Mills' case (2000) - 243 ITR 56 has no application."
Page 106 of the Report: In any event, in this case, on the facts, the assessee claims depreciation of Rs. 75 from the balance income of Rs. 80 and, therefore, the judgment of the Supreme Court in Mahendra Mills' case (2000) - 243 ITR 56 has no application."
The ld. counsel for the assessee forcefully submitted that in the peculiar circumstances of that case, the Hon'ble Bombay High Court held that the judgment of the Hon'ble Supreme Court in the case of Mahendra Mills has no application. It is argued that the Hon'ble Supreme Court decision in the case of Mahendra Mills would squarely apply to a case where deduction under Chapter VI-A is claimed.
8. We have given a very careful consideration to the submissions made before us and have gone through the facts vis-a-vis the judicial pronouncements cited. The facts are clear and undisputed and the moot question which arises to be adjudicated is whether in the case of an assessee who has claimed deduction under Chapter VI-A of the IT Act, depreciation can be thrust upon him by the AO even though not claimed by the assessee. The Hon'ble Supreme Court decision in the case of Mahendra Mills (supra) ought to have put an end to this controversy, but the ld. CIT DR has argued before us that the aforesaid Supreme Court judgment would be applicable to a situation prior to deletion of Section 34 from the IT Act. Secondly, his argument is that the Bombay High Court decision in the case of IRCL (supra) clarifies the position that the ratio of the case of Mahendra Mills would be applicable only to a case where no deduction under Chapter VI-A has been claimed. The ld. CIT DR has forcefully emphasized the observations of the Hon'ble Bombay High Court to the effect that Chapter VI-A is a separate code in itself and therefore before allowing any deduction under Chapter VI-A, the profits and gains of the industrial undertaking have to be computed in accordance with the provisions of the IT Act which would mean that depreciation allowable Under Section 32 has to be mandatorily allowed irrespective of the fact whether the assessee has put up a claim or not for deduction of depreciation allowance. We have meticulously gone through the Hon'ble Bombay High Court decision in the case of IRCL to consider the applicability of the ratio of this case to the assessee's case in preference to the ratio of the Hon'ble Supreme Court in the case of Mahendra Mills. It must be mentioned that the ratio laid down by the Court in a particular case flows from the peculiar facts of that case. Therefore, the ratio would be applicable to a case wherein the facts are similar. The simple question referred to the Hon'ble Bombay High Court was whether depreciation allowance ought to be deducted while computing the total income for the purposes of deduction Under Section 80 HH. We have already reproduced above the relevant portions from the Bombay High Court judgment. At page 102 of the Report, it is clearly stated that in that case the assessee had claimed depreciation allowance and the Hon'ble High Court observed that if the assessee claims depreciation, then such depreciation will be set off as any other expenditure against the gross total income. The High Court further observed that if such an assessee (i.e., the assessee who has claimed depreciation) claims deduction under Chapter VI-A, depreciation allowance has got to be set off against the gross total income of the industrial undertaking; The illustration given at page 103 of the Report presents the facts of that case clearly. In that case, the assessee claimed deduction for depreciation from the gross total income, but, while claiming the benefit of Section 80 HH, the assessee contended that the deduction Under Section 80 HH be allowed on the gross income without allowing depreciation. Again at page 105 of the report, the Hon'ble High Court observed that the illustration indicates that the assessee had not disclaimed depreciation, and therefore, the High Court went on to observe, the Supreme Court judgment in the case of Mahendra Mills has no application. Again at page 106 of the Report, the High Court reiterated that in the case before the High Court, the assessee claims depreciation of Rs. 75/- from the balance income of Rs. 80/- and therefore the judgment of the Supreme Court in Mahendra Mills' case will not apply. From the above, it becomes abundantly clear that the facts of the case, which came up before the Hon'ble Bombay High Court, are materially different from the facts of the assessee's case. The assessee has not claimed depreciation at all while computing the gross total income and therefore it is contended that such depreciation cannot be thrust upon the assessee by the AO. We have no hesitation in holding that the Hon'ble Bombay High Court decision in the case of IRCL Ltd. cannot be applied to the assessee's case.
9. The second question is, whether after deletion of Section 34 from the IT Act w.e.f. 1.4.88, the legal position has really under gone a change and therefore the Supreme Court decision in the case of Mahendra Mills will not apply. A few Tribunal decisions have been cited before us on this aspect of the controversy. In the case of Medley Pharmaceuticals Ltd. (supra), the ITAT, Mumbai Bench has held that as long as Section 34 was on the Statute book, there existed two conditions for allowing depreciation Under Section 32 i.e., making of a claim and furnishing all the prescribed particulars. The Tribunal has referred to the judgments of various High Courts which have been approved by the Supreme Court in the case of Mahendra Mills with the conclusion that both the conditions are cumulative. If either of the two conditions is not fulfilled, the AO cannot force the depreciation allowance on the assessee. In the absence of a claim by the assessee. depreciation cannot be thrust upon him, even if the particulars are available with the AO. It was held by the Tribunal that after the omission of Section 34, depreciation cannot be thrust upon the assessee in the absence of a claim. The Tribunal, therefore, concluded that the assessee's claim, in that case, for deduction Under Section 80 IA has to be accepted without deducting depreciation from the profits of industrial undertaking. Same view has been adopted by the ITAT, Indore Bench in the case of Beta Nephthol Pvt. Ltd. (supra), where it has been held that omission of Section 34 does not in any manner disturb the position that in the absence of a claim by the assessee, depreciation cannot be forced upon the assessee. In this case, at page 384 of 50 TTJ, the Tribunal reproduced the observations of the Bombay High Court from the case of CIT v. Shri Someshwar Sahakari Sakhar Karkhana Ltd. - 177 ITR 443, as under:
"The provisions, therefore, prescribe two preconditions to the allowance of a deduction for depreciation. The first, which is implicit, is that the assessee should have asked for it. The second, which is explicit, is that the prescribed particulars should have been furnished. If either of these conditions is not fulfilled, the deduction cannot be allowed by the ITO."
The Tribunal observed that even though the second precondition is dispensed with by the omission of Section 34, the first precondition, which is implicit that the assessee should have asked for depreciation, still exists. The Tribunal also refers to the Board's Circular No. 29.D.XIX-14 1965 dated 31.8.65, wherein the same view was expressed.
10. Similar issue came up for decision before the IT AT, SMC Bench, Mumbai, in the case of Rubinsha Exports Pvt. Ltd. (supra). It was held that depreciation allowance cannot be thrust upon the assessee if not claimed. Here, a reference may be made to the ITAT, Mumbai Bench decision in the case of Mandhana Exports Pvt. Ltd. - 82 ITD 306, which as been relied upon by the ld. CIT DR. In this case, a different view has been taken and it has been held that after omission of Section 34, depreciation can be allowed by the AO even if not claimed by the assessee. We find that the decision in the case of Mandhana Exports Pvt. Ltd. has been considered by the Tribunal in the case of Rubinsha Exports Pvt. Ltd. It was contended before the Tribunal that the decision in the case of .Mandhana Exports Pvt. Ltd. was rendered by the Tribunal on 14.3.2001, but, prior to that the Tribunal had taken contrary view in the case of Medley Pharmaceuticals Ltd. (supra) which decision was rendered on 22.1.2001, but not cited before the Tribunal in the case of Mandhana Exports Pvt. Ltd.. It was further observed that in the case of Mandhana Exports Pvt. Ltd., the Tribunal did not consider that there exist two preconditions. The Tribunal, in the case of Rubinsha Exports Pvt. Ltd., has considered these facts and has also referred to another ITAT decision in the case of ITO v. Royal Biam, rendered on 6.9.2002, wherein a view was taken that if the assessee did not claim depreciation, it cannot be allowed.
11. On a careful consideration of the available ITAT decisions read with Hon'ble Supreme Court decision in the case of Mahendra Mills, we concur with the view that both the conditions are cumulative and even after deletion of Section 34, if no claim is made by the assessee, the depreciation cannot be thrust upon him. We would further like to clarify and substantiate our conclusion by referring to some relevant portions from the case of Mahendra Mills (supra), which are reproduced below:
"Page 67 of the Report: In CIT v. Shri Someshwar Sahakari Sakhar Karkhana Ltd. (1989) ,177 ITR 443 (Bom.),two issues were raised. One issue was whether the assessee had a choice in the matter of claiming a deduction on account of depreciation and the second issue was whether, having claimed in the original return, the ITO was entitled to rely on the particulars furnished therein and allow a deduction on account of depreciation regardless of the fact that the assessee had stated in the revised return that he did not want it. After examining the judgments of the various High Courts and of this Court in CIT v. Dharampur Leather Co. Ltd. (1966) 60 ITR 165, the Court said (page 450):
'In our view, to sum up on the first issue, 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.' "
At page 67 of the Report, following observations of the Hon'ble Gujarat High Court in the case of CIT v. Arun Textile - 192 ITR 700, have been reproduced from page 705 of the Report:
"The provisions of Section 32 are intended to give benefit to the assessee for claiming deductions in respect of depreciation on the type of assets mentioned therein. Furthermore, a mere claim to deduction would not be enough since the deductions are to be allowed subject to the prqvisions of Section 34 which required necessary particulars to be furnished in the prescribed form. Therefore, until a claim is made for allowing deductions of the nature covered Under Section 32 along with necessary particulars, there would hardly be any occasion for the ITO to allow any claim. In the context in which the word 'allowed' is used in Section 32(1), it is clear to us that the meaning intended is 'to admit something claimed'. The word 'allowed' means 'to accept as true or valid, to acknowledge, admit, grant, to admit something claimed, to acknowledge grant, concede' (see the Oxford English Dictionary, Vol. I (1970), Reprint, page 2392). There is nothing in the provisions of Section 32(1) read with Section 29 of the Act to indicate that even when no claim is made for allowing deduction in respect of the depreciation Under Section 32(1), the ITO is bound to allow a deduction. In our view, it is implicit in the said provisions that the assessee should have made a claim for deduction under the said provisions to enable the ITO to consider the same."
Again referring to the Gujarat High Court decision above, it is observed at page 70 of the Report as under:
"Page 70 of the Report: Where the assessee does not want the benefit, it cannot be thrust upon it. There is no provision which makes it compulsory on the part of the ITO to make deductions in all cases. If it were incumbent on the ITO to make compulsory deductions irrespective of whether the assessee claimed or not, the statutory requirement of making the claim along with necessary particulars and the provision for 'allowing' it would be unnecessary."
At page 79 of the Report, the Hon'ble Supreme Court has observed as under:
"The provision for claim of depreciation is certainly for the benefit of the assessee. If it does not wish to avail that benefit for some reason, benefit cannot be forced upon it. It is for the assessee to see if the claim of depreciation is to his advantage. Rather the ITO should advise him not to claim depreciation if that course is beneficial to the assessee."
Following observations of the Hon'ble Supreme Court at page 80 are also of significance:
"We get support from the earlier decision of this Court in Dharampur Leather Co. Ltd.'s case (1966) 60 ITR 165. 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 aggregate 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 that of 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."
From the above discussion, it is clear that if the assessee has not claimed depreciation, the same cannot be allowed while computing the gross total income. The principles of interpretation for computing gross total income cannot be different while computing the gross total income in a case where deduction under Chapter VI-A is claimed. As mentioned above, the depreciation is not allowable and cannot be thrust upon the assessee Under Section 32 if no claim has been put by the assessee. The same rule shall apply while computing gross total income for the purpose of Section 80 IA. This view is further strengthened by the fact that Explanation 5 has been inserted Under Section 32 by the Finance Act, 2001 w.e.f. 1.4.2002. This Explanation provides that Section 32 shall apply whether or not the assessee has claimed the deduction in respect of depreciation, in computing his total income. It has been held by the Courts that Explanation 5 is prospective in operation and will therefore apply for the AY 2002-03 and subsequent years. Following from the discussion given above, we hold that the ld. CIT(A) was not justified in confirming the AO's action in allowing depreciation which has not been claimed by the assessee. The AO is, therefore, directed not to allow depreciation.
12. The grounds No. 2 and 3 are as under:
"The CIT(A) has erred legally and factually in confirming the decision of the AO in assessing rent income of Rs. 3,60,000/- as income from house property. He ought to have appreciated that this rent income is from part of the office premises used by the company for its own business and that it is of a joint and inseparable character of business activities of the company and therefore, he ought to have assessed it as business income.
The CIT(A) has erred legally and factually in confirming the decision of the AO in adding back an amount of Rs. 2,72,583/- being disallowance of depreciation in respect of Delhi office property, though the premises were used by the company for the business."
13. These grounds are not pressed by the ld. counsel for the assessee. Therefore, on these points, the order of the ld. CIT(A) stands confirmed.
14. The ground No. 4 is as under:
"The ld. CIT(A) has erred legally and factually in holding that the ground regarding computation of deductions Under Section 80 IA is infructuous as it is linked with the grounds in connection with allowance of depreciation."
15. This ground is only consequential to ground No. 1 and the AO is directed to allow deduction Under Section 80 IA without deducting depreciation.
16. The ground No. 5 is as under:
"The ld. CIT(A) has erred legally and factually in upholding the decision of the AO in assessing interest earned on SBI Bonds as income from other sources."
17. This ground is also not pressed by the ld. counsel for the assessee and therefore the same stands rejected as not pressed.
18. In the result, the assessee's appeal stands partly allowed.