Indian Kanoon - Search engine for Indian Law

G. Krishnamurthy, Vice President

1. The appeal is filed by the revenue against the order of the Commissioner (Appeals) allowing the assessee's request not to allow depreciation.

2. The assessee is a public limited company manufacturing chemical fertilisers. The assessee filed a return on 14-12-1978 disclosing a business loss of Rs. 26,38,48,778. This included current year's depreciation of Rs. 9,63,65,559. On 11-12-1980, before the assessment of the assessee was completed, a revised return was filed claiming a reduced loss of Rs. 16,74,83,219. In this revised return, the current year's depreciation claimed in the first return was withdrawn, as a consequence of which the loss claimed came down to the above noted figure. In the covering letter dated 9-12-1980 accompanying the revised return, the assessee-company explained that no claim for depreciation was made in the revised return as the assessee-company did not wish to claim depreciation and that the assessment should be completed without considering the depreciation. The object in making this claim, which may appear on the very face of it extraordinary, is to secure the benefit of set off of the unabsorbed development rebate of the earlier years which is time-bound as against depreciation which could be carried forward till it is absorbed. In making this claim, the assessee-company placed reliance upon the Special Bench decision rendered by the Bombay Bench 'A' of the Tribunal in the case of Someshwar Sahakari Sakhar Karkhana Ltd v. ITO [1982] 1 SOT 81. The ITO rejected the assessee's request and completed the assessment by allowing depreciation. According to the ITO, the claim of the assessee was not acceptable because in order to arrive at the correct profit of a particular year, deduction towards depreciation for that year should necessarily be made and even if the prescribed particulars were not furnished, the ITO could gather the same on his own and allow depreciation. Dealing with the argument of the assessee that while filing the revised return, the claim was withdrawn, the ITO seemed to have thought that first the revised return was not valid and even if it is valid, it did not take away the right of the ITO to look into the depreciation particulars already filed along with the original return. Reliance was placed upon the decisions of the Madhya Pradesh High Court in the case of Sulemanji Ganibhai v. CIT [1980] 121 ITR 373 and of the Allahabad High Court in the case of Ascharajlal Ram Parkash v. CIT [1973] 90 ITR 477 and also some other decisions of the Tribunal, Poona Bench. The view taken by the ITO was approved of by the IAC also under Section 144B of the Income-tax Act, 1961 ('the Act').

7. We have to see whether the ratio of the decision of the Madras High Court in Dasaprakash Bottling Co.'s case (supra) would apply to the facts of the case as contended for on behalf of the revenue or whether the decision of the Special Bench of the Tribunal, Bombay Bench 'A', applies as canvassed for on behalf of the assessee. One difficulty in applying the ratio of the decision of the Madras High Court is to see whether the facts here are the same as the facts before the Madras High Court. Before the Madras High Court, though the assessee filed a return without claiming for the allowance of depreciation and on compulsion filed the particulars relating to depreciation, since the particulars are available before the ITO, the Madras High Court did not experience any difficulty in holding that the ITO was right in granting the depreciation allowance though not asked for by the assessee. But the assessee before us, after filing the original return withdrew the claim for depreciation by filing a revised return. Not only that, by a specific request made in the covering letter accompanying the revised return, requested the ITO to ignore the prescribed particulars filed in the original return and apropos to that request did not file the prescribed particulars along with the revised return. This fact made the case before us different from the Madras High Court case and identical with the case before the Special Bench of the Tribunal. As here, there also, arguments were addressed that the revised return should not be acted upon contending that that was not a valid return filed within the meaning of Section 139(5). The contention was, as we have noted earlier, that the revised return can be filed under Section 139(5) only if the assessee discovers any wrong statement in the return filed originally and the claim for depreciation made originally and its withdrawal subsequently is only an option. The exercise of an option even erroneously could not amount to a wrong statement. This argument was not accepted by the Special Bench there and was rejected. The Special Bench held that it was settled law that when an assessee filed a revised return, he, in fact, admits that the original return filed by him was not correct or complete and substituted the same by a revised return which, according to him, was correct and complete, that the effective return for the purpose of assessment was the return which was ultimately filed by the assessee and assessment had to be made on that basis. The Special Bench's attention was invited to the decision of the Allahabad High Court in the case of Dhampur Sugar Mills Ltd. v. CIT [1973] 90 ITR 236, where the Allahabad High Court held that once a revised return was filed, the original return must be taken to have been withdrawn and substituted by the revised return. The argument similar to the one addressed before us based upon the Supreme Court decision in Delhi Cloth & General Mills Co. Ltd.'s case (supra), does not appear to have been advanced before the Special Bench. In the case before the Supreme Court in Delhi Cloth & General Mills Co. Ltd.'s case (supra), the assessee, a company registered under the Indian Companies Act, possessed agricultural farms, had to file its return of income under the U.P. Agricultural Income-tax Act. Section 6(2) of the U.P. Agricultural Income-tax Act provided two alternative methods of computation of agricultural income. One is rental method, i.e., multiple of annual rental income, and the other, produce method subject to deductions. An option is given to the assessee to select one or the other method depending upon the advantage. Such option is required to be indicated in a declaration in prescribed form to be submitted under Rule 5 of the U.P. Agricultural Income-tax Rules, 1949, along with the return. For the assessment year 1954-55, a return of agricultural income was filed exercising the option to be assessed on produce method. Subsequently, the assessee filed a revised return claiming some more deductions. The assessing authority, however, served upon the assessee a notice to furnish a return in the prescribed form and verified in the prescribed manner. There was a requirement under the U.P. Agricultural Income-tax Act that along with the notice to furnish return of income a provisional estimate of the assessee's agricultural income should also be furnished. That estimate also was furnished by the assessing authority estimating the income on rental method which yielded a far higher income than the one disclosed by the assessee. Subsequently, the assessing authority served a notice on the assessee to produce evidence in support of its return. Sometime later, another notice was given stating that its income had escaped assessment calling upon the assessee-company to file a return of income. In response to this notice, the assessee filed a third return, this time selecting the method of computation of income on rental method as against the produce method adopted earlier. Then the question arose whether it is open to the assessee to change the option. Several proceedings and interlocutory matters ensued and ultimately when the matter reached the Supreme Court, the debate was as to whether the assessee is entitled to change the option once exercised. The Supreme Court held that it is open to the assessee to change the option provided the other conditions of the U.P. Agricultural Income-tax Act are satisfied. It was argued before the Supreme Court that it would not only be open to the assessee to change the option every year but even to change the option during the year by filing a fresh return for the same year and this argument was accepted by the Supreme Court by observing that there was considerable force in this contention. With the following observations the Supreme Court did not agree with the view of the Division Bench of the Allahabad High Court which held to the contrary :

...In fact, Rule 5 is obligatory and makes it incumbent upon an assessee to file along with his return of income a declaration in Form No. A.I.T.-2 indicating his option under Section 6(1) of the Act and as such the exercise of such option including a change of the option indicated in the declaration filed along with a subsequent return or a fresh return or a revised return will be valid provided the return itself is validly submitted. In this view of the matter it is not possible to accept the view of the Division Bench of the High Court that if once option is exercised by an assessee by filing the requisite declaration along with his return for a particular year he will have no right to change his option by filing a fresh return or a revised return before the assessment is made for that year.

8. Once we come to the conclusion that the revised return is a valid return, it is an undisputed fact that the revised return completely effaces and obliterates the original return filed and it is totally in substitution thereof and it is that return that has to be taken into account for the purpose of making the assessment. This is settled law and we do not have to refer to any authorities on the subject.

9. Now it is to be seen whether the filing of a revised return withdrawing the claim for depreciation makes any difference for the application of the rule laid down by the Madras High Court in the case of Dasaprakash Bottling Co. (supra). If the effect of filing a revised return is to obliterate the return filed along with all the statements accompanying that return, then there are no prescribed particulars before the ITO to allow depreciation because along with the revised return, the assessee did not furnish the prescribed particulars. The question then would be whether the ITO could look into those particulars. In our opinion, it is not open to him to look into those particulars at all once the revised return is held to be a valid, genuine and legal document. The next question would be whether the ITO would be entitled to grant depreciation even if the particulars are not furnished. There is a specific injunction against the grant of depreciation unless the prescribed particulars are furnished by the assessee.