(a) Income-tax----

‑‑‑‑Depreciation‑‑‑Depreciation on assets not claimed by assessee and required particulars not furnished ‑‑‑ITO not justified in granting depreciation allowance without particulars‑‑‑Income Tax Act, 1961, Ss.32 & 34‑‑‑Indian Income Tax Rules, 1962, R.5AA.

(b)Income-tax---

‑‑‑‑Capital gains‑‑‑Computation of capital gains‑‑Depreciation on asset not claimed and, therefore, depreciation allowed by ITO has to be withdrawn‑‑ Capital gain to be computed on original cost or written down value after withdrawal of depreciation allowed by ITO in relevant year‑‑‑Indian Income

Allowance of depreciation is subject to the provisions of section 34(1) of the Income Tax Act, 1961. Subsection (1) of section 34 provides that the deductions referred to in section 32 shall be allowed only if the prescribed particulars have been furnished.

For the assessment years 1977‑78 and 1978‑79, while computing the income, the Assessing Officer allowed depreciation though the assessee had neither claimed depreciation nor furnished particulars for allowance of depreciation under section 32 read with section 34 of the Act. The Tribunal held that the Income‑tax Officer was not justified in granting depreciation allowance when no claim was made for the same. On a reference:

Held, (i) that when there was no material before the Income‑tax Officer which was necessary for grant of depreciation allowance, no depreciation could be allowed by the Assessing Officer.

(ii) that consequently capital gain/loss had to be computed on the basis of the value of the original cost of the asset or written down value and the same had to be done after withdrawal of depreciation allowed by the Income‑tax Officer, for the relevant year.

Ascharajlal Ram Parkash v. CIT (1973) 90 ITR 477 (All.); CIT v. Shri Someshwar Sahakari Sakhar Karkhana Ltd. (1989) 177 ITR 443 (Born.) and Dasaprakash Bottling Co. v. CI T (1980) 122 ITR 9 (Mad.) ref.

M.P. Agarwal and Nizamuddin for the Commissioner.

Dr.D. Pal, Senior Advocate and R.K. Biswas for the Assessee.

JUDGMENT

Y.R. MEENA, J.‑‑‑By this reference application made under section 256(1) of the Income Tax Act, 1961, the Tribunal has referred the following question for our opinion;

"For the assessment years 1978‑79 and 1979‑80:

Whether, on the facts and in the circumstances of the case, the Tribunal was justified in upholding the direction of the learned Commissioner of Income‑tax (Appeals) to withdraw the depreciation on assets allowed by the Assessing Officer, though not claimed by the assessee?

For the assessment year 1979‑80:

Whether, on the facts and in the circumstances of the case, the Tribunal was justified in upholding the order of the learned Commissioner of Income‑tax (Appeals) directing the computation of capital gain/loss on the sale of assets either by taking into consideration the original cost of the assets, or their written down value after giving effect to his appellate order (i.e., withdrawing depreciation)? "

In response to a notice under section 139(2) of the Income Tax Act, 1961, the assessee filed the returns on November 30, 1978, showing loss of Rs.7,07,39,219. Those returns were revised and the assessee filed a revised return. In that, he reduced the loss to Rs.6,02,55,970 and thereafter, he filed another revised return on January 15, 1985, showing loss at Rs.13,87,08,960. The income was assessed at a loss of Rs.6;15,180. While computing the income, the Assessing Officer has allowed depreciation, though neither the assessee has asked for allowance of depreciation, nor he has furnished the required details for allowance of depreciation under section 32 read with section 34 of the Act.

In appeal before the Commissioner of Income‑tax (Appeals), the assessee submits that when nether the assessee has claimed depreciation nor the required details were furnished, the Assessing Officer has wrongly allowed depreciation. The Assessing Officer allowed depreciation to the tune of Rs.3,03,00,691 for the assessment year 1978‑79 and to the tune of Rs.2,48,96,503 for the assessment year 1979‑80.

The grievance of the assessee is that when neither the assessee has claimed depreciation nor the required details were furnished, the Assessing Officer should not allow depreciation during the years under consideration. The Commissioner of Income‑tax (Appeals) in appeal has allowed the claim of the assessee holding that when neither the assessee claimed for depreciation nor he has furnished .the required details, the Assessing Officer was not justified in allowing the depreciation to the assessee under section 32 of the Income‑tax Act. In appeal before the Tribunal, the Tribunal has affirmed the view taken by the Commissioner of Income‑tax (Appeals).

In a case when neither the assessee claimed depreciation nor the required details were furnished, can the Assessing Officer allow depreciation under section 32 of the Act?

The provisions of section 32 provide for allowance of depreciation. Any building, machinery, plant of furniture owned by the assessee, wholly or partly, for the purpose of business and used for the purposes of the business; the assessee is entitled for ‑depreciation subject to the provisions of section 34 of the Act. The provisions of section 34 of the Act laid down certain conditions, for allowance of depreciation. Rule 5AA of the Income‑tax Rules, 1962, prescribes the particulars for depreciation which are necessary to be furnished for allowance of depreciation. But that has come with effect from April, 1, 1981, and the relevant assessment years before us are 1977‑78 and 1978‑79.

Dr. Pal, learned counsel for the assessee, submits that the particulars which are referred in rule 5AA prior to this, in the written form itself these particulars were required to be furnished if the assessee claims depreciation. Therefore, unless these particulars are furnished, no depreciation allowance could be allowed.

Learned counsel, for the Revenue, Mr. Agarwal, submits that the particulars are there on the record. The assessee may or may not claim depreciation. Depreciation should be allowed by the Assessing Officer. He placed reliance on the decision of the Madras High Court in case of Dasaprakash Bottling Co. v, CIT (1980) 122 ITR 9 and the decision of the Allahabad High Court in Aschrajlal Ram Parkash v. CIT (1973) 90 ITR 477.

Learned counsel for the assessee, Dr. Pal, submits that when it is a statutory requirement that the assessee should not only claim the depreciation but he should also furnish the details required under section 34(1), without furnishing detailed requirements, given in a return form made, for the relevant assessment year, no depreciation can be allowed. He placed reliance on the decision of the Bombay High Court in CIT v. Shri Someshwar Sahakari Sakhar Karkhana Ltd. (1989) 177 ITR 443, and also he drew our attention towards the finding of the Income‑tax Officer, Commissioner of Income‑tax (Appeals) and the Tribunal wherein the finding has been given that the assessee has not furnished the required details for allowance of depreciation under section 32.

In para. 10 of the assessment order the Income‑tax Officer himself has mentioned that the assessee has neither claimed the depreciation in the return nor it has furnished the

prescribed particulars as required under the Act during the year. In para. 18 of the Commissioner of Income‑tax (Appeals) has found and observed that the undisputed facts in this case are, that the appellant‑company did not file the prescribed particulars for any of the three years under appeal. This finding has, been confirmed by the Tribunal also. To consider when the required particulars are riot before the Income‑tax Officer to allow the depreciation. In the case of Dasaprakash Bottling Co. v. CIT (1980) 122 ITR 9 (Mad.), the fact was before the Madras High Court. The Madras High Court has considered the fact that though the figures have not been furnished in the return as such, but the figures were furnished. by the assessee during the course of assessment under protest. The Madras High Court has taken the view that once the details and particulars required are furnished by the assessee whether they were furnished under protest or not does not make any difference and depreciation can be allowed. But in the case in hand, the admitted facts and the admitted case of the Department is that the required details have not been ‑furnished by the assessee and that has been borne out from the order of the Income‑tax Officer, the Commissioner of Income‑tax (Appeals) as well as the Income‑tax Tribunal. Therefore, the case of Dasaprakash Bottling Co. V. CIT (1980) 122 ITR 9 (Mad.), has no application in the facts and circumstances of this case:

In the case of Ascharajlal Ram Parkash (1973) 90 ITR 477 (Ail), the issue before the Allahabad High Court was that though the assessee has not claimed depreciation whether the Assessing Officer can allow the depreciation. The Allahabad High Court has taken the view that if during the course of assessment proceedings, the Income‑tax Officer comes to know that relevant particulars necessary for the grant of depreciation are on the record, the Income‑tax Officer is bound to give effect to it and allow depreciation.

The admitted facts in the casein hand are that necessary particulars are not furnished by the assessee which are necessary to allow the depreciation under section 32.

In CIT v. Shri Someshwar Sahakari Sakhar Karkhana Ltd. (1989) 177 ITR 443, the Bombay High Court considered the issue that when the assessee has not claimed depreciation, in his revised returns, can the Assessing Officer allow the depreciation? The Bombay High Court has held Officer has no power or jurisdiction to allow the depreciation, if allowance has not been claimed nor necessary particulars are furnished.

The Bombay High Court in that judgment has referred to the Board Circular No.29D (XIX‑14), dated August 31, 1965, and also discussed various provisions of the Act, section 10 of the 1922 Act, and sections 29, 32 and 34 of the Act of 1961, in what cases the depreciation under section 32 should be allowed. The Bombay High Court has even gone to the extent that 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 Income‑tax Officer is not entitled to allow a deduction on account of depreciation.

Allowance of 01‑preciation is subject to the provisions of section 34(l) of the Act of 1961. Subsection (1) of section 34 provides that the deductions referred in section 32 shall be allowed only if the prescribed particulars have been furnished. Admittedly, the assessee had not furnished the prescribed particulars.

Section 34(2) further provides how much depreciation in a particular case is to be computed. The relevant portion of subsection (2) of section 34 of the Act reads as under:

"34(2). For the purposes of section 32‑‑‑

(i)the aggregate of all deductions in respect of depreciation made under subsection (1) or subsection (IA) of section 32 or under The Indian Income‑tax Act, 1922 (11 of 1922), or under any Act repealed by that Act, or under the Indian Income Tax Act, 1886 (2 of 1886) shall, in no case; exceed the actual cost to the assessee of the building, machinery, plant, furniture, structure or work, as the case

Explanation.‑‑‑Where a capital asset is transferred,‑-----

(i)by a holding company to its subsidiary company or by a subsidiarycompany to its holding company, or

(ii)by a company to another company in a scheme of amalgamation,

and the conditions specified in clause (iv) or clause (v) or, as the case may be, clause (vi) of section 47 are satisfied, then, in determining the aggregate of all deductions in respect of depreciation under this clause, account shall also be taken of the deductions in respect of depreciation allowed in the case of the company from which the asset has been transferred;

(iii)nothing in clause (i) or clause (ii) or clause (iv) or clause (v) or clause (vi) of subsection (1) of section 32 shall be deemed to authorise the allowance for any previous year of any sum in respect of any building; machinery, plant or furniture sold, discarded, demolished or destroyed in that year;

(iv)nothing in clause (i) of subsection (lA) of section 32 shall be deemed to authorise the allowance for any previous year of any sum in respect of any structure or work in or in relation to a' building referred to in that subsection which is sold, discarded, demolished or destroyed or is surrendered as a result of the determination of the lease or other right of occupancy in respect of the building in that year. "

Rule 5AA of the Income‑tax Rules, 1962, which prescribes the particulars, required for allowance of depreciation, has 'been inserted in 1981, and, we are concerned with the assessment years 1977‑78 and 1978‑79. But, during the relevant year, alongwith the form of income‑tax return itself, there was a schedule annexed which required that the assessee should furnish some particulars in case the assessee asked for deduction on account of depreciation allowance. The relevant particulars of that form is annexed at page 11 of this judgment.

We have perused the order. There is no finding of the Income‑tax Officer that the required particulars referred to in the form of income‑tax return are furnished by the assessee. On the contrary the Income‑tax Officer himself has stated the assessee neither has claimed depreciation allowance nor he has furnished the required particulars for depreciation allowance. When the assessee has neither furnished the prescribed particulars nor the particulars necessary for computing depreciation allowance are on record, the Assessing Officer was not justified in allowing the depreciation allowance without material or without particulars required for depreciation allowance.

When neither the assessee has claimed the depreciation allowance in the years under consideration nor he has furnished required particulars for deduction on account of depreciation allowance nor there was material on record before the Income‑tax Officer, which is necessary to consider depreciation allowance, the Income‑tax Officer was not justified in allowing the depreciation to the assessee in the assessment years 1978‑79 and 1979‑80.

Therefore, we answer the common question in both the years "whether the Tribunal was justified in upholding the direction of the Commissioner of Income‑tax (Appeals) to withdraw the depreciation on assets allowed by the income‑tax Officer" in the affirmative, that is, in favour of the assessee and against the Revenue.

The question referred for the assessment year 1979‑80 is whether the Tribunal was justified in upholding the order of the Commissioner of Income‑tax (Appeals) directing computation of capital gaiai1oss on the sale of assets either by taking into consideration the original cost of the assets or their written down value after giving effect to his appellate order. This question is consequential to the question we have answered earlier Therefore, we answer this question also in the affirmative, that is, in favour of the assessee and against the Revenue.

The application is, accordingly, disposed of.

RANIAN KUMAR MAZUMDAR, J.‑‑‑‑I agree.

M.B.A./623/FCOrder accordingly.