Depreciation on fixed assets classified as capital work in progress allowed in the revised return when corresponding income was taxed
ABCAUS Case Law Citation:
ABCAUS 2810 (2019) (03) ITAT
Important Case Laws Cited/relied upon by the parties
Kedarnath Jute Mills (82 ITR 363)
KM Sugar Mills Ltd. (373 ITR 42)
In The instant case, the Revenue had challenged the order of the CIT(Appeals) in allowing the claim of depreciation even when in the balance sheet itself assets were shown in work in progress.
The respondent assessee was engaged in the business of Railway Transportation. The return of the assessee was processed u/s 143(1) of the Income Tax Act, 1961 (the Act) which was revised by the assessee by filing a revised return of income which was also processed u/s 143(1) of the Act.
Later, the case was taken up for scrutiny under CASS. Notice u/s 143(2) and 142(1) of the Act were issued along with questionnaire and served upon the assessee’s company.
The assessee company was a Government Company who was granted concession to built, run and maintain the railway line. The assessee company got the Railway line constructed and in accordance with the terms of the concession agreement, handed over the same to the Railway for Operation & Maintenance (O&M) of the aforesaid railway line. Despite the said Railway line coming into operation, agreement for sharing of revenues between the assessee company, Railway took prolonged discussion before the same was finalized and signed which was almost one year after the closure of the relevant financial year.
Due to this reason Revenues and Expenditure up to the close of the relevant financial year could not be depicted in the accounts as they were closed and finalized declaring nil income & expenditure. This fact was disclosed in the notes to accounts. Due to these peculiar circumstances the assessee company had no option but to incorporate revenue and expenditure right from the date of concession agreement to the relevant financial year in the accounts for the next year.
However, the assessee company in its wisdom revised return for the relevant AY and claimed unclaimed depreciation for the last two years as brought forward depreciation, simultaneously it also claimed current year‘s depreciation.
The AO however considered the net receipts earned from running of Railway line during the year as income of the assessee company but at the same time did not allow depreciation computed on assets owned & used in earning the income, for the year as in the original return as well as revised return, the appellant had shown the entire fixed assets as capital work in progress. Thus, the Assessing Officer disallowed the depreciation claimed by the assessee company including brought forward depreciation and added the same to the income of the assessee.
Being aggrieved by the Assessment order, the assessee company filed appeal before the CIT(A). The CIT(A) partly allowed the appeal of the assessee.
Hence, the Revenue has filed the appeal as said above.
The Tribunal observed that the CIT(A) rightly observed that mere quantification and classification in accounts cannot deter assessee from claiming depreciation when factually the assets had been put to use since the start of the concession agreement.
The Tribunal further observed that the assessee had earned certain income during the year which had rightly been brought to tax by the Assessing Officer, as income from business and hence, depreciation ought to be allowed for the current year.
The Tribunal opined that the CIT(A) rightly directed the Assessing Officer to allow the quantum of depreciation and there was no need to interfere with the same. Accordingly, the appeal of Revenue was dismissed.