Commissioner Of Income Tax,Rohtak v. M/S. Jain & Jaina Foam (P) Ltd

IN THE HIGH COURT OF PUNJAB & HARYANA AT CHANDIGARH. --- Income Tax Appeal No. 289 of 2004Date of Decision: 23.11.2010 Commissioner of Income Tax,Rohtak --- Appellant Versus M/s. Jain & Jaina Foam (P) Ltd.) --- Respondent CORAM:HON’BLE MR. JUSTICE ADARSH KUMAR GOELHON’BLE MR. JUSTICE AJAY KUMAR MITTAL. --- PRESENT:Ms. Urvashi Dhugga, Standing Counselfor the appellant-Revenue.for the appellant-Revenue. None for the respondent-assessee. --- AJAY KUMAR MITTAL, J. This appeal under Section 260A of the Income-tax Act, 1961(for short “the Act’”) has been filed by the Revenue against the orderdated 24.3.2004, passed by the Income Tax Appellate Tribunal, DelhiBench ‘A’, Delhi, (in short “the Tribunal”) in ITA No. 1609/Del/1997relating to the assessment year 1989-90. The appeal was admitted for determination of the following question of law: “Whether on the facts and in the circumstances of the case,the Hon’ble ITAT has erred in law in holding that theassessee was entitled to a higher rate of depreciation even when the conditions of Rule 5 of X Schedule were notsatisfied and the total income of the assessee under thehead “Profits and gains of business or profession” wasassessed for a period of 12 months only.” The facts necessary for adjudication, as narrated in the appealare that the assessee-company is engaged in the business of production of foam from raw material. For the assessment year underconsideration, the period of previous year comprised of 21 months, i.e.from 1.7.1987 to 31.3.1989. The assessee filed return of incomeshowing loss of Rs. 7,40,090/-. The assessment under Section 143(3)was, however, finalized at loss of Rs.7,01,889/- after making certaindisallowance/ additions. The additions were set aside by theCommissioner of Income Tax (Appeals), [hereinafter referred to as “CIT(A)”] with certain directions including the one to make a freshassessment. The assessing officer, by order dated 13.7.1995, framed afresh assessment in terms of Sections 143(3)/250 by determining thetotal income at Rs. 10,91,407/-. The appeal carried by the assesseeagainst the order dated 13.7.1995 was partly allowed by the CIT(A). Asa result, both the Revenue and the assessee preferred their respectiveappeals before the Tribunal. The Tribunal, vide order dated 24.3.2004 allowed the appealof the assessee and dismissed that of the Revenue. We have heard learned counsel for the Revenue and perused the record. Learned counsel for the Revenue submitted that theproduction started from 4.4.1988 and, therefore, the assessee wasentitled for depreciation for the period thereafter. According to the learned counsel, the said period being 12 months the depreciation couldnot be allowed for 21 months even if previous year comprised of 21months. The learned counsel drew support from the order of theassessing officer and the CIT(A). The point for determination in this appeal is, whether theasssessee was entitled to depreciation for a longer period as the previousyear relating to assessment year 1989-90 consisted of 21 months. The relevant portion of Rule 5 of Schedule X of the Act as itexisted then reads thus: “5.Modification in respect of depreciation allowance.- Wherethe assessee’s income under the head “Profits and gains ofbusiness or profession” or under the head “Income from othersources” for a period of thirteen months or more is included inhis total income for the transitional previous year, the allowanceunder clause (ii) of sub-section (1) of section 32 or, as the casemay be, under clause (ii) of section 57 in respect ofdepreciation on block of assets calculated in the manner statedin clause (ii) of sub-section (1) of section 32, shall be increasedby multiplying it by a fraction of which the numerator is thenumber of months in the transitional previous year and thedenominator is twelve.” The relevant portion of Rule 5 of Schedule X of the Act as itexisted then reads thus: “5.Modification in respect of depreciation allowance.- Wherethe assessee’s income under the head “Profits and gains ofbusiness or profession” or under the head “Income from othersources” for a period of thirteen months or more is included inhis total income for the transitional previous year, the allowanceunder clause (ii) of sub-section (1) of section 32 or, as the casemay be, under clause (ii) of section 57 in respect ofdepreciation on block of assets calculated in the manner statedin clause (ii) of sub-section (1) of section 32, shall be increasedby multiplying it by a fraction of which the numerator is thenumber of months in the transitional previous year and thedenominator is twelve.” According to the said provision where total income for thetransitional previous year of an assessee is for a period longer than 12months, the depreciation allowance under clause (ii) of sub-section (1) ofSection 32 shall be increased by multiplying it by a fraction of which thenumerator is the number of months in the transitional previous year and thedenominator is twelve. In the present case, the previous year comprised of 21 months, therefore, the depreciation allowance had to be worked out bymultiplying it by 21/12. The argument of the learned counsel for theRevenue, thus, carries no weight. The Tribunal had recorded as under while allowing the claim of the assessee:- “We have heard the rival counsels on this issue. In our view,the impugned assessment year being 1989-90, which was thetransitional year the provisions of the Xth Schedule arerelevant. The aforesaid schedule lays down the modificationpertaining to the various allowance, inter-alia includingdepreciation allowance in relation to cases where the previousyear is of a period longer than the normal period of 12 months.It is provided therein that in cases where the transitionalprevious year is longer than 12 months, provisions of theIncome Tax Act shall apply subject to modifications. Themodifications with respect to the allowance of depreciation arecontained in rule 5 of the said schedule according to which theallowance for depreciation is enhanced keeping in view theactual period comprised in the assessment year. Ostensibly, theimpugned assessment year for the assessee comprises of aprevious year of 21 months and, therefore, the claim of theassessee for higher depreciation having regard to the statutoryprovisions of the Xth schedule, we do not find any infirmity inthe same. In fact, the stand of the revenue to the effect that asthe production was started by the assessee on 4/4/1988, thedepreciation is to be restricted, is not germane to the issue inhand. Accordingly, we direct the AO to allow the claim of the assessee for higher depreciation. The assessee succeedsaccordingly.” In view of the above, this Court is of the opinion that theassessing officer and the CIT(A) had erroneously declined benefit ofdepreciation allowance for 21 months. The Tribunal had rightly reversedthe aforesaid order of the assessing officer and the CIT(A). Accordingly,there is no merit in the appeal and the same is dismissed. (AJAY KUMAR MITTAL)JUDGE November 23, 2010*rkmalik* (ADARSH KUMAR GOEL)JUDGE