Income Tax Rules | No Requirement That Any Particular Mode Of Computing Claim Of Depreciation Has To Be Opted Before Due Date Of Filing Return: SC

The Supreme Court observed that there is no requirement under the second proviso to sub-rule (1A) of Rule 5 of the Income Tax Rules 1962 that any particular mode of computing the claim of depreciation has to be opted for before the due date of filing of the return.

The Court added that only requirement is that the option has to be exercised before filing of the return.

In that context, the Bench of Justice BV Nagarathna and Justice Ujjal Bhuyan said that, "There is no requirement under the second proviso to sub-rule (1A) of Rule 5 of the Rules that any particular mode of computing the claim of depreciation has to be opted for before the due date of filing of the return. All that is required is that the assessee has to opt before filing of the return or at the time of filing the return that it seeks to avail the depreciation provided in Section 32 (1) under subrule (1) of Rule 5 read with Appendix-I instead of the depreciation specified in Appendix-1A in terms of sub-rule (1A) of Rule 5 which the assessee has done."

Counsel Rupesh Kumar appeared for the appellants, while Senior Counsel S Ganesh and Senior Counsel Percy Pardiwala appeared for the respondent-assessee.

In this case, the assessee claimed depreciation for MV turbines around July 8, 1998, at a rate of 25% on the Written Down Value (WDV) basis. The assessing officer, upon review, determined that due to changes in the law regarding depreciation on power-generating unit assets from April 1, 1997, the taxpayer should receive depreciation using the straight-line method for assets acquired on or after that date. The officer observed that the taxpayer did not opt to claim depreciation on the WDV basis, and therefore, it was eligible for depreciation using the straight-line method.

The assessee, in an appeal to the CIT(A), argued against the assessing officer's limitation of depreciation on turbines to Rs. 1,59,10,047.00 instead of the claimed Rs. 2,85,37,634.00. The CIT(A), in an order dated 16.05.2005, upheld the disallowance of depreciation.

The Tribunal, based on a previous decision for the assessment year 2000-2001, ruled in favor of the assessee in an appeal. The High Court, in subsequent appeals, affirmed the Tribunal's reasoning, stating that the revenue's question was not a substantial question of law.

The Apex Court observed that there was no dispute that the assessee had claimed depreciation in accordance with sub-rule (1) read with Appendix-I before the due date of furnishing the return of income. In light of the same, it was held that, "The view taken by the assessing officer as affirmed by the first appellate authority that the assessee should opt for one of the two methods is not a statutory requirement. Therefore, the revenue was not justified in reducing the claim of depreciation of the assessee on the ground that the assessee had not specifically opted for the WDV method."

In light of the same, the Court upheld the view expressed by the Tribunal and the High Court.

Cause Title: Commissioner of Income Tax vs M/s Jindal Steel & Power Limited 2023 INSC 1053

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