Depreciation : WDV : S. 32 and S. 43(1) of Income-tax Act, 1961 : A.Ys. 2001-02 and 2002-03 : Depreciation is a privilege : WDV can only be on basis of depreciation ‘actually allowed’ and not ‘notionally allowed’.

Reported :

34. Depreciation : WDV : S. 32 and S. 43(1) of Income-tax
Act, 1961 : A.Ys. 2001-02 and 2002-03 : Depreciation is a privilege : WDV can
only be on basis of depreciation ‘actually allowed’ and not ‘notionally
allowed’.

[CIT v. Hybrid Rice International (P) Ltd., 185
Taxman 25 (Del.)]

The assessee company was engaged in the business of
producing superior-quality hybrid seeds of rice for supply to farmers. For
that purpose, it was using germplasm seeds. Prior to the A.Y. 2001-02, the
assessee had not claimed depreciation on the germplasm seeds. In the relevant
years, the assessee claimed depreciation on the germplasm seeds on the basis
of the actual cost taking it as the WDV. The Assessing Officer found that the
germplasm seeds were purchased in the preceding years and therefore held that
even though depreciation was not claimed or allowed in the preceding years,
the WDV for the relevant years has to be determined after reducing the
notional depreciation for the preceding years. The Tribunal allowed the
assessee’s claim.

On appeal by the Revenue, the Delhi High Court upheld the
decision of the Tribunal and held as under :

“(i) In the instant case, in the earlier assessment
years, there did not arise any question of calculation of actual cost,
because no depreciation was claimed in the earlier years. Therefore, it
could not be understood as to how the assessee was taking advantage of his
own wrong as contended by the Revenue. Once it was held that depreciation is
a privilege and can only be on the basis of ‘actually allowed’ and not
‘notionally allowed’, there did not remain any issue of any wrong by the
assessee. There was no wrong and as held by the Supreme Court in CIT v.
Mahendra Mills, 243 ITR 56 (SC), it is only a privilege which the
assessee may choose to exercise or not.

(ii) Therefore, the Tribunal was correct, in law, in
allowing depreciation to the assessee on the actual cost of the germplasm
seeds and the actual cost incurred by the assessee much before becoming an
assessee could still be treated as an actual cost to the assessee when
depreciation had to be claimed.”