Case Law Details
PCIT Vs Dharmanandan Diamonds Pvt. ltd. (Bombay High Court)
Introduction: The Bombay High Court recently ruled in the case of PCIT Vs Dharmanandan Diamonds Pvt. Ltd., where the eligibility of the assessee to claim depreciation on revalued assets was challenged. The judgment provides important insight into the interpretation of Sections 32(1) and 43(1) of the Income Tax Act, 1961, and its implications for businesses.
Analysis: The court assessed whether the Income Tax Appellate Tribunal (ITAT) was in error by allowing the assessee to claim depreciation on revalued assets. The assessee, Dharmanandan Diamonds Pvt. Ltd., had been formed to take over all assets and liabilities of a prior partnership firm. After revaluation by a government-approved valuer, the company claimed depreciation on these assets. The ITAT approved this claim, leading to the appeal in the Bombay High Court.
The court held that as per proviso to Section 32, the aggregate depreciation allowable to the predecessor (the partnership firm) and the successor (the company) shall not exceed the deduction calculated as if the succession had not taken place. The actual cost of the said assets to the assessee will be the cost which the assessee paid to the predecessor after revaluation. Therefore, the court agreed with ITAT’s decision, stating that the assessee would be entitled to claim depreciation for subsequent years based on the actual cost paid.
Conclusion: The Bombay High Court’s judgment in the case of PCIT Vs Dharmanandan Diamonds Pvt. Ltd. upholds the principle that an assessee can claim depreciation on revalued assets as per the actual cost paid. The ruling provides clarity for businesses and emphasizes the importance of accurate asset revaluation. It reaffirms the view that issuing shares in lieu of cash for the acquisition of assets constitutes an ‘actual cost’ for claiming depreciation.
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