S. 80-IA/ 80HHC: Despite the introduction of 'block of assets' depreciation cannot be thrust on the assessee while computing quantum of eligible deduction

DCIT vs. Sun Pharmaceuticals Ltd (Gujarat High Court)

The High Court had to be consider whether for computing the profits eligible for deduction u/s 80HHC and 80-IA, depreciation (under the concept of ‘block of assets’) had to be deducted even though the assessee had not claimed the same. The department relied on the judgement of the Full Bench of the Bombay High Court in Plastiblends India Limited vs. ACIT 318 ITR (Bom) (FB) where it was held that for the purposes of deduction under Chapter VIA, the gross total income has to be computed inter alia by deducting the deductions allowable under sections 30 to 43D of the Act, including depreciation allowable under section 32 of the Act, even though the assessee has computed the total income under Chapter IV by disclaiming the current depreciation. HELD by the Gujarat High Court taking a different view:

Depreciation is optional to the assessee and once he chooses not to claim it, the Assessing Officer cannot allow it while computing the income. Further, once depreciation is optional, it will be optional for block of assets also. It is not necessary that the depreciation is allowable or not allowable as a whole. The assessee can claim it partly also in respect of certain block of assets and not claim in respect of other block of assets. Accordingly, for purposes of sections 80HHC and 80-IA, depreciation not claimed for by the assessee cannot be allowed as a deduction despite the introduction of the concept of block of assets.

Note: The judgement of the Special Bench in Vahid Paper Mills 98 ITD 165 (SB) (Ahd) is impliedly overruled. Both judgements, Plastiblends and Sun Pharma, are prior to the insertion of Explanation 5 to section 32 by the Finance Act 2001 w.e.f. 1.4.2002