Depreciation is compulsory allowed whether assessee has claimed it or not: ITAT

The assessee had deposited its funds in short-term deposits with the bank for periods ranging from 10 days to 91 days. The assessee’s accounts with the bank were known as “Flexi Account” whereby the bank also uses to transfer excess of the funds in the account over and above the average requirements to Fixed Deposits by the bank itself. AO disallowed all the interest received by the assessee from its deposits with the bank, which had been claimed by the assessee as “business income”. Assessing Officer treated the same as liable to be taxed under the head “income from other sources”.

It is noticed that the deposits are short term the assessee is attempting to make money out of making deposits in the bank. The assessee is admittedly a loss-making concern and desperately attempting to shore up its account. Admittedly, when the money transferred to the Flexi account from the current account generates certain interest income. This interest income is also liable to be set off against the interest outgoing. Therefore, the disallowance as made by the AO and confirmed by the ld. CIT(A) on this issue was deleted. The AO was directed to give the benefit of set-off of the interest income against the interest expenditure.

Coming to the issue of ‘prior period expenses’, depreciation of the earlier years had been claimed during the current year based on the actual intimation of the installation and start of the operation. As per the provisions of section 32 of the I.T. Act, 1961, whether the assessee claimed the depreciation or not, the depreciation is compulsory to be allowed to the assessee. The depreciation breakup of the earlier years relates to the depreciation allowable to the assessee in respect of the demerger of GRIDCO and was made available for the relevant assessment year.

The view taken by AO that prior period expenses related to earlier years cannot be considered during the relevant assessment year is a valid stand. This being so, the issue in respect of prior period expenses is restored to the file of the AO with a direction that said expenses are to be considered and allowed for much of the earlier years in respect of which the said expenses relate to. Hence, this issue stands partly allowed. Thus, appeals of the assessee are partly allowed for statistical purposes.

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