- (1.) The above appeal is directed against the judgment and order dated 9th March 2007 passed by the Income Tax Appellate Tribunal, 'E' Bench, Kolkata in I.T.A. 2087(Kol) of 2006 for the assessment year 2003-04. It was admitted by an order dated 23rd August, 2007 on the following substantial questions of law:- "1. Whether on a true and proper interpretation of the provisions of explanation 5 to Section 32(2) and Section 145 of the Income-tax Act, 1961 the Tribunal was justified in law in directing capitalization of the depreciation amount of Rs.5,30,93,896/- and in holding that the same could not be set off against the interest income of Rs.29,29,037/-? 2. Whether and in any event the entire highway construction expenditure including depreciation was allowable as a deduction in the assessment year 2003- 2004 notwithstanding the accounting policy followed by the appellant and the same was required to be carried forward to the subsequent years after set off against the interest income?"
(2.) The short fact which is also admitted leading to preferring the appeal is as follows:-
(3.) The assessee-company had been carrying on business during the relevant time, amongst other for construction and development of roads. As such the appellant was engaged for construction and development of a portion of the National Highway-2 under the Prime Minister Quadrilateral Project in West Bengal stretching from Panagarh to Palsit. During the previous year relevant to the assessment year under the appeal, the assessee in its return had shown interest income from other sources, of Rs.29,29,027/- but the same was claimed for setting off with the depreciation on assets. Thus in the return the assessee reflected a total loss of Rs.5,01,64,869/- after claim of depreciation of Rs.5,30,93,896/- on the assets acquired by it. No tax report under Section 44AB was filed as the assessee-company was not claiming any revenue receipt on account of business activity. The A.O. not being satisfied with the explanation offered as above disallowed the said claim for depreciation. While doing so the A.O. held that the basic element for claim of depreciation is absent in the case of the assessee. The depreciation on equipment or assets used to construct the highway is itself a capital expenditure till the completion of the same and commencement of the commercial operation. On appeal being preferred Commissioner of Income Tax did not interfere with the disallowance of depreciation. The learned Tribunal then was approached unsuccessfully as the desired relief was not granted. It appears from the recordings of all authorities below that basis of disallowance of the above depreciation was that the assessee itself in its own account has capitalized all the expenditure under the head 'National Highway Development Expenditure' and it has mentioned in the audited balance sheet that National Highway Development Expenditure amortized over the concession period from the date of commercial operation. In the audited P/L Account no expenditure or depreciation has been claimed by the assessee. On the other hand, only interest on fixed deposit has been shown. In the computation of income the assessee has claimed deduction for depreciation against interest income, being income from other sources. The user of the assets was not for earning interest income. The assets were used for construction of National Highway. All the expenditure in respect of construction of National Highway has been capitalized by the assessee itself as per the accounting policy followed by it. Thus it is clear that because of the assessee's own accounting system the depreciation otherwise allowable has not been allowed. In essence the principle of estoppel has been made applicable in this case.;