2014 (9) TMI 1100 - AT - Income Tax

ITAT Delhi Upholds CIT(A) on Depreciation & Quarry Expenses for AY 2007-10

Assistant Commissioner of Income Tax, Deputy Commissioner of Income Tax, Circle-3 (1), New Delhi Versus Cement Corporation of India Limited

The Appellate Tribunal ITAT DELHI upheld the CIT(A)'s decisions regarding the disallowance of depreciation on plant and machinery and the deletion of ... Disallowance of depreciation on plant and machinery - some of the units of the assessee are closed - Held that:- As relying on CIT Vs. Bharat Alumunium Co.Ltd [2009 (10) TMI 505 - DELHI HIGH COURT ] even if some of the units of the assessee are closed, other units are certainly working and the depreciation is to be allowed on the entire block of assets of the plant & machinery and not only individual plant and machinery of each unit of the assessee. When some of the units are closed and some of the units are working, then, the depreciation on the entire block of assets would be allowed. - Decided in favour of assessee. Disallowance of quarry development expenses - Held that:- Admittedly, by removing the overburden of the mines, the assessee has not acquired any asset. It was also explained that removal of the soil, stones etc. in order to reach the deposits of cement grade lime stones is a continuous process and the expenditure is required to be incurred year after year. It was also explained that in the earlier year, such expenditure was always allowed. While allowing the relief, the CIT(A) has relied upon case of Alembic Chemicals Works Co.Ltd. Vs. CIT, Gujarat - [1989 (3) TMI 5 - SUPREME Court], CIT Vs. Associated Cement Company Ltd. - [1988 (5) TMI 2 - SUPREME Court] and Empire Jute Co.Ltd. Vs. CIT - [1980 (5) TMI 1 - SUPREME Court ] . CIT(A) rightly held that the quarry development expenses need to be allowed as a revenue expenditure - Decided in favour of assessee. Issues:1. Disallowance of depreciation on plant and machinery for AY 2007-08, 2008-09, and 2009-10.2. Deletion of the disallowance of quarry development expenses for AY 2007-08, 2008-09, and 2009-10.Issue 1: Disallowance of Depreciation on Plant and MachineryThe Revenue appealed against the disallowance of depreciation on plant and machinery for three consecutive years. The CIT(A) allowed relief to the assessee, citing a precedent where assets were kept standby and other unit activities were ongoing. The Revenue argued that the issue was covered by a High Court decision stating that depreciation should be allowed on the entire block of assets, not individual units. The Tribunal agreed, emphasizing that if some units were closed while others were operational, depreciation on the entire block of assets should be allowed. Therefore, the Tribunal rejected the Revenue's appeal on this ground.Issue 2: Deletion of Quarry Development Expenses DisallowanceThe Revenue contested the deletion of disallowance of quarry development expenses for the same three years. The CIT(A) allowed relief after considering that the expenses did not result in any asset creation or enduring benefit. The Tribunal upheld the CIT(A)'s decision, noting that the expenses were incurred for business operations, not capital expenditure. Relying on Supreme Court decisions, the Tribunal affirmed that the expenses were revenue in nature and should be allowed. The Tribunal found no fault in the CIT(A)'s order, emphasizing that the expenses were necessary for ongoing business operations and had been allowed in previous years. Therefore, the Tribunal dismissed the Revenue's appeals on this ground as well.In conclusion, the Appellate Tribunal ITAT DELHI upheld the decisions of the CIT(A) regarding the disallowance of depreciation on plant and machinery and the deletion of quarry development expenses for the relevant assessment years, dismissing the Revenue's appeals in both instances.