Tribunal overturns CIT order, allows depreciation on written off assets.

The tribunal set aside the CIT's order under section 263, ruling in favor of the assessee. It held that the AO's decision to allow depreciation on assets written off, discarded, or sold was not erroneous or prejudicial to revenue. The tribunal emphasized that depreciation is allowable on the block of assets, irrespective of individual asset use. It found the AO's inquiry regarding the depreciation claim adequate and concluded that the CIT's invocation of section 263 was unjustified. The appeal was allowed in favor of the assessee.

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Issues Involved:
1. Legality of the order passed under section 263 by the CIT.
2. Validity of the depreciation claim on assets that were written off, discarded, or sold.
3. Whether the assessment order was erroneous and prejudicial to the interest of the revenue.
4. Adequacy of the inquiry conducted by the Assessing Officer (AO) regarding the depreciation claim.

Detailed Analysis:

1. Legality of the Order Passed Under Section 263 by the CIT:
The appeal was directed against the CIT's order under section 263, which challenged the AO's decision to allow depreciation on assets that were written off, discarded, or sold. The assessee argued that the CIT erred in invoking section 263, as the AO had conducted a proper inquiry and the order was neither erroneous nor prejudicial to the interest of the revenue. The tribunal found that the AO had indeed made inquiries and the CIT's notice did not allege a lack of inquiry but rather an incorrect allowance of depreciation.

2. Validity of the Depreciation Claim on Assets Written Off, Discarded, or Sold:
The assessee had claimed depreciation on assets that were written off, discarded, or sold but were part of the block of assets. The CIT argued that depreciation should not be allowed on these assets as they were not used for business purposes. The tribunal noted that as per section 43(6)(c)(i)(B), depreciation is allowable on the block of assets, and individual assets lose their identity once they enter the block. The tribunal cited several decisions, including those from the Hon'ble Delhi High Court and the Mumbai Bench of the Tribunal, which supported the view that depreciation is allowable on the block of assets irrespective of the use of individual assets.

3. Whether the Assessment Order Was Erroneous and Prejudicial to the Interest of the Revenue:
The CIT held that the AO's order was erroneous and prejudicial to the interest of the revenue because depreciation was allowed on assets not used for business. The tribunal found that the issue of whether depreciation is allowable on such assets is debatable and that the AO had adopted a permissible view. The tribunal referred to the Hon'ble Supreme Court's decision in Malabar Industrial Co. Ltd., which held that if the AO adopts one of the permissible views, the order cannot be considered erroneous and prejudicial to the interest of the revenue.

4. Adequacy of the Inquiry Conducted by the AO Regarding the Depreciation Claim:
The tribunal reviewed the AO's actions and found that the AO had issued multiple notices and received detailed responses from the assessee regarding the loss on fixed assets. The AO had also inquired about the depreciation claim during the assessment proceedings. The tribunal concluded that the AO had conducted a proper inquiry and the CIT's assertion of inadequate inquiry was unfounded. The tribunal emphasized that the CIT's notice did not allege a lack of inquiry but merely an incorrect allowance of depreciation.

Conclusion:
The tribunal set aside the CIT's order under section 263, stating that the AO had taken a permissible view supported by legal precedents and had conducted a proper inquiry. The tribunal concluded that the assessment order was not erroneous, and the CIT was not justified in invoking section 263. The appeal filed by the assessee was allowed.

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