2017 (7) TMI 1408 - AT - Income Tax

Tribunal denies depreciation set-off for non-usage, advises separate challenges for each year

The Tribunal upheld the CIT(A)'s decision denying the assessee's entitlement to set off unabsorbed depreciation for AY 1998-99 onwards due to non-usage of ... Reopening of assessment u/s 147 - disallow the set off of unabsorbed depreciation claimed from 1998-99 onwards - no business was carried on by the assessee for the AY 1999-2000 to AY 2009-10 and therefore, the unabsorbed depreciation for the above said period could not be carried forward and set off for future years - Whether claim of depreciation is allowable for both “active” and “passive” use of the asset including an asset that is in ready-for-use condition? - HELD THAT:- The factual finding of the CIT(A) that the asset in question was not kept ready for use condition and there was no passive use of the same for the assessment years 1999-2000 to 2009-10, has not been dispelled by the assessee by placing any contrary evidence before the Tribunal. Therefore,we confirm the order of the CIT(A). Assessee’s contention that the CIT(A) has exceeded his jurisdiction by giving direction to the Assessing Officer to make remedial measures to withdraw set off unabsorbed depreciation for the assessment year 2010-11 and the assessment years 2012-13 onwards, we are of the view the assessee has to challenge the order of the Assessing Officer when remedial measures are taken by AO for the respective AY 2010-11 and AY’s 2012-13 onwards. The Tribunal has to confine itself to examination of the issue concerning the current year, namely AY 2011-12. - Decided against assessee. Issues Involved:1. Entitlement to set off carried forward depreciation from AY 1998-99 onwards against income for AY 2011-12 and onwards.2. Validity of CIT(A)'s decision on non-usage of assets during FY 1997-98 to 2008-09.3. Jurisdiction of CIT(A) in giving directions for depreciation pertaining to AY 1998-99 to 2009-10.4. Requirement for AO to allow set off of depreciation loss of earlier years in the Return of income for AY 2011-12.Detailed Analysis:Issue 1: Entitlement to Set Off Carried Forward Depreciation- The assessee, a private limited company, initially engaged in aqua farming, claimed set off of unabsorbed depreciation for AY 1996-97 to 2009-10. The AO denied the set off, citing the discontinuation of the aqua culture business.- The CIT(A) allowed the set off for AY 1996-97 and 1997-98 but denied it for AY 1998-99 onwards due to non-operation of the business.- The Tribunal upheld the CIT(A)'s decision, noting that the assets were not kept in a ready-for-use condition and there was no passive use.Issue 2: Validity of CIT(A)'s Decision on Non-Usage of Assets- The CIT(A) elaborated on the legislative history and judicial pronouncements, concluding that 'passive use' and 'ready-to-use' do not apply to assets lying idle without business re-start.- The CIT(A) found no evidence of maintenance or readiness of the assets for business use during the relevant periods.- The Tribunal confirmed the CIT(A)'s findings, noting the lack of contrary evidence from the assessee.Issue 3: Jurisdiction of CIT(A)- The CIT(A) directed the AO to take necessary actions, including reopening assessments for AY 2010-11 and succeeding years, to disallow unabsorbed depreciation from AY 1998-99 onwards.- The Tribunal held that the assessee should challenge the AO's actions for the respective years separately and confined its examination to AY 2011-12.Issue 4: Requirement for AO to Allow Set Off- The Tribunal noted that the CIT(A) had already allowed the set off for AY 1996-97 and 1997-98, and dismissed the appeal for AY 2011-12.- The Tribunal confirmed that the assessee had not provided sufficient evidence to support the claim of asset readiness or passive use for the disputed years.Conclusion:The Tribunal dismissed the appeal, confirming the CIT(A)'s decision that the assessee is not entitled to set off unabsorbed depreciation for AY 1998-99 to 2009-10 due to non-usage of assets. The CIT(A)'s directions for remedial measures by the AO were upheld, and the assessee was advised to challenge such measures separately for the respective years.