Asset ready for use qualifies for depreciation under Income Tax Act: Division Bench ruling

The Division Bench held that if an asset is kept ready for use and not sold, discarded, or destroyed, the assessee is entitled to depreciation. In this case, the Tetrapack machine being ready for use qualified for depreciation under the Income Tax Act. The court ruled in favor of the assessee on both issues, dismissing the appeal with no costs.

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Issues:
1. Justification of recalling and reversing ITAT order
2. Depreciation allowance for asset kept ready for use

Issue 1: Justification of recalling and reversing ITAT order:
The respondent argued that the ITAT was not justified in recalling its order in ITA No.638/IND/95 and reversing it in MA No.48/IND/02 after thoroughly discussing the issue in the original order. The Division Bench referred to previous cases and held that if an asset is not sold, discarded, or destroyed during the previous year, the assessee is entitled to depreciation. The court concluded that since the Tetrapack machine was kept ready for use, it should be deemed as used within the meaning of the Income Tax Act. The questions were answered against the revenue and in favor of the assessee. The Division Bench dismissed the appeal with no costs.

Issue 2: Depreciation allowance for asset kept ready for use:
The Division Bench cited various precedents to support the argument that when an asset is kept ready for use, the assessee is entitled to depreciation based on the principle of passive user. The court emphasized that as long as the asset is not sold, discarded, or destroyed, the assessee should be allowed depreciation. The court held that the depreciation on the Tetrapack machine should be allowed even if it was kept ready for use. Consequently, both substantial questions of law were decided against the revenue and in favor of the assesses, leading to the dismissal of the appeal with no costs.

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