Appeal partly allowed on business property usage for depreciation.

The tribunal partly allowed the appeal for statistical purposes, remitting the issue of new properties' business usage to the AO for verification. It upheld the disallowance of depreciation on properties let out and not used for business purposes, aligning with the provisions of Section 32 and Section 38(2) of the Income-tax Act, 1961. The judgment emphasized the necessity of business usage for claiming depreciation, even within the "Block of Assets" framework.

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Issues Involved:
1. Whether depreciation can be claimed on properties that were let out and not used for business purposes.
2. Whether properties that form part of the "Block of Assets" can be excluded for depreciation if they are not used for business purposes.
3. Determination of the Written Down Value (WDV) of properties for depreciation.
4. Whether new properties acquired and let out during the year can be claimed for depreciation if initially used for business purposes.
5. Applicability of Section 38(2) of the Income-tax Act, 1961 on properties not exclusively used for business purposes.
6. Impact of the "Block of Assets" concept on depreciation claims for properties with changed usage.

Issue-wise Detailed Analysis:

1. Depreciation on Let Out Properties:
The assessee claimed depreciation on properties let out during the year, arguing they formed part of the "Block of Assets" used for business purposes. The Assessing Officer (AO) rejected this claim, stating that properties let out and generating income under "Income from House Property" cannot be depreciated. The CIT(A) upheld this view, noting that properties not used for business purposes during the year are not eligible for depreciation.

2. "Block of Assets" and Depreciation:
The assessee contended that once assets enter the "Block of Assets," they lose individual identity, and depreciation should be allowed on the entire block. The AO and CIT(A) disagreed, emphasizing that properties not used for business purposes should be excluded from the block for depreciation calculations. The tribunal supported this view, stating that business usage is a pre-condition for depreciation under Section 32.

3. Determination of WDV:
The CIT(A) calculated the WDV of properties individually to determine depreciation. For example, a property purchased in 1990-91 had its WDV reduced over the years through allowed depreciation, resulting in a specific WDV at the end of the assessment year. The tribunal upheld these calculations, confirming that depreciation should be disallowed proportionately based on the non-business use of properties.

4. New Properties Acquired During the Year:
The assessee claimed that new properties acquired and let out during the year were initially used for business purposes as godowns. The tribunal noted this fresh claim and remitted the issue to the AO for verification. The AO was directed to reassess the claim based on evidence of business usage before the properties were let out.

5. Applicability of Section 38(2):
Section 38(2) stipulates that depreciation should be restricted to a fair proportionate part for assets not exclusively used for business purposes. The CIT(A) and tribunal applied this provision, disallowing depreciation on properties let out and not used for business purposes during the year.

6. Impact of "Block of Assets" Concept:
The tribunal clarified that the "Block of Assets" concept cannot be stretched to allow depreciation on properties not used for business purposes. It emphasized that properties let out for years, generating rental income under "Income from House Property," do not qualify for depreciation under Section 32, even if they form part of the block. The tribunal distinguished this case from others where assets, although part of the block, were temporarily non-functional but still intended for business use.

Conclusion:
The tribunal partly allowed the appeal for statistical purposes, remitting the issue of new properties' business usage to the AO for verification. It upheld the disallowance of depreciation on properties let out and not used for business purposes, aligning with the provisions of Section 32 and Section 38(2) of the Income-tax Act, 1961. The judgment emphasized the necessity of business usage for claiming depreciation, even within the "Block of Assets" framework.

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