Tribunal allows depreciation claim for refurbished assets, overturning AO and CIT(A) decisions.

The Tribunal allowed the assessee's appeal, overturning the disallowance of depreciation by the Assessing Officer and confirmation by the Commissioner of Income Tax (Appeals). The Tribunal held that despite the temporary suspension of business operations, the company's efforts to refurbish assets and resume business indicated a valid intention for depreciation claim. Citing judicial consistency and the company's active steps to revive business, the Tribunal directed the AO to allow the depreciation claim of Rs. 6,13,14,399 for the relevant assessment year.

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Issues Involved:
1. Disallowance of depreciation by the Assessing Officer (AO) and confirmation by the Commissioner of Income Tax (Appeals) [CIT(A)].
2. Whether the assets were used for business purposes to qualify for depreciation.
3. Application of judicial consistency in allowing depreciation.

Issue-Wise Detailed Analysis:

1. Disallowance of Depreciation:
The primary issue in this case is the disallowance of depreciation amounting to Rs. 6,13,14,399/- by the AO, which was subsequently confirmed by the CIT(A). The AO observed that the assessee company had no business activity from the year 2010 onwards and hence proposed to disallow the depreciation claimed. The assessee argued that although business operations were suspended temporarily due to adverse conditions, efforts were made during the year under consideration to refurbish the plant and machinery, indicating an intention to resume operations.

2. Use of Assets for Business Purposes:
The AO's disallowance was based on the interpretation of Section 32(1) of the Income Tax Act, which allows depreciation only if the asset is used for business purposes during the year. The AO noted that since the company had no business activity and the assets were not used in the previous year, the depreciation claim was not valid. The CIT(A) upheld this decision, agreeing with the AO's assessment.

3. Judicial Consistency:
The assessee contended that the AO had allowed depreciation in the Assessment Year (AY) 2013-14 under similar circumstances and that judicial consistency should apply. The assessee cited several case laws to support the claim that even passive use of assets (keeping them ready for use) qualifies for depreciation.

Tribunal's Findings:
The Tribunal found merit in the assessee's argument regarding judicial consistency. It was observed that the company, despite suspending operations, was still in existence and had made efforts to revive its business. The Tribunal referred to the Delhi High Court's judgment in CIT Vs. Integrated Technologies Ltd., which supported the view that passive use of assets qualifies for depreciation. The Tribunal noted that the company had incurred expenses to keep the business alive, such as salaries and maintenance, indicating an intention to resume operations.

Conclusion:
The Tribunal concluded that the AO should have allowed the depreciation claim for the impugned AY, considering the judicial consistency and the fact that the company was making efforts to revive its business. The Tribunal set aside the CIT(A)'s order and directed the AO to allow the depreciation claim of Rs. 6,13,14,399/-. The appeal filed by the assessee was allowed in these terms.

Pronouncement:
The judgment was pronounced in the open court on 8th October 2021, allowing the assessee's appeal.

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