Tribunal allows depreciation claim for business assets, emphasizing ownership and use for business purposes.

The Tribunal ruled in favor of the assessee, directing the Assessing Officer to allow the depreciation claimed on the block of assets for the relevant assessment years. The Tribunal emphasized that ownership of the assets, their inclusion in the block of assets, and their use for business purposes justified the depreciation claim, even if some units were non-operating. The decision highlighted the principles of consistency in allowing depreciation and rejected the argument that assets of closed units should be excluded from depreciation claims.

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Issues Involved:
1. Disallowance of Depreciation on Non-Operating Units
2. Principles of Consistency in Allowing Depreciation
3. Applicability of Block of Assets Concept

Summary:

1. Disallowance of Depreciation on Non-Operating Units:
The primary issue concerns the disallowance of depreciation claimed by the assessee on non-operating units. The assessee argued that all assets formed a block of assets used for business purposes and should be eligible for depreciation. The Assessing Officer (AO) disallowed the depreciation, stating that the non-operating units were completely closed and not temporarily suspended, thus not used for business purposes. This decision was upheld by the Commissioner of Income Tax (Appeals) (CIT(A)), who relied on previous judgments and the fact that the non-operating units were intended for sale as per the Board for Industrial and Financial Reconstruction (BIFR) order.

2. Principles of Consistency in Allowing Depreciation:
The Tribunal noted that the Revenue did not dispute the fact that the units were non-operating since 1996 and that prior to 2003-04, all assessments were done without any disallowance of depreciation. The Tribunal emphasized the principles of consistency, stating that the Revenue should have allowed the depreciation on the assets for being part of the block of assets. The Tribunal also highlighted that the BIFR directions do not override the provisions of the Income Tax Act, and as long as the ownership of the assets continues with the assessee company, the claim for depreciation is valid.

3. Applicability of Block of Assets Concept:
The Tribunal referred to the legislative intent behind the concept of the block of assets, which does not require the use of each individual asset for allowing depreciation. The Tribunal cited the judgment of the Delhi High Court in CIT vs. Oswal Agro Mills Ltd., which held that assets of closed units could not be segregated for the purpose of allowing depreciation and that depreciation has to be allowed on the entire block of assets. The Tribunal also noted that the Mumbai Bench of the Tribunal in M/s. Swati Synthetics Ltd. had allowed depreciation on assets that remained part of the block of assets, even if the units were closed.

Conclusion:
The Tribunal decided in favor of the assessee, directing the AO to allow the depreciation as claimed on the block of assets for the relevant assessment years. The Tribunal emphasized that the ownership of the assets, their inclusion in the block of assets, and their use for business purposes, even if some units were non-operating, justified the claim for depreciation. The appeals of the assessee were allowed, and the order was pronounced on 20th July, 2023.

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