TaxTMI 
TaxTMI 
2010 (5) TMI 543
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....t. 5. Brief facts of the case are that there was disallowance of depreciation on SAF Plant of Rs.4,45,39,956/- in the assessment year 2001-02. Similar disallowance was made in other year under consideration also. The assessing officer noticed that the assessee has constructed a sub merged Arc Furnace (SAF Plant) which was capitalized in the books w.e.f. 1.4.1999 for the assessment year 2000-01 and the following observations have been made in the annual report: 5.1. 4. SAF Plant has been capitalized w.e.f. 1.4.1999. The plant has not been in operation since capitalization. However an amount of Rs.145.22 lakhs (previous year Rs.145.22 lakhs) has been provided as normal depreciation on the assets of SAF". Further, the Director's report also contains a remark which is as under: 5.2. "During the year 2002-03 also the SAF Plant continued to remain idle in view of the continued depressed conditions in the market for Silico Manganese. Though the company made efforts were not successful. " 6. In view of the above, the assessing officer after giving an opportunity to the assessee, disallowed the depreciation claimed on the SAF plant relying on the ratio of the decision of the Hon....
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....year 1996 it established submerged arc furnace (SAF) so as to enable the company to manufacture pig/silicon manganese. The entire process of manufacture of pig iron and silicon manganese commenced in the year 1996 as enumerated in the following paras. 9.2. The plant was completed and commissioned in the year 1996. During the year 1996, the plant commenced its production of pig iron. However with the introduction of mini blast furnaces in India, the production of pig iron was more uneconomical in such mini blast furnaces and the assessee started incurring losses in the production of pig iron. The following factors lead the company to stop the manufacture of production of pig iron in the year 1997 itself: a) when the proposal of setting up pig iron plant through SAF was taken up, there was tremendous shortage of pig iron in the country and it was being imported. During the implementation period concept of mini blast furnace came into India and many mini blast furnaces were set up and commissioned in India for production of pig iron economically and hence the operation were not continued. b) Due to globalization, prices of steel and other products fell down drastically and th....
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....ssets are formed into a block of assets cannot again be separated. The intention of the Legislature is to grant depreciation on the written down value of entire plant and machinery without considering the independently unit of machinery. In such circumstances, the assessing officer cannot divide individual parts of the machinery for granting the depreciation and has to consider the plant and machinery as an integral one unit. He submitted that the expression of word 'used' mentioned in Sec.32 is applicable to block of assets and not to an individual item of assets included in the block of assets. The entire plant and machinery is kept ready for use and was not used for business considerations, since the production of pig iron and silicon manganese is not economical, the assessee stopped the process of manufacturing the pig iron and it was selling the sponge iron directly to various industries in India. The assessee can produce at any point of time pig iron, if situation warrants. He submitted that the SAF plant is not an independent machinery and it is integral of the entire plant and machinery system for production of pig iron. In view of this he submitted when the entire factory ....
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....essee the SAF Plant has been capitalized w.e.f. 1.4.1999. The plant has not been in operation since capitalization. However, depreciation has been provided for. He submitted that the SAF plant was not at all put to use since capitalization. The argument of the assessee counsel is contrary to the records and whatever the evidence produced by the assessee in support of the usage of the SAF plant is new evidence which cannot be considered at this stage. He submitted that even if the trial run carried on by the assessee, it is an empty formality since there is no intention of usage of the plant and management has taken a decision not to go for commercial production . Further, he submitted that kept in the state of readiness to use of the plant is no meaning since various parts of the machinery were removed at various time. He drew our attention to the office note dated 09.12.2005 placed at Page No.7.7 of the Assessee's Paper Book which reads as follows: Note: The existing gear reducer of DRP I cooling tower fan No.2 is completely damaged and is beyond repairable. Procurement for a new gear box is under progress and as a 'stop gap' , arrangement, the same model 346-602 To do PCT make....
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....year 1995-96 wherein it was stated that after ascertaining the possibility of producing the pig iron out of the sponge iron by trial operation, the plant has not started any commercial production because of two reasons: 1. Non availability of adequate and sustained power from the state Electricity Board 2. Non viability from economic angle on account of free availability of high grade pig iron both from domestic manufacturers as well as by way of imports. So, after trial production the very idea of producing pig iron out of sponge iron was abandoned completely without there being any future prospects in this respect. There is no intention of prospective production of pig iron in future. Being so, there is no merit in the argument of the assessee counsel that the SAF plant was kept ready for use. Regarding various case laws relied by the assessee counsel, we are of the opinion that these case laws not applicable to the facts of the present case. In the present case, the SAF plant not at all used at any time and there was no intention to use the Plant. Instead various parts of the plant were removed and used for some other purpose. In these circumstances, we cannot apply the ra....