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2016 (7) TMI 1242
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....sing Officer observed that the operation activities of the assessee company were abandoned during the year which was apparent from the fact that no income from operation activities was reported in the audited profit and loss account and, therefore, plant and machinery were not actually used during the year. In view of this observation ld. Assessing Officer denied the claim of depreciation of plant and machinery of Rs. 7,72,10,093/-. 3. Aggrieved, assessee went in appeal before ld. CIT(A) and the same was partly allowed by way of allowing depreciation claimed on plant and machinery except the depreciation on pipe line as the same was under dispute before the first appellate authority since Asst. Year 2001-02. Ld. CIT(A) observed as under while partly allowing the appeal :- 5.3 I have duly considered the submission of the appellant and also gone through the discussion made by the AO in the assessment order. 5.4 The fact is that the depreciation on same plant & machinery has been allowed in the preceding year and as well as in next year to the assessment] year in question. Just because the machinery could not be used due to lack i contract work, does not mean depr....
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....sed" is extended to passive use, is relevant only when the business activities are present. In absence of business activity during the entire previous year, the asset cannot be said to be used passively as held by Hon'ble Supreme Court in case of Liquidators of Pursa Ltd. [1954] 25 ITR 265 (SC). In this case it was held that in order to attract the operation of relevant section the machinery and plant must be such as were used in whatever sense that word is taken, at least for a part of the accounting year. If the machinery and plant have not at all been used at any time during the accounting year no allowance can be claimed under such section in respect of them. A case where any asset is all ready for use under ongoing business activities, but due to lack of opportunities could not be[ used during the year is different from a case where the asset cannot be used at all because business activity itself is absent. The present case falls under the latter category and therefore depreciation should not be allowed. Exactly these two situations were analyzed by Hon'ble Calcutta High Court in case of CIT vs Oriental Coal Co. Ltd 206 ITR 682 (Calcutta) and it was held that during th....
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....tatute, no court is justified in imputing to the legislature an intention that it has not clearly expressed in the language it has employed 2. Assessing Officer has relied on the decision of Dineshkumar Gulabchand Agrawal Vs CIT 267 ITR 768 (Bom) where the word "used" in section 32 of the act has been interpreted as actually .used and not merely "ready to use". The SLP filed against This order of' Hon'ble Bombay High Court has been dismissed by Hon'ble Supreme Court in (2004) 7.66 ITR (St.) 106. Assessing Officer has relied on the decision of CIT Vs Udaipur Mineral Development Corporation Development Syndicate Pvt Ltd 269 ITR 263 (Raj) where it was held that when a machinery in question was not put to use at any time during the year, there is no justification to allow depreciation on such machinery. 3. In addition to the above judgments of Bombay and Rajasthan High Court, I rely on the judgment as under: 1) Calcutta High court in case of CIT vs Oriental Coal Co. Ltd 206 ITR 682 (Calcutta). It was held in this case that depreciation could not be allowed on plant and machinery of a unit of assessee-company, where assets of that unit had....
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.... part of the accounting year. If the machinery and plant have not at all been used at any time during the accounting year no allowance can be claimed under clause (vii) in respect of them and the second proviso to that clause also does not come into operation 7) Delhi High Court in case of CIT v. Oswal Agro Mills Ltd. (2012) 341 ITR 0467(DELHI). In this case it was held that passive use cannot be extended to absurdity such as a prolonged period of non operation. 4. Assessee has relied on certain decisions. The case of CM Vs Refrigeration & Allied Industries Ltd 247 ITR 12 (Delhi) is distinguishable on facts. In this case the assets could not be actually used due to lack of opportunity in the business and not on account uf non existence of business operations. The case of CIT Vs Shabad Cooperative Sugar Mills Ltd 56 DTK 414 (P&H) is distinguishable on facts. In this case the tribunal had given the finding of trial run of new plant and machinery and therefore merely on absence of the proof of its use the depreciation could not be disallowed. It was certainly not a case where business operations had stopped and this decision cannot be applied in present case. The case of C....
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.... AR submitted that claim of depreciation on the impugned plant and machinery has been allowed in the previous year as well as in the subsequent years and assets were not purchased during the year. Impugned plant and machinery have actually been used in the past and they were ready for use in the year under appeal as the assessee company was awaiting to receive the contract for utilization of pipe lines which could not materializes for some reason. Ld. AR further submitted that assets being ready for use are normally taken as being used passively. In the case of assessee also assets were purchased and were put to use in earlier years and they were ready for use in this year also so they should be treated as being passively used. Ld. AR further submitted as under- "During the year under assessment, the assessee company has claimed depreciation of Rs. 7,72,1Q,093/- on Plant & Machinery including depreciation on pipeline and telecom system. It has been proposed to disallow the entire claim of depreciation claimed on Plant & Machinery on the contention that Plant & Macninery, though installed, have not been utilized for the purpose of business during the year, At the very....
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....et can be said to be in use when it is kept ready for use. In view of the conclusions arrived at by AAC and Tribunal about the obligation to keep the machinery in good working condition so that it can be used at any moment and the additional fact as noted by them that all expenses relating to the cold storage business were allowed, the view of the Tribunal is irreversible," (b) CIT vs. Shahbad Co-op, Sugar Mills Ltd. - 201 Taxman 61 CP&H) "Tribunal having categorically held that the plant and machinery was kept . in the state of readiness for production, assesses is entitled to depreciation thereon even though such plant and machinery was not put to use during the relevant year," (c) CIT vs. Norplex Oak India -198 Taxman 470 (Cal.) "The word "used' appearing in s. 32(1) should be given a reasonable meaning. By introducing the said provision, the legislature wanted to give the benefit of depreciation of the plant and machinery purchased by the assessee and used for the purpose of business. The word "used' should be interpreted to mean a situation where the machineries which are required for implementing the nature of business the assessee runs, have b....
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....s and Co-ordinate Bench on the issue relating to allowability of depreciation when the assets are not actually used and we find that facts dealt with in these judgments and decisions travelled on a narrow road which is unable to bring out a clear direction which could be followed on the issue before us. Certainly in such situation benefit has to go at the behest of assessee which is further analysed on the basis of facts laid down before us. 11. From going through the records, we find that business of the company has not been suspended nor the business is closed. Actually business is in running mode but due to some reason assessee could not get awarded the expected contract during the financial year. Further from going through the audited financial statement we observe that assessee has incurred various administrative expenses, payments have been regularly made to the employees, insurance charges have been paid and other financial transactions have occurred during the year. We also observe that ld. Assessing Officer has allowed the claim of depreciation on building, furniture and fixtures and vehicles which tentamounts to bring on the fact that Assessing Officer has accepted tha....
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....w we take up assessee's appeal in ITA No.414/Ahd/2013 wherein following grounds have been raised:- All the below mentioned grounds of appeal are independent and without prejudice to each other. 1. The assessment order u/s. 143(3) is bad in law.. 2. The Assessing Officer has erred on facts and in law in making disallowance of depreciation of Rs. 7,72,10,093/- on Plant & Machinery. The learned CIT(A), while deleting the disallowance, has erred in sustaining the disallowance on the pipeline which works out to Rs. 46,16,0727- on the basis of issue disputed in earlier years. 3. The appellant craves leave to add, alter, amend, delete or withdraw one or more grounds of appeal. 14. At the outset, ld. DR submitted that ld. CIT(A) did not allow the depreciation on pipe lines because of the dispute at the level of first appellate authority since Asst. Year 2001-02. Ld. DR also submitted that this issue is squarely covered against the assessee by the decision of the Co-ordinate Bench in assessee's own case vide its order in ITA Nos. 1042/Rjt/2010, 1213/Rjt/2010 & 215/Rjt/2011 for Asst. Years 2005-06, 2006-07 and 2007-08 wherein the issue relating to depreciatio....