TaxTMI 
TaxTMI 
2016 (7) TMI 1242
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....tivities 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 depreciation will not be allowed. This is not question of claim....
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.... 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 the lockout of a factory throughout the previous year the asset cannot be said to be used in any manner.....
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....essed 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 not been used even for a single day on account of lock-out in unit. 2) Karnataka High Court in case of DCIT v. Yellamma Dasappa....
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....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 CIT Vs Patiala Coop Sugar Mills Ltd 206 Taxman 64(P&H) is distinguishable on facts. The operating expenditure including repair and maintenance of machinery wer....
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....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 outset, we wish to state the undisputed fact that the Plant & Machinery under question (except Telecom System which has been disputed by the Department) have been installed and....
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....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 been kept ready for use for the above purpose. In other words, if the assessee purchases a machine which is not required at all having regard to the nature of the business carried on by the assessee/ he will not be e....
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....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 that business activities of the assessee were carried on during the year. Provisions of section 32 of the Act read as under :- Depreciation. 32. (1) [In respect of depreciation of- (i) buildings, machinery, plant or furniture,....
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.... 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 depreciation on pipe line for Asst. Year 2001-02 to 2004- 05, came up before the Tribunal. We find that Co-ordinate Bench adjudicated the above issue and dismissed assessee's grounds of appeal by observing as under in ITA No.1042/RJT/2010, 1213/RJT/2010 & 215/RJT/2011 (supra) wherein following grounds were raised for the respective ....