2017 (8) TMI 1312 - AT - Income Tax

Claim of depreciation on the plant and machinery - AO disallowed this claim by holding that there was not business activity carried on by the assessee during the year since the plant and machinery was not in operation - concept of depreciation on block assets - Held that - For the Assessment Year 2003-04, this plant was in operation and the assese claimed depreciation and the same was allowed. The Director s Report for the year ended 31st March 2008, reports resumption of supplies of Fly Ash. The plant was in operation for the Financial Year 2007-08, relevant to the Assessment Year 2008-09 and depreciation was claimed by the assessee and allowed by the Assessing Officer. The above proves, that it was only for the Financial Year 2004-05, that the assessee was unable to put to the plant and machinery, due to stoppage of movement of Fly Ash. This has resulted in temporary closure. Depreciation cannot be denied under such circumstances. Even otherwise, under the block of assets concept, the requirement of using of the plant and machinery, by the assessee, during the Financial Year, does not arise. See Natco Exports. Versus DCIT 2002 (6) TMI 168 - ITAT HYDERABAD-A - Decided in favour of assessee.

Summary

Issues:
Liability of depreciation claim on plant and machinery.

Analysis:
The appeal was filed against the order of the Commissioner of Income Tax regarding the disallowance of depreciation claim on plant and machinery for the Assessment Year 2005-06. The Assessing Officer disallowed the claim stating that no business activity was carried out as the plant and machinery were not in operation. The First Appellate Authority upheld this finding. However, it was revealed that the operations were temporarily suspended due to the stoppage of fly ash supply by NTPC. The plant was operational in previous and subsequent years, and depreciation was allowed. The Tribunal referred to the block of assets concept and cited judicial precedents to support the allowance of depreciation on assets forming part of the block, even if not used during the assessment year. The Tribunal upheld the claim of the assessee based on these legal principles.

The Tribunal found that the assessee's claim for depreciation was valid, considering the temporary closure of operations due to external factors beyond their control. The Tribunal emphasized that under the block of assets concept, depreciation should be allowed on the entire block irrespective of the specific usage during the assessment year. Citing various judicial decisions, the Tribunal concluded that depreciation on assets forming part of the block should be permitted, even if not used or owned during the assessment years in question. The Tribunal distinguished previous cases that predated the concept of depreciation on block assets and upheld the claim of the assessee for depreciation.

In light of the legal principles and precedents discussed, the Tribunal allowed the claim of the assessee for depreciation on the plant and machinery. As a result, the appeal of the assessee was allowed, and the Tribunal did not address other grounds raised in the appeal, considering them as academic exercises. The judgment highlighted the importance of understanding the block of assets concept and ensuring the allowance of depreciation based on the principles established in relevant judicial decisions.