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2011 (12) TMI 48 - HC - Income TaxClaim for Depericiation - passive use of the assets? - Assessee case pending with BIFR , filed ROI and claimed depreciation, bad debts, raw material stock written off and administrative expenses. AO disallowed as no business was carried on during the P/Y year - he observed that since the plant and machinery was not actually used for the purpose of the assessee s no depreciation was allowable - CIT(A) allowed allowed expenses other than depericiation he took the view that there is no material on record to show that the assessee had completely abandoned its business - Tribunal allowed in assessee favour - Revenue appealed Held That - In view of - Capital Bus Service Pvt. Ltd. Vs. CIT (1980 - TMI - 36904 - DELHI High Court) and CIT Vs. Refrigeration and Allied Industries Ltd. (2000 -TMI - 14585 - DELHI High Court) it is not necessary that the plant and machinery owned by the assessee should be actually put to use in the relevant accounting year to justify the claim of depreciation and that even if the plant and machinery or other asset is kept ready for use in the assessee s business, the assessee would be entitled to depreciation. The only condition is that the business should not have been closed down once for all and that the assessee should demonstrate that the hopes of the business being revived are alive and real. It is however not a matter that can turn entirely on the assessee s hopes alone. - There should be evidence or material to show that the assessee took efforts to keep the business alive in the hope of reviving the same. Thus no substansial question of law arises. - Decided against the revenue.
Issues Involved:
1. Whether the assessee could get the benefit of depreciation under Section 32 of the Income Tax Act on the basis of "passive use" of the assets. 2. Whether the Tribunal erred in ignoring the clear language of Section 32. 3. Whether the business of the assessee was closed or merely in a temporary lull. Issue-Wise Detailed Analysis: 1. Benefit of Depreciation on the Basis of "Passive Use": The Tribunal held that the assessee was entitled to depreciation on plant and machinery on the footing that they were kept ready for use in the business once it got revived, which amounted to passive use. The Tribunal relied on three judgments of the Delhi High Court: - Capital Bus Service Pvt. Ltd. Vs. CIT (1980) 123 ITR 404 - CIT Vs. Refrigeration and Allied Industries Ltd. (2001) 247 ITR 12 - CIT Vs. Panacea Biotech Ltd. (2009) 183 Taxman 212 The Tribunal found that the claim of passive use was supported by the efforts made by the assessee to restart the business, including the purchase of new plant and machinery, incurring expenses on repairs and maintenance, and purchasing consumable stores. The Tribunal noted that the CIT (Appeals) had allowed deductions for salary, allowances, and staff welfare expenses, which supported the assessee's plea that it was making efforts to revive the business and keep the assets ready for use. 2. Ignoring the Clear Language of Section 32: The Tribunal's decision was challenged on the grounds that it ignored the clear language of Section 32, which requires actual use of the assets for claiming depreciation. However, the Tribunal applied the ratio laid down in previous judgments, which state that it is not necessary for the plant and machinery to be actually put to use in the relevant accounting year. The assets being kept ready for use in the business suffices for compliance with Section 32, provided the business is not closed down permanently and there are real hopes of revival. 3. Whether the Business was Closed or in Temporary Lull: The Tribunal found as a fact that the assessee had not closed its business and had every intention to revive it. This finding was based on evidence that the assessee kept its establishment alive by paying salaries and other allowances to the staff, acquired new plant and machinery, and incurred repair expenses. The Tribunal noted that the revenue did not challenge these findings as perverse and had accepted the allowance of salary payments, staff welfare, and repairs and maintenance expenses by the CIT (Appeals) without filing any appeal on those points. The Tribunal concluded that maintaining the office and establishment, complying with statutory formalities, not disposing of the plant and machinery, and incurring repair expenses are indications of nurturing hopes of reviving the business. The Tribunal found that the assessee's business was only in a temporary lull and not closed permanently. Conclusion: The High Court dismissed the revenue's appeal, holding that no substantial question of law arose from the Tribunal's decision. The Tribunal's findings that the business was kept alive with hopes of revival and that passive use of assets met the requirements of Section 32 were supported by facts and previous judgments. The appeal filed by the Revenue was dismissed with no order as to costs.
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