2013 (6) TMI 524 - AT - Income Tax

Depreciation disallowed - as per AO assessee had shown the rental income therefore the asset being not used for the purposes of assessee s own business - Held that - The assessee has given on hire JCB machines, cranes, pipe layers as instead of keeping the machinery idle, the assessee has hired-out those machinery and shown hiring income. By showing this income, the assessee has not given any loss to the Revenue, rather Revenue got benefited. This is not the case of the Revenue that the machineries in question have not at all been used by the assessee for the single day during accounting period under consideration. In a situation when a machinery has been used, for any period in a financial year for the purposes of the business of the assessee, then the assessee is entitled for the depreciation u/s.32(1). Thus whether the machinery is rented out or not had no consequence on the allowance of depreciation which had fallen within the block of assets for the year under consideration and for a part period used towards the business purposes. As per the provisions of section 57 an assessee is entitled for deduction in respect of income from other sources which includes deduction u/s.32 of the Act. Since in the present case, the hiring of the machinery was considered as income from other sources within the ambits of section 56 of the Act, therefore in consequence thereupon the assessee is entitled for claim of deduction as prescribed u/s.57(ii) which provides deduction u/s.32(i). In favour of assessee.

Summary

Issues: Disallowance of depreciation based on machinery hire income.

Analysis:
1. The appeal arose from the order of the ld.CIT(Appeals)-VIII, Ahmedabad, concerning the disallowance of depreciation for A.Y. 2008-09.
2. The AO observed that the assessee, a construction company, had shown hire income from machinery not used for its own business, leading to a proportionate disallowance of depreciation.
3. The AO's disallowance was based on the lack of details provided by the assessee regarding the machinery used for earning hire income.
4. The first appellate authority affirmed the AO's decision, emphasizing that depreciation can only be claimed if the machinery is used for the business.
5. However, the Tribunal disagreed with the Revenue Department's view, noting that the machinery was hired out for part of the year, which did not preclude depreciation claims.
6. The Tribunal highlighted that even if the machinery was not exclusively used for the business, the assessee was entitled to a fair proportionate deduction under section 38(2) of the Act.
7. The Tribunal reasoned that the machinery being hired out did not impact the allowance of depreciation, as long as the assets were part of the block of assets and used for business purposes during the year.
8. Additionally, the Tribunal invoked section 57 of the Act, allowing deduction for "income from other sources," including depreciation under section 32, thereby supporting the assessee's claim.
9. Consequently, the Tribunal reversed the Revenue Authorities' decision and directed the allowance of the depreciation claim, concluding in favor of the assessee.
10. Ultimately, the Tribunal allowed the assessee's appeal, overturning the disallowance of depreciation based on the hire income from machinery.