2013 (6) TMI 664 - AT - Income Tax

Depreciation claim disallowed - additions to the relevant blocks of assets admittedly made at the end of the financial year had not been shown to be put to use - Held that - The trial production is usually for the entire unit, as it is only when the entire machinery is set up, that the production or trial production could be made. The running of a single machine, as it is perhaps this that has been construed as a trial run, is only a part of its commissioning, as vendors are usually required to demonstrate the working of the machine as a part of its commissioning. Again,from the list of the additions to the fixed assets there are additions dating as far as back to May, 2007. The assessee has also sought to place on record the copy of the invoice dated 28.02.2008, with a request that the same be admitted on record, perhaps to meet the objection by the first appellate authority that the production would only be accompanied by payment of excise duty. Thus restore the matter back to the file of the assessing authority for a de novo examination of the matter - assessee s appeal allowed for statistical purposes.

Summary

Issues:
1. Disallowance of depreciation claim based on assets not shown to be put to use within the relevant financial year.

Analysis:
The judgment pertains to an appeal by the assessee against the Commissioner of Income Tax (Appeals) order dismissing the appeal contesting the assessment under section 143(3) of the Income Tax Act, 1961 for the assessment year 2008-09. The principal issue revolves around the disallowance of the assessee's claim for depreciation amounting to Rs.31,27,825. The Assessing Officer denied the claim as the assets worth Rs.5 crores were added at the end of the financial year and allegedly not put to use within the same year, which is a prerequisite for depreciation allowance under section 32(1). The appellant submitted commissioning certificates showing trial runs of the machines in February 2008 but failed to explain how the assets were claimed to be put to use in March 2008. The Tribunal found the facts to be indeterminate, questioning the timing of asset purchases and trial runs. Additionally, inconsistencies in trial run dates and the lack of evidence regarding excise duty payments on produced goods were noted. The Tribunal admitted additional evidence, directing a fresh examination by the assessing authority to determine the assets' actual usage and eligibility for depreciation allowance under section 32.

The Tribunal highlighted the need for a detailed examination of the assets' usage during the relevant financial year to ascertain their eligibility for depreciation allowance. The Tribunal considered the discrepancies in the dates of trial runs and asset additions, emphasizing the necessity for concrete evidence to support the claim for depreciation. The assessing authority was instructed to conduct a thorough assessment, including verification of separate assets' capabilities and usage, along with the payment of excise duty on goods produced. The Tribunal's decision to admit additional evidence aimed at resolving the factual uncertainties and inconsistencies in the case, emphasizing the importance of factual clarity in determining the assets' depreciation eligibility under section 32. Ultimately, the appeal was allowed for statistical purposes, indicating a procedural victory for the assessee pending further examination by the assessing authority.