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2013 (8) TMI 525 - HC - Income TaxDepreciation u/s 32 of the Income Tax Act Plant ready for used but not used in actual due to unavailability of raw-material Held that - Relying upon the judgment in the case of Whittle Anderson Ltd Vs. Commissioner of Income Tax, Bombay City I 1968 (12) TMI 27 - BOMBAY High Court ; CIT Vs. Vayithiri Plantations Ltd 1980 (1) TMI 27 - MADRAS High Court , it was held that deprecialtion u/s 32(1) of the Income Tax Act will be allowed Reliance is also placed upon the decision in the case of Liquidators of Pursa Ltd Vs CIT 1954 (2) TMI 1 - SUPREME Court , wherein it was held that so long as the business was going and the machinery got ready for use but due to certain extraneous circumstances, the machinery could not be put to use, the said fact could not stand in the way of granting relief under Section 32 of the Act Decided against the Revenue.
Issues Involved:
1. Entitlement to depreciation on Gas Sweetening Plant. 2. Interpretation of the term "used" under Section 32 of the Income Tax Act, 1961. 3. Reopening of assessment under Section 148 of the Income Tax Act, 1961. Detailed Analysis: 1. Entitlement to Depreciation on Gas Sweetening Plant: The core issue was whether the assessee was entitled to claim depreciation of Rs. 2,76,68,250/- on the Gas Sweetening Plant for the assessment year 1998-99, despite the plant not being actually used due to non-availability of raw material. The Assessing Officer initially rejected the claim, stating that the plant was not used at any time during the relevant previous year, as required under Section 32(1) of the Income Tax Act, 1961. However, the Income Tax Appellate Tribunal (ITAT) ultimately allowed the claim, reasoning that the plant was ready for use, and the non-availability of raw material was an impediment beyond the assessee's control. 2. Interpretation of the Term "Used" Under Section 32 of the Income Tax Act, 1961: The term "used" was central to determining depreciation eligibility. The assessee argued that the term should be interpreted broadly to include both active and passive use, meaning that the plant being ready for use should suffice. The ITAT's Accountant Member supported this view, referencing the decision in CIT Vs. Vayithri Plantations Ltd., which held that readiness for use was sufficient for depreciation claims. Conversely, the Judicial Member argued that after the amendment to Section 32(1), actual use was necessary, citing decisions like CIT Vs. Maps Tours and Travels. The Third Member of the ITAT sided with the Accountant Member, emphasizing that readiness for use met the requirements of Section 32, especially when non-use was due to factors beyond the assessee's control. 3. Reopening of Assessment Under Section 148 of the Income Tax Act, 1961: The assessment for the year 1998-99 was reopened by the issuance of a notice under Section 148, based on the claim that the plant was not in use during the relevant year. The assessee contended that the reopening was unjustified as the plant was ready for use, and the non-availability of raw material was a valid reason for non-use. The ITAT ultimately found in favor of the assessee, indicating that the reopening was not warranted under the circumstances. Judgment Summary: The High Court upheld the ITAT's decision, confirming that the assessee was entitled to claim depreciation. The Court agreed with the broader interpretation of "used" to include readiness for use, especially when non-use was due to external factors like raw material unavailability. The Court referenced multiple precedents, including CIT Vs. Vayithri Plantations Ltd. and Whittle Anderson Ltd Vs. CIT, to support the view that depreciation claims should not be denied when the asset is ready and available for use but not actively used due to circumstances beyond the assessee's control. The Court concluded that the business was a going concern, and the machinery's readiness for use sufficed for depreciation under Section 32. Consequently, the Revenue's appeal was rejected, and the ITAT's majority view was affirmed.
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