2014 (2) TMI 171 - AT - Income Tax

Depreciation - temporary suspension of manufacturing process Held that - The concept of temporary suspension of manufacturing process does not in any way affect the claim of depreciation in so far as once it is accepted that particular plant and machinery has been put to use by the assessee and such plant and machinery is owned by the assessee, then the value of that plant and machinery adds to the block of assets under the head Plant & Machinery - Once the said block of assets/plant & machinery is granted depreciation, then such depreciation on the plant & machinery becomes continuous allowance until and unless the business itself is discontinued. In the assessee s case, there is no discontinuance of business. In the business, temporary stoppage of manufacturing process would not disentitle from the assessee s claim of depreciation in respect of the said block of assets - Decided in favour of Assessee.

Issues Involved:
- Appeals filed by the assessee against the orders of the Commissioner of Income-tax (Appeals) for the assessment years 2003-04, 2004-05, and 2005-06.
- Validity of initiation of proceedings under sections 147/148 of the Income Tax Act, 1961.
- Claim of depreciation on plant and machinery during temporary suspension of manufacturing activities.
- Consideration of legal requirements for manufacturing companies in claiming depreciation.

Analysis:

Issue 1: Initiation of Proceedings under Sections 147/148
The assessee challenged the initiation of proceedings under sections 147/148, arguing that all material facts were disclosed in the audit notes, accounts, and tax audit reports along with the income tax returns. The appellant contended that the initiation of proceedings was based on a change of opinion and was arbitrary, illegal, and perverse. The appellant further argued that the decision relied upon by the lower authorities did not apply to the present case. The Tribunal noted that the re-opening of assessments was invalid since the return for the subsequent year was available before the Assessing Officer (AO) when the notices were issued. The Tribunal held that the initiation of proceedings under sections 147/148 was not justified.

Issue 2: Claim of Depreciation during Temporary Suspension
The assessee claimed depreciation on plant and machinery despite temporary suspension of manufacturing activities due to labor unrest. The appellant argued that the temporary suspension did not disqualify them from claiming depreciation, especially since the machinery was part of a block of assets that had previously been granted depreciation. The Tribunal agreed with the assessee, emphasizing that temporary stoppage of manufacturing activities did not affect the claim of depreciation as long as the assets were owned and used by the assessee. The Tribunal held that the assessee was entitled to claim depreciation for all three assessment years under appeal.

Issue 3: Compliance with Legal Requirements
The appellant, a manufacturing company, highlighted the legal requirements for manufacturing processes and claimed that temporary suspension did not make them ineligible for depreciation. The Tribunal acknowledged that the assessee's business had not been discontinued and that the temporary stoppage did not impact the claim of depreciation on the block of assets. The Tribunal emphasized that once depreciation was granted on a block of assets, it continued unless the business was discontinued. The Tribunal found that the assessee met the legal requirements for claiming depreciation and allowed the appeals for all three assessment years.

In conclusion, the Appellate Tribunal ITAT KOLKATA allowed all the assessee's appeals for the assessment years 2003-04, 2004-05, and 2005-06, emphasizing the entitlement to claim depreciation during temporary suspension of manufacturing activities and the compliance with legal requirements for manufacturing companies.

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