2007 (2) TMI 213 - HC - Income Tax

One of the conditions for allowing deduction u/s 32 is that the machinery must have been used for the purposes of the business during the previous year in which the machinery is sold discarded demolished or destroyed - There is a concurrent finding of three authorities below i.e. the Assessing Officer Commissioner of Income Tax (A) and ITAT to the effect that the machinery was not put to use at all during the relevant previous year hence depreciation is not entitled

Summary

Issues:
Claim under Section 32(1)(iii) of the Income Tax Act disallowed.

Analysis:
The appellant filed an appeal against the order disallowing the claim under Section 32(1)(iii) of the Income Tax Act for write off of discarded/obsolete machinery amounting to Rs.40,83,828. The appellant, engaged in manufacturing computer consumables, had obsolete machinery approved for write off. The Assessing Officer denied the claim citing non-usage of machinery during the relevant period. The Commissioner of Income Tax (Appeals) and the Tribunal upheld this decision, leading to the present appeal.

The appellant argued that Section 32(1)(iii) does not mandate machinery usage in the year of discarding, demolition, or sale, emphasizing that assets should have been used for business in earlier years. The Revenue contended that the Tribunal's interpretation was correct. The relevant provision, Section 32(1)(iii), requires machinery to have been used for business during the previous year of sale, discard, demolition, or destruction. All three authorities - Assessing Officer, Commissioner of Income Tax (A), and Tribunal - found the machinery was not used during the relevant previous year.

Referring to a case law, the Court highlighted that the asset claimed under Section 32(1)(iii) must have been used for the business in the assessment year it was claimed. The Court agreed with the findings of the lower authorities and dismissed the appeal, stating no substantial question of law arose, and no error was found in the Tribunal's decision.

In conclusion, the Court upheld the disallowance of the claim under Section 32(1)(iii) of the Income Tax Act, emphasizing the requirement of machinery usage for business purposes during the relevant period. The decision was based on the consistent findings of non-usage by all authorities and in line with legal interpretations provided by relevant case laws.