2015 (12) TMI 1890 - AT - Income Tax

Additional disallowance of depreciation enhanced by CIT(A) - assets have already entered into the block of assets - HELD THAT - As assets in question were forming part of block of assets which were used earlier for the purpose of business. The said asset were destroyed / lost in theft in the assessment year 2006-07 and no insurance claim has been received to the assessee. To the extent of the amount of claim made to the insurance company was reduced from the block of assets in the earlier years and accordingly, assessee has claimed depreciation on the reduced written down value. Since the assessee could not receive the insurance claim, the amount of insurance claim was added back and accordingly, depreciation was claimed on this amount. CIT(A) has enhanced the disallowance of depreciation on the ground that the said asset has not been put to use for the business purpose. Such a reasoning given by the CIT(A) for the enhancement cannot be sustained, because now it is quite a settled proposition that if the assets have already entered into the block of assets and is forming part of the gross block of assets, then deprecation has to be allowed even if the said assets has not been used in the relevant year. This proposition now stands settled by the catena of decisions including that of case of CIT vs G.R. Shipping Ltd 2009 (7) TMI 1169 - BOMBAY HIGH COURT Otherwise also, if the assessee s claim for insurance has not been settled and amount has been added back, then the depreciation has to be allowed on such an amount. Accordingly, we direct the AO to grant deprecation in the previous year relevant to AY 2006-07, that is, when it was added back to the block of assets and secondly, rework the deprecation for the assessment year under appeal accordingly. Appeal of the assessee is allowed.

Summary

Issues:
Challenge to additional disallowance of depreciation.

Analysis:
The appeal was filed against the order passed by CIT(Appeals)-20, Mumbai, regarding the quantum of assessment under section 143(3) for the assessment year 2007-08. The main challenge was against the enhanced disallowance of depreciation of Rs. 3,00,385/- by the CIT(A) compared to the initial disallowance of Rs. 53,395/- by the AO.

The assessee, engaged in cable network services and internet provision, had added an amount to the 'block of assets' due to a lower insurance claim received. The AO contended that the adjustment should have been made in the preceding year, and depreciation claimed accordingly. The difference in depreciation was calculated, leading to the disallowance of Rs. 53,395/-.

Before the CIT(A), the assessee argued that if the insurance claim was unsettled, normal depreciation should have been allowed. The CIT(A) held that since the assets were destroyed earlier and not used for business, the entire depreciation claim had to be disallowed.

During the appeal, the counsel argued that the assessee was eligible for full depreciation as the assets were part of the 'block of assets' and reinstated after the insurance claim was not settled. Relying on precedents, the counsel contended for the allowance of full depreciation.

The Tribunal found that the assets were part of the 'block of assets' and depreciation should be allowed even if not used in the relevant year. Citing relevant case law, the Tribunal directed the AO to grant depreciation on the amount added back to the block of assets and rework the depreciation for the assessment year in question. Consequently, the appeal of the assessee was allowed.

In conclusion, the Tribunal ruled in favor of the assessee, directing the AO to grant depreciation on the reinstated amount and adjust the depreciation for the relevant assessment year accordingly.