2021 (12) TMI 597 - AT - Income Tax

Disallowance of depreciation claimed by the assessee u/s 32 on the fixed assets acquired/purchased during the year - asset put to use or not? - one of the main contention raised by the assessee was that nowhere in show-cause notice or queries, AO has asked, whether the assessee has started its business or not - HELD THAT - From bare perusal of the assessment order, it is seen that ld. AO put a query to the assessee on 18.03.2016 to file the details of fixed assets and why the depreciation should not be denied. In response, the assessee has submitted the details as well as purchased bills as noted by the AO - in the show-cause notice dated 18.03.2016 which has been noted by the ld. CIT (A) that, in the entire show-cause notice, nowhere there was any specific query whether the assets were put to use during the year. Production was carried out by utilizing raw material and finished semi-finished stocks at the year end. Not only that, the goods produced had also been sold and revenue from the operation has also been shown at ₹ 6,80,056/-. This is not only mentioned in the audited financial accounts, which were there before the AO, but also from the statutory record of RG-1 register, copy of excise return and copy of VAT Return. Once a new factory has been set up with new plant machinery which was used for production during the year and depreciation has been claimed on such plant machinery, then same cannot be denied on the ground that the plant machinery of the new assets purchased during the year were not put to use. The aforesaid finding of the ld. CIT (A) is not only based on appreciation of facts but also in accordance with law and hence said finding is affirmed. - now it is a well trite law even if assets are ready to use, which here in this case was actually put to use, then also depreciation cannot be denied.- Decided in favour of assessee.

Summary

Issues Involved:
1. Disallowance of depreciation claimed by the assessee under Section 32 of the Income Tax Act, 1961.
2. Admissibility and consideration of additional evidence by the CIT(A) during appellate proceedings.
3. Adequacy of opportunity provided to the assessee by the Assessing Officer (AO) during the assessment process.

Detailed Analysis:

1. Disallowance of Depreciation Claimed by the Assessee:
The primary issue in the appeal was the disallowance of ?50,81,93,950/- claimed by the assessee as depreciation under Section 32 of the Income Tax Act, 1961. The AO disallowed the depreciation on the grounds that the assessee failed to prove that the fixed assets were put to use during the assessment year 2012-13. The AO acknowledged the purchase of fixed assets but contended that merely purchasing assets does not entitle the assessee to claim depreciation unless it is proven that the assets were put to use.

The assessee argued that the AO did not specifically ask whether the business had started or whether the assets were put to use. The assessee provided various documents, including financial statements, mechanical completion certificates, excise returns, VAT returns, and records of finished goods inventories to demonstrate that the assets were indeed put to use during the year.

2. Admissibility and Consideration of Additional Evidence by CIT(A):
The CIT(A) admitted additional evidence provided by the assessee, including mechanical completion certificates, RG-1 register, excise returns, and VAT returns. The CIT(A) called for a remand report from the AO, but despite reminders, the AO did not submit the report. The CIT(A) observed that the AO did not provide adequate opportunity to the assessee to prove that the assets were put to use and noted that the AO did not specifically query the assessee on this matter.

The CIT(A) concluded that the assessee had started its business and put the assets to use during the assessment year, based on the additional evidence and the financial statements. The CIT(A) found that the assessee had carried out production, consumed raw materials, and generated revenue from operations, thus proving that the assets were put to use.

3. Adequacy of Opportunity Provided to the Assessee by the AO:
The CIT(A) and the Tribunal both noted that the AO did not provide sufficient opportunity to the assessee to demonstrate that the assets were put to use. The AO's show-cause notice did not specifically ask whether the assets were put to use, and the AO did not respond to the CIT(A)'s requests for a remand report. The Tribunal upheld the CIT(A)'s decision to admit the additional evidence, citing a precedent where the court ruled that if the AO does not respond to requests for a remand report, the first appellate authority must proceed with the available evidence.

Conclusion:
The Tribunal affirmed the CIT(A)'s finding that the assessee had indeed put the assets to use during the assessment year and was entitled to claim depreciation. The Tribunal dismissed the Revenue's appeal, concluding that the AO's disallowance of depreciation was not justified and that the CIT(A) had correctly admitted and considered the additional evidence provided by the assessee. The Tribunal also emphasized that the assessee had demonstrated the use of assets through financial statements and statutory records, which were not disputed by the AO.