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Issues involved: Interpretation of depreciation rules u/s 32 for block of assets and application to individual assets.
Summary: The case involved a dispute regarding the disallowance of depreciation claimed on a truck that was not used during the relevant accounting year. The Assessing Officer disallowed the depreciation, which was upheld by the CIT(A), leading to an appeal by the assessee. During the hearing, the assessee's counsel argued that post the amendment in the system of allowing depreciation, depreciation is to be allowed on the block of assets rather than individual assets. The contention was supported by a decision of ITAT, Bombay Bench. The Departmental Representative, however, argued that depreciation is only allowable if assets are used for business purposes. The Tribunal analyzed the relevant provisions of section 32 and the concept of block of assets. It noted that the amendment aimed to simplify the process by allowing depreciation on the entire block of assets instead of individual assets. The Tribunal emphasized that the block of assets should be considered as a whole for the purpose of depreciation allowance. Referring to a CBDT Circular, the Tribunal highlighted that the legislative intent was to streamline the depreciation calculation process by focusing on block of assets rather than individual assets. The Tribunal provided an illustrative example to clarify the application of depreciation rules to a block of assets. Ultimately, the Tribunal held that post the amendment, individual assets lost their identity, and depreciation should be allowed on the block of assets as a whole. Since two out of three trucks in the block were used for business purposes, depreciation had to be allowed on the entire block of assets. The Assessing Officer was directed to allow depreciation accordingly. This judgment clarifies the interpretation of depreciation rules u/s 32 for block of assets and emphasizes the application of depreciation on the block as a whole rather than individual assets.
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