2010 (9) TMI 137 - HC - Income Tax

Production not carried out - Assessee Company did not close down - it claimed certain expenses which were denied by the Assessing Officer on the ground that there was no business activity of the assessee during these years - Held that - no details are furnished in respect of the claim of deprecation namely whether it was on the plant and machinery meant for Turbo Chargers or for the plant and machinery meant for manufacturing of coin blanks. It is also possible that same machinery was used for the manufacturing of coin blanks. Whether there was any commercial production of coin blanks in the year in question is also indiscernible from the records - matter needs to be remitted back to the Assessing Officer - claim of depreciation would be examined afresh.

Summary

Issues:
Assessment of business expenses for the years 2002-03, 2003-04, and 2004-05, Claim of depreciation for manufacturing activity, Diversification of manufacturing activity to coin blanks, Need for proof of machinery usage for depreciation claim.

Analysis:
In the judgment delivered by the Delhi High Court, the case involved the assessment of business expenses for the years 2002-03, 2003-04, and 2004-05. The respondent, engaged in manufacturing Turbo Chargers, faced challenges in production during these years. Despite the production suspension, the business was not closed. The Assessing Officer disallowed claimed expenses for lack of business activity. However, the CIT (Appeal) allowed expenses for the years 2002-03 and 2003-04 as the business was not entirely closed. The Tribunal upheld this decision. The Revenue's appeal against this was dismissed by the Court and the Supreme Court, confirming the existence of the business during these years.

In the assessment year 2004-05, the Assessing Officer again disallowed business expenses citing lack of activity. The CIT (A) partially allowed the expenses, noting the business was not closed, and allowed 90% of the expenses. Both the Revenue and the assessee appealed this decision. The Tribunal favored the assessee based on its earlier rulings for the assessment year 2003-04.

The Court emphasized that the company had never closed its business, as accepted in previous assessments. However, it noted specific claims for business expenses, including depreciation, which required scrutiny. The Revenue argued that due to technical issues and lack of orders, the assessee could not claim depreciation. The Court acknowledged the need for the assessee to prove machinery usage for depreciation claims, especially considering the diversification of manufacturing activities to coin blanks. The lack of details regarding machinery usage for different manufacturing activities led the Court to remit the matter back to the Assessing Officer for a fresh examination of the depreciation claim.

Therefore, the Court directed the Assessing Officer to reevaluate the claim of depreciation, considering whether the machinery meant for Turbo Chargers was used, the period of usage, and if the same machinery was utilized for manufacturing coin blanks. The decision on the depreciation claim was to be made in accordance with the provisions of the Income Tax Act. The appeal was disposed of accordingly.