2012 (4) TMI 377 - AT - Income Tax

Depreciation claim - company incorporated to carry on the business of Aqua Farms and Shrimp Farming -name changed and the assessee entered the business of handling transportation return filed declaring loss AO disallowed and added back the depreciation claim on ponds and plant & machinery discontinued long back - assessment reopened u/s 147 - disallowing the depreciation observing that for claiming depreciation, the assessee should not only own the assets, but also the assets should be put to use in the relevant assessment year Held that - As long as an asset forms part of the block of assets and the block continues to exist, provisions of S.50 do not come into play and depreciation has to be allowed on that portion of the WDV of the assets which have been scrapped, after reducing the scrap value from the block of assets - block assets depreciation on ponds and plant & machinery which are forming part of the block of assets has to be allowed as deduction in favour of assessee.

Issues:
1. Claim of depreciation on ponds and plant & machinery for assessment years 2001-02, 2002-03, 2003-04, and 2004-05.
2. Interpretation of provisions of Income Tax Act regarding depreciation on block of assets.
3. Applicability of section 32(1) for depreciation on block of assets.
4. Disallowance of depreciation by Assessing Officer due to assets not being put to use.
5. CIT(A)'s direction to allow depreciation on ponds and plant & machinery forming part of block of assets.
6. Arguments regarding the use of individual asset vs. block of assets for depreciation.
7. Judicial interpretations supporting the allowance of depreciation on assets forming part of the block of assets.

Analysis:
1. The appeals involved a common issue of the claim of depreciation on ponds and plant & machinery by the assessee for the assessment years 2001-02, 2002-03, 2003-04, and 2004-05. The Assessing Officer disallowed the depreciation as the assets were not put to use, leading to the reopening of assessments under section 147 of the IT Act, 1961.

2. The interpretation of provisions of the Income Tax Act regarding depreciation on block of assets was crucial. The CIT(A) allowed the assessee's appeal based on the decision of the Tribunal in the case of Natco Exports v. DCIT, directing the Assessing Officer to allow depreciation on ponds and plant & machinery as per the Act and Rules.

3. The applicability of section 32(1) for depreciation on block of assets was debated. The assessee argued that depreciation should be allowed on the entire block even if some assets were not used, citing CBDT Circular No. 469 and judicial decisions supporting their contention.

4. The Assessing Officer's disallowance of depreciation was primarily due to the assets not being put to use, leading to the reassessment. The CIT(A) did not address the reopening for assessment years 2001-02 and 2002-03, focusing on the merits of the issue.

5. The CIT(A) directed the Assessing Officer to allow depreciation on ponds and plant & machinery forming part of the block of assets, emphasizing compliance with the provisions of the Income Tax Act and Rules.

6. Arguments regarding the use of individual asset versus block of assets for depreciation were presented. The assessee contended that the use of the block as a whole sufficed for depreciation, supported by various decisions and the CBDT Circular.

7. Judicial interpretations supporting the allowance of depreciation on assets forming part of the block of assets were crucial in the final decision. The Tribunal dismissed the appeals of the Revenue, following the decision of the Coordinate Bench and upholding the allowance of depreciation as per the provisions and interpretations provided.

In conclusion, the judgment resolved the issues related to the claim of depreciation on specific assets forming part of the block of assets, emphasizing the interpretation of relevant provisions of the Income Tax Act and supporting judicial decisions.

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