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2013 (9) TMI 81 - AT - Income TaxDisallowance of depreciation - 100% depreciation claimed on thermopac machine - Held that - The machinery which was purchased by the assessee in the course of expansion of new project was installed in the year 1996-97 relevant to the assessment year 1997-98. There is nothing on record to suggest that the assessee had put the machinery to use during the assessment year 1998-99. It appears that the assessee had claimed 100 percent depreciation as the project was completely abandoned later in the year 1999. Since the machinery was never put to use by the assessee no depreciation is allowable for the assessment year 1998-99 - Decided against assessee.
Issues Involved:
1. Disallowance of expenditure of Rs. 43,88,823 as capital expenditure. 2. Disallowance of depreciation on thermopac machine of Rs. 55,74,831. Issue-wise Detailed Analysis: 1. Disallowance of Expenditure of Rs. 43,88,823 as Capital Expenditure: The first issue pertains to the disallowance of Rs. 43,88,823 by the Assessing Officer (AO) as capital expenditure. The assessee, engaged in the manufacture and sale of nylon yarn, filed its return of income for the assessment year 1998-99. Initially, the AO disallowed Rs. 13,94,779 out of Rs. 43,88,823, considering it as prior period expenses. However, upon reassessment following the Tribunal's directions, the AO disallowed the entire amount of Rs. 43,88,823, treating it as capital expenditure. The Commissioner of Income-tax (Appeals) upheld this disallowance, stating that the expenditure was for a new project which was later abandoned, thus taking on the nature of capital expenditure. The Tribunal, however, held that the AO should have confined himself to examining the allowability of Rs. 13,94,779 as directed and not the entire amount. Consequently, the Tribunal directed the AO to restrict the disallowance to Rs. 13,94,779. Citing the jurisdictional High Court's decision in E. I. D. Parry (India) Ltd. v. CIT, the Tribunal concluded that the expenditure on the new project was capital in nature and not revenue expenditure. 2. Disallowance of Depreciation on Thermopac Machine of Rs. 55,74,831: The second issue involves the disallowance of depreciation on a thermopac machine. The AO disallowed the depreciation, arguing that the machinery was not used by the assessee since the project for which it was procured was abandoned. The Commissioner of Income-tax (Appeals) upheld this decision, stating that the machinery was never put to use and thus did not qualify for depreciation. The Tribunal agreed with this view, noting that the machinery was installed but never used during the assessment year 1998-99. The Tribunal dismissed the assessee's claim for depreciation, referencing the Supreme Court's decision in CIT v. Shaan Finance P. Ltd., which was deemed not applicable in this case. The Tribunal also referenced the decisions of the Bombay High Court in B. Malani and Co. v. CIT and the Nagpur Judicial Commissioner's Court in Bhikaji Venkatesh v. CIT to support the disallowance of depreciation. Conclusion: The Tribunal concluded by partly allowing the appeal filed by the assessee. It directed the AO to restrict the disallowance of expenditure to Rs. 13,94,779 and upheld the disallowance of depreciation on the thermopac machine. The order was pronounced on October 12, 2012.
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