2014 (1) TMI 882 - AT - Income Tax

Disallowance of depreciation on block of assets u/s 32 of the Act - Whether the assets used for the purpose of business or not - Held that - To claim depreciation the assessee shall be the owner of the assets and put into use the assets during the relevant assessment year - The assessee itself has not carried out any business and no evidence has been placed that the assessee has carried on the business - The financial statement filed by the assessee for FY 2002-03 relevant to AY 2003-04 also shows no commercial activities and the Directors report also confirmed the same fact - Though the assessee owned the assets, it was not actually used and there is not even passive usage of the assets on which the assessee claimed depreciation - the order of the CIT(A) upheld for confirming the order of the Assessing Officer in disallowing loss including depreciation loss Decided against Assessee.

Summary

Issues:
Disallowance of loss/depreciation of Rs. 1,06,18,444 on the block of assets.

Analysis:

Issue: Disallowance of loss/depreciation on block of assets

The appeal was against the order of the CIT(A)-V, Hyderabad regarding the disallowance of loss/depreciation on the block of assets for the assessment year 2003-04. The assessee argued that the Commissioner of Income tax Appeals cannot disallow expenditure without basis and on suspicion. The counsel contended that the assets formed a Block of Assets, and once assets entered the block, depreciation on the block should be allowed. Referring to relevant case law, the counsel highlighted that the concept of block assets changed the system of allowing depreciation from 01-04-1988. The counsel emphasized that even if a particular asset in the block was not used during the year, depreciation should still be allowed. The counsel also relied on CBDT Circular No. 469 dated 23-09-1986, which defined "Block of Assets" and prescribed rates of depreciation for different categories of assets.

The counsel further cited various case laws to support the claim for depreciation on the block of assets. Additionally, the counsel referred to a decision by the Hyderabad Tribunal in a related case, emphasizing the importance of the concept of "used for the purpose of business" in determining depreciation on block assets. The Tribunal's decision highlighted that individual assets in a block are considered used for business if they are part of the block of assets, even if not actively used in a particular year. The Tribunal's decision also emphasized that as long as an asset remains part of the block of assets, depreciation should be allowed, even if the asset was not actively used or owned during the assessment years in question.

In response, the Revenue argued that for depreciation to be granted, the assessee must be the owner of the block of assets and must use the assets for business purposes. The Revenue contended that in the assessment year under consideration, the assessee did not conduct any business using the assets, thus not entitled to depreciation. The Tribunal noted that the assessee failed to provide evidence that the assets were used for business in the relevant assessment year. Despite the assessee's reliance on previous Tribunal decisions, the Tribunal found that the primary condition of using the assets for business was not met in the current case, as evidenced by the lack of commercial activities in the financial statements and Director's report.

Consequently, the Tribunal dismissed the appeal of the assessee, upholding the order of the CIT(A) in disallowing the loss of Rs. 1,06,18,444, including depreciation loss. The decision was based on the lack of evidence showing the assets were used for business in the assessment year under consideration, leading to the denial of depreciation claims.

In conclusion, the Tribunal's decision focused on the crucial requirement of assets being used for business purposes to claim depreciation on a block of assets. The case highlighted the importance of providing evidence of asset usage for business in the relevant assessment year to support depreciation claims, ultimately leading to the dismissal of the assessee's appeal.