2017 (11) TMI 906 - AT - Income Tax

Disallowance of depreciation on plant and machinery and on Factory Building - business assumed to be shut down - Held that - After hearing the rival contentions we find that the First Appellate Authority has recorded that the assets in question is part of the block of assets . He held that once the asset merges with the existing block of assets, which carry the same rate of depreciation and one asset of the block is put to use then the entire block would be eligible to depreciation. The mill in question remained closed from 05.01.1999. The yarn production was 8087 kgs. Hence it is not a case where the factory has been totally closed down. Only one unit has been shut down - Decided in favour of assessee.

Summary

Issues:
- Disallowance of depreciation on plant and machinery and Factory Building for A.Y. 2005-06

Analysis:
1. The appeal by the Revenue challenged the deletion of the disallowance of depreciation on plant and machinery and Factory Building for the assessment year 2005-06 by the Commissioner of Income Tax-(A)-10, Kolkata.

2. The First Appellate Authority considered the assets in question as part of the "block of assets," stating that once an asset merges with the existing block of assets, the entire block becomes eligible for depreciation when one asset of the block is put to use.

3. Referring to a decision by the 'B' Bench of the tribunal for A.Y. 2005-06, it was highlighted that under the block of assets concept, the requirement of using the plant and machinery during the financial year is not necessary for depreciation to be allowed on the entire block. Various judicial precedents were cited to support this interpretation.

4. The tribunal found that the judgments of the Supreme Court and the Bombay High Court cited by the Revenue were not applicable as they were delivered before the introduction of the concept of depreciation on "block assets." The tribunal upheld the claim of the assessee for depreciation based on the block of assets principle.

5. Additionally, it was noted that even though the mill in question remained closed from a certain date and only one unit was shut down, the jurisdictional High Court's decision supported the claim for depreciation during the period of closure based on previous judicial precedents.

6. Following the legal propositions laid down in the judicial precedents cited, the tribunal upheld the order of the Commissioner of Income Tax-(A)-10, Kolkata, and dismissed the appeal by the Revenue.

7. Consequently, the appeal by the Revenue was dismissed, and the order was pronounced on 15.11.2017.