2019 (11) TMI 145 - AT - Income Tax

Claim of depreciation on purchase of new Weaving Looms - HELD THAT - On appreciation of facts in totality, we find the claim of the assessee towards depreciation of new Looms to be maintainable. It is not in dispute that new Looms were purchased during the financial year and were delivered in the premises of the assessee company. The facts and circumstances of the case shows that new Looms were ready for actual use even if it is momentarily presumed that actual productions were not carried out. On the conspectus of facts, where the asset was ready for use, depreciation ought to have been allowed. Be it as it may, the entire exercise is revenue neutral when seen holistically over years and therefore no adverse inference is required to be drawn. The action of the Revenue authorities is accordingly set aside and the claim of the depreciation is allowed. As regards claim towards transport and labour charges, it is submitted on behalf of the assessee that it has claimed the aforesaid expenses as revenue item whereas the Revenue has capitalized the same to the cost of the new Loom as same has been incurred for the purposes of transportation of new Looms to the factory premises. We do not find error in the action of the Revenue for capitalization of transport expenses. Having regard to the fact that transport and labour charges form part of the actual costs of new Looms, the assessee would thus be allowed benefit of depreciation on this count as well, as claimed in the alternative on behalf of the assessee. AO is accordingly directed to allow depreciation allowance on transport and labour charges component in accordance with law. The claim of the assessee is accordingly allowed in part.

Summary

Issues Involved:
1. Disallowance of depreciation on new Weaving Looms.
2. Disallowance of transport and labour charges of new Looms.

Analysis:

Issue 1: Disallowance of Depreciation on New Weaving Looms
The appeal was filed against the order of the Commissioner of Income Tax concerning the assessment year 2010-11. The appellant contested the addition of various amounts, including depreciation on new Weaving Looms. The appellant argued that the new Looms were installed and put to use before the end of the financial year, and therefore, depreciation should be allowed. The Revenue authorities disputed this claim, citing lack of evidence regarding the installation of motors necessary for operating the Looms. However, the appellant contended that the Looms were equipped with spare motors. The tribunal found that the new Looms were purchased during the financial year, delivered to the premises, and ready for use, even if actual production had not yet commenced. Considering the asset was ready for use, depreciation should have been allowed. The tribunal concluded that the Revenue's denial of depreciation was unjustified, and the claim of depreciation on the new Looms was deemed valid. Consequently, the action of the Revenue authorities disallowing depreciation of ?6,04,563 was set aside, and the claim was allowed.

Issue 2: Disallowance of Transport and Labour Charges of New Looms
Regarding the claim of ?88,170 towards transport and labour charges, the appellant argued that these expenses should be treated as revenue items. However, the Revenue had capitalized these charges as part of the cost of the new Looms. The tribunal upheld the capitalization of transport expenses, considering them as part of the actual costs of the Looms. Consequently, the appellant was allowed to claim depreciation on the transport and labour charges component. The tribunal directed the Assessing Officer to permit depreciation allowance on the said component in accordance with the law. Therefore, the claim of the appellant was partially allowed in this regard.

In conclusion, the tribunal partially allowed the appeal filed by the assessee, setting aside the disallowance of depreciation on new Weaving Looms and directing the allowance of depreciation on transport and labour charges component.