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2020 (6) TMI 294 - AT - Income TaxDepreciation on Fuel oil Pump Test benches u/s 32 @ 80% - asset is not used for business or profession - assessee had claimed depreciation @ 40% in the year of purchase 2013-14 relevant to the A.Y 2014-15 - HELD THAT - Assessee s claim of depreciation in the year of purchase and use i.e. financial year 2013-14 relevant to A.Y 2014-15 has been allowed by the AO and the asset has become part of the block of assets. It is also not in dispute that the asset has not been used in the relevant A.Y before us or in the subsequent two A.Ys. However, it is not the case of the Revenue that the equipment is not in existence and is not ready for use. Once the assessee has purchased the machinery and has put to use and thereafter has not used for lack of orders, the assessee cannot be denied the claim of depreciation. DR has also not brought to our notice any evidence to the contrary that the assessee had claimed depreciation @ 40% in the year of purchase 2013-14 relevant to the A.Y 2014-15 and the claim of depreciation subsequently cannot be disallowed. As relying on M/S. SPR PUBLICATIONS P. LTD. AND OTHERS VERSUS ACIT, CIRCLE 3 (2) HYDERABAD AND OTHERS 2015 (7) TMI 117 - ITAT HYDERABAD grounds appeal raised by the assessee.
Issues:
Claim of depreciation on special equipment @ 80% under section 32 of the Income Tax Act, 1961. Analysis: 1. The assessee company appealed against the order of the CIT (A)-3, Hyderabad, regarding the claim of depreciation for the A.Y 2015-16. The company, engaged in supplying hydraulics and engineering systems to defense research institutions, claimed depreciation of &8377; 55,23,697/- u/s 32, including &8377; 54,00,000/- @80% on 'special equipment.' The AO disallowed the claim as the equipment was not used for business purposes during the relevant assessment year. 2. The assessee contended that the special equipment, a "fuel oil pump test bench," was purchased for &8377; 1.35 crores in March 2014 and used for studying fuel pumping efficiency. The company claimed depreciation @ 40% in A.Y 2014-15 and @80% in A.Y 2015-16. Despite not being used in subsequent years, the equipment was ready for use, justifying the depreciation claim. 3. The AO, however, disagreed with the claim, citing the non-use of the equipment in assembling and selling products during A.Y 2015-16. Relying on a Supreme Court decision, the AO disallowed the depreciation claim. The CIT (A) upheld the AO's decision, leading to the appeal before the ITAT Hyderabad. 4. The ITAT considered the arguments and legal precedents. It noted that the asset had been used in the year of purchase and was part of the block of assets. The Revenue did not dispute the asset's existence or readiness for use. The ITAT referred to judicial interpretations emphasizing that readiness for use qualifies an asset for depreciation, even if not actively used in business during the relevant assessment year. 5. The ITAT highlighted the wider interpretation of the term 'used' in section 32(1) of the Act, allowing for passive use to claim depreciation. Citing various High Court decisions, the ITAT concluded that if the machinery is ready for use, depreciation is allowable, even if not actively used. The ITAT also noted the misplacement of reliance by the AO on an outdated Supreme Court decision. 6. Ultimately, the ITAT allowed the assessee's appeal, emphasizing that the equipment's readiness for use justified the depreciation claim. The ITAT's decision was based on current legal interpretations and the specific circumstances of the case, overturning the lower authorities' disallowance of depreciation. This detailed analysis reflects the ITAT Hyderabad's decision in favor of the assessee regarding the claim of depreciation on special equipment under section 32 of the Income Tax Act, 1961 for the relevant assessment year.
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