2021 (3) TMI 191 - HC - Income Tax

Depreciation on the windmills - as per revenue wind mills had not generated any electricity during the previous year and thus there was no user of the asset for the purpose of the business of generation of power - ITAT allowed the claim - HELD THAT - Issue involved in the present appeal is covered by the decisions of M/s. Tenzing Match Works, Sivakasi 2019 (7) TMI 1047 - MADRAS HIGH COURT stating even trial production machineries kept ready for use etc., were considered to be used for the purpose of business to qualify for depreciation and further held that it would amount to passive use and would qualify for depreciation.- Decided in favour of assessee.

Summary

Issues:
1. Disallowance of excess depreciation claimed by the assessee.
2. Entitlement to claim depreciation on windmills without electricity generation.
3. Applicability of legal precedents on asset usage for depreciation claims.

Analysis:
1. The case involved a challenge to the order passed by the Income Tax Appellate Tribunal regarding the Assessment Year 1999-2000. The assessee company filed a return of income, which was later revised to reduce the total income. The assessment was reopened twice to disallow excess depreciation claimed, particularly on windmills. The issue revolved around the disallowance of depreciation claimed due to windmills not being commissioned during the relevant year.

2. The Commissioner of Income Tax (Appeals) and the Tribunal held differing views on the depreciation claim. The Commissioner relied on a Bombay High Court decision stating that keeping an asset ready for use does not suffice for claiming depreciation. However, the Division Bench of the Madras High Court in a previous case held that even trial production machineries kept ready for use could qualify for depreciation, emphasizing passive use as sufficient for depreciation claims.

3. The legal analysis focused on the interpretation of asset usage for depreciation claims. Various precedents were cited to support the contention that assets need not be actively employed but can qualify for depreciation if kept ready for use. The Division Bench differentiated previous cases where machinery was not actually put to use from the present scenario where trial production and passive use were considered sufficient for depreciation claims. The judgment emphasized the broader interpretation of asset usage for depreciation purposes.

Overall, the judgment clarified the criteria for claiming depreciation on assets, particularly in cases involving trial production and passive use. The decision aligned with the precedent set by the Division Bench of the Madras High Court, emphasizing that assets kept ready for use could qualify for depreciation, even if not actively employed.