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2022 (6) TMI 733 - AT - Income TaxDepreciation on plant and machinery forming part of block of assets - Disallowance on the ground that assets were not put to use in the present yea r - HELD THAT - The Notes forming part of Balance Sheet mentions specifically states The company is in transition period and has not finished restructuring of power plant at Panoli and hence could not made sales during the year by generation and supply of power . So this is not a case, where the unit had not been in operation for several years or has not been generating any revenue at all for many years altogether. Though, subsequently the unit closed down eventually (in 2016), but so far as the present assessment year is concerned, there is no observation either in the assessment order or CIT(A) order that relocation was purpose of closing down the unit altogether. Though, the unit could not generate revenue during the year on account of relocation of plant to Panoli, but the fact that the assessee did not earn revenue or did not put the assets to use on account of fact that it was in process of shifting of plant to Panoli, would not, in our view, disentitle the assessee to claim depreciation on plant and machinery forming part of block of assets. Thus, in absence of any finding to the effect that the purpose of shifting was to close down the unit altogether, in our view, it respectfully following the decision of Gujarat High Court in the case of Nirma Credit Capital Ltd. 2017 (2) TMI 278 - GUJARAT HIGH COURT and PCIT v. Babul Products (P.) Ltd 2018 (7) TMI 2095 - GUJARAT HIGH COURT . in our view, Ld. CIT(A) erred in disallowing the claim of the assessee in respect of depreciation on plant and machinery forming part of block of assets on the ground that assets were not put to use in the present year. Assessee appeal allowed. Set-off of unabsorbed brought forward depreciation and business loss in absence of business activity during the year - HELD THAT - As in the case before us there is no specific finding either in the assessment order or CIT(A) order that the assessee had abandoned/closed his business during the year. Though during the year, admittedly the assessee could not generate revenue on account of relocation of plant to Panoli, but that fact by itself, would not, in our view, ipso facto lead to the conclusion that the business of the assessee has ceased altogether. As relying on the case of Dwarka Cements 2003 (8) TMI 166 - ITAT BOMBAY-J which has held that merely because there was no manufacturing activity in relevant previous year, that could not be reason enough to come to conclusion that unabsorbed appreciation of assessee in earlier years was not entitled to be set off against its business income in current year, we are of the considered view that assessee should be allowed set-off of unabsorbed brought forward depreciation and business loss during the year. Appeal of assessee allowed.
Issues Involved:
1. Disallowance of depreciation on plant and machinery. 2. Set-off of unabsorbed brought forward depreciation and business loss. 3. Levy of interest under sections 234AB, C & D of the Act. 4. Initiation of penalty proceedings under section 271(1)(c) of the Act. Detailed Analysis: 1. Disallowance of Depreciation on Plant and Machinery The primary issue is whether the assessee is entitled to claim depreciation of Rs. 1,71,24,757/- on plant and machinery during the assessment year 2014-15, despite not using the assets due to the transition and shifting of the power plant. Findings: - The Ld. Assessing Officer disallowed the depreciation on the grounds that the plant and machinery were not used for business purposes during the year since the assessee was shifting its plant. - The CIT(A) upheld the disallowance, emphasizing that the entire block of assets was not used, and therefore, depreciation could not be allowed. Legal Precedents: - Nirma Credit & Capital Ltd. v. ACIT [2017] 82 taxmann.com 109 (Gujarat): The Gujarat High Court held that once assets are part of the block of assets, individual usage is not necessary for claiming depreciation. - PCIT v. Babul Products (P.) Ltd. [2018] 96 taxmann.com 82 (Gujarat): Depreciation cannot be denied if the business is temporarily non-operational due to external factors. - Swati Synthetics Ltd. v ITO [2010] 38 SOT 208 (MUM.): Depreciation is allowable even if the assets are not used in the given year, as long as they are part of the block of assets. - DCIT v. Coromandal Bio Tech Industries (I) Ltd. [2012] 20 taxmann.com 520 (Hyd.): Existence of an individual asset in the block of assets itself amounts to use for the purpose of business. Conclusion: The tribunal concluded that the assessee is entitled to claim depreciation on the block of assets, even though the plant and machinery were not used during the year due to the transition. The disallowance by the CIT(A) was overturned, and the claim for depreciation was allowed. 2. Set-off of Unabsorbed Brought Forward Depreciation and Business Loss The second issue pertains to whether the assessee can set off unabsorbed brought forward depreciation and business loss in the absence of business activity during the year. Findings: - The CIT(A) disallowed the set-off on the grounds that there was no business activity during the year. Legal Precedents: - CIT v Deepak Textile Industries Ltd. [1987] 35 Taxman 92 (Gujarat): Unabsorbed depreciation can be carried forward and set off even if the business related to it has been discontinued. - Anant Mills Ltd. v Ld. CIT(A) [1994] 206 ITR 582 (Gujarat): Unabsorbed depreciation should be allowed to be carried forward and set off against assessable income of a subsequent year. - CIT v. Rajratna Naranbhai Mills Co. Ltd. [1994] 208 ITR 597 (Gujarat): The assessee is entitled to set off unabsorbed depreciation against income under other heads even if the business has ceased. - DCIT v. Dwarka Cement Works Ltd. [2005] 3 SOT 869 (Mumbai): The absence of manufacturing activity in a given year does not preclude the set-off of carried forward losses. Conclusion: The tribunal held that the assessee is entitled to set off unabsorbed brought forward depreciation and business loss, even in the absence of business activity during the year. The disallowance by the CIT(A) was overturned. 3. Levy of Interest under Sections 234AB, C & D of the Act This issue was not specifically adjudicated as it was considered general in nature. 4. Initiation of Penalty Proceedings under Section 271(1)(c) of the Act This issue was also considered general in nature and did not require specific adjudication. Final Judgment: The appeal of the assessee was allowed, with the tribunal ruling in favor of the assessee on both major issues: 1. Allowing depreciation on the block of assets. 2. Permitting the set-off of unabsorbed brought forward depreciation and business loss.
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