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2022 (9) TMI 333 - AT - Income TaxDisallowance of depreciation allowance - WDV - plant and machinery were not used during the year due to change in business model - Scope of amended provisions of Section 32 of the Act as amended by the Taxation Laws (Amendment Miscellaneous Provisions) Act, 1986 w.e.f. 01.04.1988 - assessee submitted that it had changed the business model from manufacturing of tea to trading in tea. However, there was no sale or manufacturing of tea during the year due to the circumstances beyond its control - HELD THAT - As per the amended section 32 of the Act, deduction is to be allowed - in the case of any block of assets, such percentage on the written down value thereof as may be prescribed . Thus, with the amendment, the depreciation is allowed on block of assets. With the aforesaid amendment, the depreciation is now to be allowed from AY 1989-90 on the written down value of the block of assets at such percentage as may be prescribed. Further, with this amendment, individual assets have lost their identity and the concept of block of assets has been introduced for the purpose of calculating the depreciation. We note that CBDT issued a Circular No. 469 dated 23.09.1986 explaining the purpose behind the amended provisions of section 32 of the Act wherein the rationale behind the introduction of concept of block of assets is described. Thus, once an asset is part of the block of assets and depreciation is granted on that block, it cannot be denied in subsequent years on the ground that one of the assets is not used by the assessee in some of the years. The concept of user of assets has to apply on the block of assets as a whole instead of an individual asset. The notes to clauses as mentioned in Finance Bill, 2001 in respect of amendment of section 32 of the Act for the insertion of explanation (5) states that a new explanation (5) in clause (ii) explanation (1) of section 32 of the Act is inserted so as to clarify that the provisions of sub-section (1) of section 32 of the Act shall apply whether or not the assessee has claimed the deduction of depreciation in computing his total income. It also states that this amendment will take effect from 1st April, 2002 and will, accordingly, apply in relation to the AY 2002-03 and subsequent years. Deduction of depreciation is to be allowed mandatorily in computing the profits and gains of business or profession for any previous year. It is undisputed that the plant and machinery, factory building etc., were put to use in the preceding years whereon depreciation has been claimed according to their respective block of assets as per the rates prescribed thereon. It is not a case where we need to deal with the issue of whether assets have been put to use or not so as to form part of the block of assets in their first year. It is not the case of AO that the assets were not put to use at all. Once the assets have been put to use, the claim of depreciation allowance on the said assets cannot be restricted. It is important to note that once it is found that the assets are used for business, it is not necessary that all the items falling within that particular block of assets had to be simultaneously used for being entitled to depreciation. In the present case, we note that assessee submitted that it has changed its business model from manufacturing to trading in tea though no sale or manufacturing of tea happened during the year under consideration. Ld. AO also noted that the machineries might have been tested and maintained to keep it ready to dispose off as per the approval granted by the shareholders, fact of which is noted in the Director s report referred above. In the Director s report, assessee had also submitted that it was open for the assessee to lease out the plant and machinery. All these reflect the intention of the assessee which are in the nature of passive use of the assets on which depreciation has been claimed. As referring to decision of Hindusthan Engineering Industries Ltd. 2018 (2) TMI 1691 - ITAT KOLKATA we hold that the assessee cannot be denied the benefit of depreciation claimed u/s. 32 of the Act in respect of its plant and machinery, factory building, etc. - amendment brought into section 32, especially explanation (5) to subsection (1) of section 32 of the Act, we direct the Ld. AO to allow the claim of depreciation. Accordingly, the ground of appeal is allowed.
Issues Involved:
1. Delay in filing the appeal. 2. Disallowance of depreciation allowance claimed by the assessee. Detailed Analysis: 1. Delay in Filing the Appeal: The appeal was delayed by 51 days, filed on 30.06.2020 against the order dated 04.02.2020. The delay fell within the COVID-19 pandemic lockdown period. The Hon'ble Supreme Court directed that the period from 15.03.2020 to 28.02.2022 be excluded for computing the limitation period during the pandemic. Additionally, a period of 90 days after 28.02.2022 was allowed. The respondent did not object to condoning the delay. Considering these circumstances, the delay was condoned and the appeal was admitted for adjudication. 2. Disallowance of Depreciation Allowance: The core issue was the disallowance of a depreciation allowance of Rs. 1,34,95,087/- claimed by the assessee for the A.Y. 2010-11. The assessee's business included cultivation and manufacturing of tea, agricultural products, and trading. The AO disallowed the depreciation claim on the grounds that the plant and machinery were not in use since August 2008 after the Tea Board of India revoked the factory's registration. Assessee's Arguments: - The assessee had changed its business model from manufacturing to trading in tea. - The machinery was maintained and tested to keep it ready for production or sale. - The concept of 'block of assets' should be applied, where individual assets lose their identity for depreciation purposes once they form part of the block. - Cited case laws to support that the business carried out need not be the same as in previous years for depreciation claims. Judicial Precedents and Tribunal's Observations: - The Tribunal referenced several judicial precedents, notably: - DCIT v. Boskalis Dredging India Pvt. Ltd.: Emphasized the concept of 'block of assets' introduced from AY 1989-90, where individual assets lose their identity. - CIT v. Sonic Biochem Extractions Pvt. Ltd.: Supported the view that once assets are part of a block, depreciation cannot be denied even if specific assets are not used in a particular year. - CIT v. Oswal Agro Mills Ltd.: Highlighted that the user test applies to the block of assets as a whole, not individual assets. - Nirma Credit & Capital Ltd. v. ACIT: Asserted that once assets are used for business, it is not necessary for all items in the block to be used simultaneously for depreciation eligibility. Tribunal's Conclusion: - The Tribunal noted that the AO's disallowance was based on the non-use of individual assets, which contradicts the 'block of assets' concept. - The Tribunal emphasized that depreciation is mandatory under section 32 of the Act, regardless of whether the assessee claims it. - The concept of 'block of assets' simplifies depreciation claims by aggregating assets into a block, thus eliminating the need for detailed records of individual assets. - The Tribunal directed the AO to allow the depreciation claim of Rs. 1,34,95,087/-. Final Judgment: The appeal was allowed, and the AO was directed to allow the depreciation claim. The order was pronounced in the open court on 01 August 2022.
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