2023 (6) TMI 1204 - AT - Income Tax

Depreciation disallowance - non use of asset - production and business activity of the assessee company was stopped since the year 2003 - HELD THAT - In the present case of assessee, the production and business activity was stopped since the year 2003 and profit loss account of the assessee company had revealed that the total revenue earned by the assessee in previous year mainly comprised of revenue from operation and other income which included interest income and miscellaneous income and the assessee company had no business and manufacturing activity from which revenue could be earned and machinery was not put to use as there was admittedly no manufacturing activity. In such a situation, depreciation could not be allowed on such non-use in view of the clear verdict given in Oriental Coal Co. Ltd. 1994 (1) TMI 82 - CALCUTTA HIGH COURT and which is directly on the present issue involved as held that as there was strike, lockout in the factory for two years and the plant and machinery has not been actually used, then assessee would not be entitled for depreciation - Decided against assessee.

Summary

Issues:
- Disallowance of depreciation claimed by the assessee company in the assessment year 2011-12, 2012-13, and 2013-14.
- Interpretation of the term "use" in the context of claiming depreciation on plant and machinery.
- Application of legal precedents regarding the allowance of depreciation when business activity has ceased.

Analysis:

Issue 1: Disallowance of Depreciation
The appeals were filed challenging the orders of the National Faceless Appeal Centre dismissing the appeals related to the assessment years 2011-12, 2012-13, and 2013-14. The assessing officer disallowed the depreciation claimed by the assessee amounting to Rs. 1,65,63,389, stating that the business activity of the assessee company had ceased since 2003. The ld. CIT(A) upheld this disallowance. The assessee contended that there was no permanent discontinuation of business and that certain assets were still being used for business purposes. However, it was found that the company had no business or manufacturing activity since 2003, and the machinery claimed for depreciation was not put to use. The Tribunal relied on legal precedents and upheld the orders of the lower authorities, dismissing the appeals challenging the disallowance of depreciation.

Issue 2: Interpretation of the Term "Use"
The assessee argued that even passive use of assets should entitle them to claim depreciation. They highlighted that certain assets were still being used for business purposes, such as for employees' residence, computerized work, and business-related travel. However, the Tribunal referenced a judgment by the Calcutta High Court, which emphasized that actual use of plant and machinery for business purposes is a prerequisite for claiming depreciation. In this case, as the business activity had ceased, and the machinery was not actively used for business, the claim for depreciation was rightly disallowed.

Issue 3: Legal Precedents and Allowance of Depreciation
The Tribunal referred to the judgment in CIT vs. Oriental Coal Co. Ltd., where it was held that if plant and machinery are not actually used for business purposes, depreciation cannot be claimed. The Tribunal applied this principle to the present case, where the business activity had stopped since 2003, and the machinery was not utilized for manufacturing. The Tribunal concluded that as per the legal precedents and the specific circumstances of the case, the disallowance of depreciation was justified. Therefore, the appeals challenging the disallowance were dismissed for all the relevant assessment years.

In conclusion, the Tribunal upheld the disallowance of depreciation claimed by the assessee due to the cessation of business activity and non-utilization of machinery for manufacturing purposes. The decision was based on legal precedents emphasizing the necessity of actual use of assets for claiming depreciation and the specific facts of the case where business operations had ceased.