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TMI Blog2017 (7) TMI 951X X X X Extracts X X X X X X X X Extracts X X X X ..... RI H.S. SIDHU, JUDICIAL MEMBER AND SHRI L.P. SAHU, ACCOUNTANT MEMBER For The Appellant : Sh. Gautam Jain, Advocate For The Respondent : Sh. Umesh Chand Dubey, Sr. DR ORDER Per L.P. Sahu, Accountant Member: This is an appeal filed by the assessee against the order dated 18.03.2014 of ld. CIT(A), Rohtak for the assessment year 2010-11 on the following grounds : 1. That the learned Commissioner of Income Tax (Appeals), Rohtak has grossly erred both in law and on facts in upholding disallowance of ₹ 5,65,440/- out of claim of depreciation made in the year under consideration by the appellant company. 1.1 That while upholding the disallowance the learned Commissioner of Income Tax (Appeals) has factually and legally erred in concluding that generator and sortex machine were not put to use in the instant year. 1.2 That without prejudice to the above the learned Commissioner of Income Tax (Appeals) has failed to appreciate even if the asset is ready for use and not actually used, the same entitles an assessee to claim depreciation. 1.3 That the learned Commissioner of Income Tax (Appeals) has even otherwise failed to appreciat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... As far as the generator and sortex concerned, these equipments were installed on 14.3.2010. The business continued although there was no production after 21st January 2010, the generator and sortex machinery, although installed could not have been put to use. Hence depreciation on these 2 items is not allowable. I, therefore, delete the disallowance of depreciation on plant only amounting to ₹ 19,03,706/- and confirm addition of ₹ 5,65,440/-. The appellant gets a relief of ₹ 19,03,706/-. 4. Aggrieved by the order of the ld. CIT(A), the assessee is in appeal before the Tribunal. 5. The ld. AR of the assessee, challenging the order of the ld. CIT(A), submitted that the ld. CIT(Appeals) has not disputed that the entire equipment was installed on 14.3.2010 and it is also not disputed that there was production between 18.1.2010 and 21.1.2010 and yet he has denied the claim of deduction on the ground that generator and sortex machine although installed could not have been put to use after 21.1.2010. It is submitted that actual use is not a relevant material for determining the claim of depreciation. It is well settled law that all what is relevant is whether ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 32, is to give due allowance to the assessee for wear and tear suffered by the asset used by him in his business so that the net income (total income) is duly arrived at. There is no factual dispute that the assets in question were owned by the assessee. In Machinery Mfrs. Corpn. Ltd, v. CIT[1957] 31 ITR 203 (Bom.), it was observed that the expression 'used' in section 10(2)(v/') of the Indian Income-tax Act. 1922 ('the 1922 Act') corresponding to section 32 of the 1961 Act has to be given a wider meaning. The expression includes passive as well as active user. In CIT v. Dalmia Cement Ltd [19451 13 ITR 415 (Pat.) and CIT v. Wisvanath Bhaskar Sathe [1937] 5 ITR 621 (Bom.), it was observed that depreciation might be allowed in certain cases even though the machinery was not in use or was kept idle. The question whether the word 'used' would include both passive as well as active user was left open by the Apex Court in Liquidators of Pursa Ltd, v. CIT [1954] 25 ITR 265. The word 'used' for the purposes of the business is capable of a larger and a narrower interpretation. If the expression 'used' is construed strictly, it can be taken ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... condly, a very strict correlation between the actual use of machinery and the concept of depreciation would lead to several anomalies and difficulties, for a machinery cannot be used throughout the day and night or even throughout the working hours or even during the days when the business is in full scale operation. Thirdly, there will be no strain on the statutory language by interpreting it widely and not limiting it to the actual working or actual employment of the machinery in the business. On the other hand, it would be more appropriate to envisage the expression as comprehending cases where the machinery is kept ready by the owner for its use in the business and the failure to use It actively in the business is not on account of its incapacity for being used for that purpose or its non-availability. In the present case, e.g., the four buses in question were admittedly in working order and the assessee was keeping them ready for being operated upon if and when some tourist contract materialised. They were not actually run on the road not because they were under repair or were unfit for use for one reason or the other, but only because there were not enough contracts during th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of fact situation indicated above. CIT v. Insilco Ltd 320 ITR 322 17.4 The Division Bench of the Madras High Court after noting the judgment of the Bombay High Court in Viswanath Bhaskar Sathe 's case (supra), and of its own court in Vayilhri Plantations Ltd. 's case (supra) held that the assessee was entitled to depreciation on spare parts which are stand-by items even though they were not used during the accounting year. The important point to be noticed here is that the case pertained to assessment year 1986-87 much prior to the issuance of the revised Accounting Standard (AS) 2 by the Council of the ICAI. A Division Bench of our Court in the case of Capital Bits Service (P.) Ltd. (supra) has observed as follows:- The words 'used for the purposes of the business' are capable of a larger and a narrower interpretation. If the expression 'used' is construed strictly, it can be taken as connoting or requiring the active employment or the actual working of a machinery, plant or building in the business. On the other hand, the wider meaning will include not only cases where the machinery, etc., is actively employed but also cases whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the purposes of the business. They were kept ready for operation and they were there only in the business and for use in that business. In these circumstances, in our opinion, it can be said, without straining the language of the statute and the context in which it is employed, that the buses were used for the purposes of the business throughout the year though they were not actually plied on the roads for more than 30 days. (p. 412) 17.5 The same view has been expressed by another Division Bench of our Court in Refrigeration Allied Industries Ltd's case (supra). The Division Bench in that case reiterated the position that the expression used for the purposes of business should be given a wider meaning and should include an asset which is kept ready for use. The Division Bench went on to hold that the efficacy of any asset declines with use and time. In determining the income of an assessee from business or profession for levy of tax it would be appropriate to make a provision for proper recompense of such diminution in the value of an asset to give a correct picture of income earned from business or profession. The Court observed that depreciation is the inherent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on No. 2, it is seen that the fact is that the Assessee kept ready for use the intangible assets in respect of three radio stations at Jodhpur, Amritsar and Patiala. This has not been denied even by the Revenue. The order of the AO recorded as under: 4.6.5 The Assessee has further submitted vide his letter dated 22.12.2010, that depreciation has not been claimed on any of the other assets in case of the other three stations, i.e., Patiala, Amritsar and Jodhpur, apart from One Time Entry Fee. This is not in consonance with the Assessee's statement of his written submission dated 2nd December, 2010, wherein he has that stated that depreciation was claimed because of the existing case laws in his knowledge. He has stated that based on the decisions of the above cited case laws, depreciation has been claimed on assets kept ready to use and on which trial run was being done. This being the case, the Assessee has not given any reason why depreciation has been claimed on the Licence Fee, but not on the tangible assets also being used on trial runs. (Emphasis supplied) 36. The above passage reveals that the AO was not questioning the fact that the intangible asset has been ke ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are stand-by items even though they were not taken for use during the accounting year. Accordingly, the 1st question of law is answered in the affirmative and against the revenue. 9. In view of these decisions, the assessee is entitled to get benefit of depreciation on such plant and machinery, which were not put to use actively. Apart from above, it is also worth consideration that sortex machine and generator, being plant and machinery, also form the part of block of assets and therefore, it is not justified to allow part of depreciation from the said block of assets and to make part disallowance thereof. A perusal of the impugned order further shows that the assessee also made a submission before the ld. CIT(A) that Sortex Machine was put to use on 12.03.2010 and 5.77 quintal of rice was processed through this machine on trial basis. However, the ld. CIT(A) appears to have given no finding on this submission of assessee. 10. In view of what has been discussed above, we are of the considered opinion that the ld. CIT(A) was not justified in disallowing the depreciation on generator and sortex machine, as claimed by the assessee. Accordingly, the appeal of the assessee des ..... X X X X Extracts X X X X X X X X Extracts X X X X
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