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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 ..... "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 appreciate that sortex machine and generator were also plant and machinery and therefore once an asset forms part of block of asset there can be no justification to disallow part of depreciation from the said block of assets and as such denial of claim of deduction is legally and factually misconceived and hence untenable." 2. By means of all the above grounds, the assessee has challenged the disallowance of depreciation of Rs. 5,65,440/-made by the ld. CIT(A) on Generator and Sortex Machine installed during the year. 3. The brief facts of the case are that the assessee is engaged in the business of trading of rice, iron ore and other commodities. He filed return of income on 29.09.2010 declaring total income at Rs. 1,68,40,424/-. During the assessment proceedings, the AO noticed that the assessee installed new plant & machinery, the details of which are as under : Description Quantity Date put to use Cost (Rs.) Depreciation New Plant 1 18.01.2010 2,53,82,751 19,03,706 Generator 1 14.03. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is placed on the following decisions : i) CIT v. Geo Tech Construction Corporation, 244 ITR 452 (Ker) ii) CIT vs. Oswal Woollen Mills Ltd., 206 CTR 141 (P&H) iii). CIT vs. Nahar Export Ltd., 296 ITR 419, 296 ITR 419 (P&H) iv). Capital Bus Service (P) Ltd. v. CIT, 123 ITR 404. v). CIT v. Oswal Agro Mills Ltd., 341 ITR 467 vi). CIT v. Insilco Ltd., 320 ITR 322 vii). CIT v. Radio Today Broadcasting Ltd., 382 ITR 42 (Del.) viii). CIT v. Soughern Petrochemical Industries Corpn. Ltd. 292 ITR 362 6. It was also submitted that even otherwise the ld. CIT(A) failed to appreciate that sortex machine and generator were also plant and machinery and form the part of block of asset and therefore, there is no justification to disallow part of depreciation from the said block of assets. 7. On the other hand, the ld. DR relied on the order of the first appellate authority and urged for its sustenance. 8. We have considered the rival submissions and have gone through the entire material on record. We find that the only question which needs adjudication in this appeal is whether, under the facts and circumstances of the case, the ld. CIT(A) was justified in disallowing the depreci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribed as. a passive user of the same in the business. An asset can be said to be in use when it is kept ready for use. CIT v. Oswal Woollen Mills Ltd. 206 CTR 141 (P&H) "As regards first question in ITA No 1360/Chd/1987, reliance is placed on judgment of this Court in CIT v. Pepsu Road Transport Corporation(2002) 172 CTR (P&H) 72: (2002) 253 ITR 303 (P&H) taking the view that the machinery which is kept ready for use but may not be actually used, will qualify for normal depreciation as there is normal depreciation of value even when a machine is merely kept in a store. It is pointed out that this judgment has been followed by the Allahabad High Court in CIT v. Swarup Vegetable Products India Ltd. (2005) 196 CTR (All) 595: (2005) 277 ITR 60 (all). No contrary view has been shown on behalf of the revenue. Accordingly following judgment of this court in Pepsu Road Transport (supra), We answer this question in favour of the assessee and against the revenue. CIT v. Nahar Exports Ltd., 296 ITR 419 (P&H) 4. Learned counsel for the revenue submitted that unless the machinery is actually used, no depreciation should be allowed. However, we find that similar contention was considere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pinion, 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. CIT v. Oswal Agro Mills Ltd. 341 ITR 467 12. It cannot be disputed that by catena of judgments, it stands settled that the assessee should have used the asset for the whole of assessment year in question to claim full depreciation. Passive user of the asset is also recognized as 'user for purpose of business'. This passive user is interpreted to mean that the asset is kept ready for use. If this condition is satisfied, even when it is not used for certain reason in the concerned assessment year, the assessee would not be denied the depreciation. This was so discussed and restated, after taking stock of various judgments, by a Division Bench of this Court in CIT v. Refrigeration & Allied Industries Ltd [2001] 247 ITR 12. In that case, the assessee owned a cold storage at Karnal. The machinery installed, was not put to use during the whole of the previous year. The non-user was on account of the fact that there wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the various types of cases that could arise, the wider interpretation has to be placed on this expression. The decided cases, which have been earlier referred to, have arisen in different contexts which clearly indicate that the wider and more liberal interpretation of the provisions would in the context of section 10(2)( vi) and (vii) may be appropriate. Though it is true that a machinery generally depreciates with actual user, the decisions indicate that it is not necessary to import this concept in interpreting the expression 'used' in the statute. In the first place, a machinery may well depreciate even where it is not used in the business and even due to non-user or being kept idle. Secondly, 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng an accounting period is intended to represent the proportion of such expenditure which has expired during the period. The Court noted that the principle factors responsible for reduction in the value of capital asset and, therefore, responsible for depreciation are (i) ordinary wear and tear (ii) unusual damage (iii) inadequacy and (iv) obsolescence. These factors include not only those relating to physical deterioration but also those referring to the suitability of the asset as an economically productive unit after a period of time. The depreciation allowance under section 32 is, however, a statutory allowance not confined expressly to diminution in value of the asset by reason of wear and tear. The allowance can be claimed, if the asset in question is shown to be capable of diminishing in value on account of any factor known to the prevailing accounting or commercial practice. 17.6 In view of the ratio of the judgments referred to hereinabove we are of the considered opinion that the expression 'used for the purposes of business" appearing in section 32 of the Act also takes into account emergency spares which even though ready for use are not as a matter of fact consu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e there was no claim also on the tangible asset. 37. For the purpose of Section 32 it is sufficient that assets be kept ready for use in order to claim depreciation thereon. This has been reiterated by this Court in the two decisions relied upon by the Assessee, i.e.* Refrigeration & Allied Ind. Ltd's case (supra) and Capital Bus Service (P.) Ltd's case (supra}. In the former decision it was held that an asset can be said to be 'used' when it is kept 'ready for use1. Likewise in Capital Bus Service Pvt. Ltd.'s case (supra) it was held that while interpreting the expression 'used" it would be more appropriate to envisage the expression as comprehensive 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." CIT v. Southern Petrochemical Industries Corpn. Ltd 292 ITR 362 3.6.2 In such circumstances, this Court, after elaborately discussing the point, held as follows : "..a. the machinery could be 'used' for the purposes of the business so long as it is kept ready for such u ..... X X X X Extracts X X X X X X X X Extracts X X X X
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