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TMI Blog2022 (6) TMI 733X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ifting and dismantling expenditure for Rs. 14,97,804/- and the assessee had shifted its plants and machinery in the year under consideration. Therefore, Ld. Assessing Officer held that it is evident that during the year under consideration, there was no business activity and assessee had not used its plants and machinery for business purposes. Hence, Ld. Assessing Officer disallowed certain expenditure and depreciation of Rs. 1,71,24,757/- on plant and machinery claimed by the assessee during the year under consideration. 4. In appeal before Ld. CIT(A), he dismissed the assessee's appeal by holding that the assessee had no business activity during the year under consideration and had not used its Plant and Machinery during the entire year at all. In fact, as per assessee's own admission, the Plant and Machinery of the assessee was dismantled and shifted during the year under consideration and the assessee had claimed shifting and dismantling expenditure in respect of the same. Accordingly, since no part of entire block of Plant and Machinery was put to use in the entire year, assessee's claim for depreciation on Plant and Machinery of Rs. 1,71,24,757/- cannot be allo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o question of depreciation being allowed on the ground of Plant and Machinery being 'ready to use'. In view of this discussion, it is held that the AO was justified in disallowing the addition of Rs. 1,71,24,757/. Accordingly, this ground of appeal is rejected. 5. Before us, Ld. Counsel for the assessee invited our attention to Pages 3 and 34 of Paper-Book-II to assert that during the year, the assessee was in process of shifting its power plant from Sanad Site to Panoli District, Ankleshwar Site for captive power consumption. The company, during the year was in transition period and had not finished restructuring of power plant at Panoli site and hence could not make sales during the year by generation and supply of power. He further drew our attention to Page 11 of Paper-Book-II to contend that during AY 2011-12 and 2012-13, the assessee was having substantial revenue from operations and it is not the case that the assessee has not having business operations since many years or had closed down its operations altogether. Ld. Counsel for the assessee further drew our attention to page 67 of Paper-Book-II to the strike-off letter by Registrar of Companies, which the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce assessee was in process of shifting the unit to a new location. Secondly, whether the assessee can be allowed set-off of unabsorbed brought forward depreciation and business loss in absence of business activity during the year. 7.1. We shall first deal with the first issue mentioned above. 7.2. In the case of Nirma Credit Capital Ltd. v. ACIT [2017] 82 taxmann.com 109 (Gujarat), the facts were that the assessee company is engaged in the business of manufacture of detergents. During the year under consideration, manufacturing activity was not carried out by the assessee. Therefore, the assessee claimed depreciation on the block of Plant Machinery from the earlier year. However, the Assessing Officer passed the assessment order disallowing the depreciation. The CIT(A) allowed the assessee's appeal. Being dissatisfied with the same, the Revenue filed appeals before the Tribunal. However, all the appeals filed by the Revenue were dismissed. Hence, Revenue filed Appeal before the Gujarat High Court. The Gujarat High Court, while deciding in favour of the assessee observed as below: The record reveals that the reason assigned by the Assessing Officer for rejecting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ), that: (i) even after introduction of the concept of block of assets, the identity of individual assets was not lost the AO could restrict depreciation u/s. 38(2) having regard to the user of the assets. However, s. 38 (2) applies only to a case when the asset is not exclusively used for business purposes but is used for non business purposes as well. S. 38 (2) does not apply to an asset which is neither used for business purposes nor for non business purposes but remains in the block of assets; (ii) The concept of allowing depreciation on block of assets was introduced w.e.f. 01.04.1988 with the object of avoiding separate book keeping. A harmonious reading of the expression 'used for the purposes of the business', would show that it only means that the assessee has used the machinery for the purposes of the business in earlier years; (iii) The doubt as to how deprecation can be allowed on assets which are not used for the purpose of business is answered by the legislative scheme that though the profit of that year is reduced, the WDV is reduced and the gain is taxed u/s. 50 when the asset is sold and block ceases to exist; (iv) The use of an indiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... axmann.com 4 (Mum.) ITAT held that where asset purchased by assessee has been used for purpose of its business and same has been included in 'block of asset', depreciation is to be allowed thereon even if same could not be used during relevant assessment year due to some reasons beyond control of assessee; 7.8. In CIT v. Chennai Petroleum Corpn. Ltd. [2013] 37 taxmann.com 332 (Madras), Madras High Court held that where assessee claimed depreciation on plant and Assessing Officer declined depreciation on plea that plant had never been put to use for purposes of business during whole of previous year, since assessee's business was a going concern and plant could not be put to use due to raw material paucity, assessee was entitled to depreciation on plant and machinery. 7.9. Now, on appreciation of facts of the present case, we note that during AY 2011-12 and 2012-13, the assessee was having substantial revenue from operations and it is not the case that the assessee was not having business operations for many years or had closed down its operations altogether. The Notes forming part of Balance Sheet mentions specifically states The company is in transition period a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purpose of business. All the aforesaid three facts must co-exist in the current year. It is also clear from the perusal of section 32(2) that said sub-section (2) is only subject to the provisions of sub-section (2) of section 72 and sub-section (3) of section 73. It is settled law that in interpreting or creating legal fiction, the Court has to ascertain as to for what purpose the legal fiction is created and after ascertaining this, the Court has to assume all those facts and the consequences which are incidental or inevitable corollaries in giving effect to the fiction. On reading section 32(2) it is clear that the purpose of the Legislature in introducing legal fiction is to give benefit of the unabsorbed depreciation in the following previous year or in the succeeding previous years and when that is the purpose of legal fiction, all the facts necessary for the purpose of earning depreciation under section 32(1) must be assumed and, therefore, for the following previous year the ownership of machinery, user of machinery and user of machinery for the purpose of business and existence of business also will be required to be assumed for giving effect to the legal fiction. These f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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. In our view, respectfully following the decisions of jurisdictional High Courts cited above and the decision of Mumbai ITAT in the case of Dwarka Cements supra, 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. 10. In the result, Ground No. 3 of the assessee's appeal is allowed. 11. Ground Nos. 4 and 5 of the assessee's appeal are general in nature and do not require a specific adjudication. 12. In the result, appeal of the assessee is allowed. Order pronounced in the open court on ..... X X X X Extracts X X X X X X X X Extracts X X X X
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