Depreciation allowable even if asset not used during the year when it formed part of block of assets
ABACUS Case Law Citation
ABCAUS 3378 (2020) (08) ITAT
Important case law relied upon by the parties:
CIT vs. Norplex Oak India reported in 198 Taxman 0470
In the instant case, the Revenue had challenged the order passed by the CIT(A) in deleting the addition made by the Assessing Officer on account of depreciation where the assessee had no activity of mining during the relevant year and was engaged only in lifting of closing stock during the period.
The assessee was engaged in the mining iron ore. During the assessment proceedings the Assessing Officer (AO) examined the Tax Audit Report and Balance Sheet as well as submission given by the assessee.
The AO was of the view that the assessee had not followed extraction of Iron Ore during the relevant year and he had no activity of mining during the relevant year and was engaged only lifting of closing stock during the year as per order of the Hon’ble High Court.
Therefore, the AO disallowed the entire depreciation on machineries and added to the income of the assessee.
The CIT(A) observed that the assessee’s mining company was a running concern. It had stopped production for the time being in order to cater to the decision of the Hon’ble Supreme Court.
The CIT(A) further observed that when an asset is procured, it goes into the block of assets. If an asset goes into the block of assets, the same goes into depreciation. It was noted that there was no doubt that the assessee was also the owner of the machinery.
The CIT(A) further noted the jurisdictional High Court had held that the word “used’ appearing in section 32(1) should be interpreted to mean a situation where the machineries which are required for implementing the nature of business the assessee runs, have been kept ready for use for the above purpose. In other words, if the assessee purchases a machine which is not required at all having regard to the nature of the business carried on by the assessee, he will not be entitled to the benefit of depreciation because the said machinery is not meant for the use in the business of the assessee.
In the said judgment, the Hon’ble High Court had stated that where the assessee was ready for doing his business. But for the adverse law and order situation, he could not actually run the factory although all the machineries were ready for use and the valuation of such machinery also depreciated notwithstanding its non-user.
The Hon’ble High Court had held that the assessee did not abandon its business but suffered loss for such a state of affairs prevailing in the State over which he had no control with an expectation of resuming the business. This was not a case where the assessee himself is embroiled in a dispute with his labourers and in the process, has decided to declare a lockout expressing its intention not to run the business.
The CIT(A) on the strength of the abovesaid judgment held in favour of the assessee.
The Tribunal found no infirmity in the order of the CIT(A) and dismissed the ground raised by the revenue.
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