Depreciation allowed when asset was not used for a single day during the year due to seizure by bank for loan default – ITAT followed law settled by High Courts
ABCAUS Case Law Citation
ABCAUS 2367 (2018) 06 ITAT
The instant appeal was preferred by the Income Tax Department (Revenue) against the order of the Commissioner of Income Tax (Appeals) (CIT-A) in allowing depreciation claimed by assessee when the vehicles had not been used even for any single day in a year.
The respondent assessee was an individual and is engaged in the business of running buses on hire for tour operators etc. The return if the assessee was selected for scrutiny under CASS. The Assessing Officer (AO) noted that the assessee had purchased buses and cars out of money borrowed from different banks. However, on assessee’s defaulted in repayment of loan, the banks had took the possession of the buses in the year under consideration and therefore, the ‘use’ condition of section 32 of the Income Tax Act, 1961 (the Act) was not fulfilled by the assessee.
The AO further observed that the assessee was not in possession of the said buses and the same were not put to use by the assessee even in a single day. However, the assessee claimed depreciation on the buses for the full year. Therefore, following the provisions of section 32 of the Act, the AO issued a show cause notice as to why depreciation claimed on the buses which were not put to use by the assessee.
The assessee placing reliance on various case laws submitted that although the vehicles were attached, he was still owner of those vehicles and since the said vehicles were meant for business, the depreciation was allowable. However, the AO disagreed with the contention of assessee and made addition by rejecting allowance of the depreciation claimed.
Aggrieved with the order of AO, assessee filed an appeal before the CIT(A) who deleted the addition.
Before the Tribunal, the assessee contended that the Legislature amended the law to provide for allowing of the depreciation on the entire block of assets instead of each individual assets. The buses were purchased in the past and had already entered the block of assets. The claim of depreciation u/s 32 on the said buses/vehicles was allowed in the past. Hence after the amendment with effect from 1-4-1988, the individual assets lost its identity and for the purpose of allowing of depreciation, only the block of assets has to be considered if a block of assets is owned by the assessee and used for the purpose of business, depreciation will be allowed. Therefore the test of user has to be applied upon the block as whole instead of upon an individual asset.
The Tribunal observed that the Hon’ble Bombay High Court had held that the individual asset looses its identity for purposes of depreciation and user test is to be satisfied at time when purchased Machinery becomes part of the block of assets for first time. Similar view had been taken by the Hon’ble Delhi Court which concluded that though use of asset for the purpose of business is an essential condition for claiming depreciation, depreciation under section 32, as amended by Taxation Laws (Amendment) Act, 1986, is allowable on the entire block of assets irrespective of the fact that a particular asset or assets of a closed unit in this case, were not put to use during the year.
Further, the Tribunal also concurred with the reasoning adopted by the CIT(A) that as per letter of RTO, the appellant was the owner of the vehicles during the period. Also the CIT-A placed reliance of the judgment of Delhi High Court in which it was held that expression used for the purpose of the business and depreciation would be allowed where the buses were kept ready by the owner for its use. Merely because the buses did not play, cannot mean that the depreciation was not allowable.
The ITAT observed that undisputedly, the assessee’s business was running of buses and cars on hire. Assessee used the said vehicles for his business purposes and therefore, the depreciation was rightly allowed under the provisions of section 32(1) of the Act. CIT(A) rightly allowed the claim also considering the judgments on this issue.
In view of the settled legal position the Tribunal opined that the issue raised by the Revenue was not sustainable in view of the bindings judgments of the Hon’ble High Courts.
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