Depreciation claim disallowed-defective machine not ready to use. Legal ownership not must but machine should at least be ready to use-ITAT

Depreciation claim disallowed-defective machine not ready to use. Legal ownership not a must but the machine if not used, should at least be ready to use-ITAT

ABCAUS Case Law Citation:
1063 (2016) (11) ITAT

Assessment Year: 2009-10
Date of the Judgment: 16-11-2016

Brief Facts of the Case:
The assessee was a manufacturer & exporter of tanned leather and finished leather products. The assessee had imported a second hand splitting machine. The Invoice copy issued by the seller had a condition that till the full payment were made by the buyer, the machine would continue to be belonging to the seller. Against the sale price, the assessee had paid only 20% approx and withheld the remaining amount for the reason that the machine was not found to be according to specification mentioned by the seller.  For the balance amount payable to the seller of the machine, in the accounts of the assessee it appeared as a trade creditor.

The Assessing Officer (AO) was of the opinion that the said machinery was not owned by the assessee and there were disputes regarding the condition of the machine. Accordingly he disallowed the depreciation which was claimed by the assessee on the full price of the said machine.

Aggrieved by the rder of the AO, the assessee moved in appeal before Commissioner of Income Tax (Appeals). The assessee contended that the machine was already installed in its factory and used by it. Hence, according to it depreciation claimed had to be allowed. However, CIT(A) noted that the assessee himself had stated that the machine was not cutting the leather according to specification mentioned by the seller. Accordingly, he confirmed the disallowance made by the AO.

Not satisfied with the order of CIT(A), the assessee contested it in ITAT

Contentions of the Assessee:
The assessee contended that he had installed machine and used it. The disallowance was made without considering the claim of the assessee that it was used in its business. The assessee also placed on a certificate of Chartered Engineer in this regard

Observations made by the Tribunal:
The Tribunal observed that no one but the assessee itself had stated that machine imported was not according to its specification. As per assessee, the balance amount was withheld by it due to fault in the machine supplied.

The Tribunal clarified that without doubt, the legal ownership of the machine by itself is not a fundamental requirement for a claim of depreciation. However, in order to claim depreciation, the machine if not used, should atleast be ready to use.

Since the assessee’s own admission was that the machine was not in accordance with the agreed specification, the ITAT opined that the assessee was not able to show that the machine was actually used by it or kept in readiness for use.

Regarding the certificate from Chartered Engineer, the Tribunal noted that it did not suggest that machine were ready for use. Further there was no record substantiating any trial run produced by the assessee.

Held:
The ground of appeal dismissed.