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Income Tax Appellate Tribunal, Hyderabad ‘B’ SMC Bench, Hyderabad
Before: Smt. P. Madhavi Devi
the order of the CIT (A)-3, Hyderabad, dated 20.06.18.
Brief facts of the case are that the assessee company which is engaged in the business of supplying hydraulics and engineering systems to defense research institutions, e-filed its return of income 20.09.2015 declaring total loss of Rs.42,88,879/-. During the course of the assessment proceedings u/s 143(3) of the Act, the AO observed that the assessee has claimed depreciation of Rs.55,23,697/- u/s 32 which includes depreciation of Rs.54,00,000/- @80% on ‘special equipment’. The assessee was asked to justify the claim of depreciation. The assessee vide its reply dated 8.9.2017 and 24.10.2017 submitted that it purchased “fuel oil pump test bench” for Rs.1.35 crores in March, 2014 which was used in studying the pumping rate and ITA 1874 of 2018 Sahayak Engg P Ltd Hyderabad.
efficiency of the fuel pumping system and it had claimed depreciation @ 40% in A.Y 2014-15 and @80% in A.Y 2015-16 and that as per Appendix-1 of the I.T. Rules, 1962, the asset is eligible for depreciation @ 80%. The assessee further contented that the equipment was used in the financial year 2013-14 and depreciation @40% was allowed in A.Y 2014-15 and as the equipment was ready for use in A.Y 2015-16, depreciation @ 80% was claimed. The assessee submitted that the contract for supplies of pumping motor packages was completed in A.Y 2014- 15 and during A.Y 2015-16 the company has not received any orders for supplying of pump motor packages. The assessee also submitted that the special equipment had not been used in subsequent years also i.e. A.Y 2016-17 and 2017-18 for which returns have already been filed. The assessee further contented that during financial year 2014-15, it has not received any orders for supplying of pump motor packages for which the ‘special equipment’ is used for testing its fuel pumping efficiency and that though it was not used in financial year 2014-15, it was ready for use and therefore, it is eligible for claim of depreciation.
The AO, however, was not convinced with the assessee’s claim of depreciation. He held that the assessee has purchased the special equipment through 3 invoices from Aeroc Space Technologies (P) Ltd Balanagar, Hyderabad dated 1.3.2014, 10.3.2014 and 25.3.2014 and also that the special equipment has not been used in assembling and sale of 3D punching machine during A.Y 2015-16. Therefore, he held that since the asset is not used for business or profession, the assessee is not eligible for depreciation @ 80% as claimed by the assessee. The AO relied upon the decision of the Hon'ble Supreme Court in the case of ITA 1874 of 2018 Sahayak Engg P Ltd Hyderabad.
Liquidators of Pursa Ltd vs. CIT (1954) 25 ITR 265 to disallow the claim of depreciation of Rs.54.00 lakhs. Aggrieved, the assessee preferred an appeal before the CIT (A) who dismissed the assessee’s appeal and the assessee is in second appeal before the Tribunal by raising the following grounds of appeal: “1) The order of the Learned Commissioner (Appeals) is contrary to the facts of the case and law on the points in dispute. 2) The learned assessing officer erred in disallowing the depreciation claimed @ 80% on Fuel oil Pump Test benches u/s 32 of the Income Tax Act, 1961 on the grounds that the Plant and Machinery was not used at any time during the year without considering the provisions of the section which clearly states that depreciation shall be allowed once the asset is put to use without any ambiguity 3) The Learned Assessing officer erred in placing reliance on the case laws where the facts and circumstances are distinguishable from that of the assessee. 4) The Learned assessing officer erred in understanding the meaning The Learned Assessing officer erred in not considering the case laws relied upon by the assessee. Your appellant craves leave to add, amend or to alter the above Grounds of Appeal”.
The learned Counsel for the assessee, Shri A. Srinivas, while reiterating the submissions made before the authorities below submitted that the special equipment purchased was put to use immediately in the financial year 2013-14 relevant to A.Y 2014-15, and therefore, the assessee has claimed depreciation @40% which was also allowed by the AO. He submitted that the year before us is the second year and since the assessee has not received any order from its clients for production of any equipment in which this special equipment could be used, it was not used but since it was ready for use, the assessee is eligible for claim of deduction at the applicable rates. In support of its ITA 1874 of 2018 Sahayak Engg P Ltd Hyderabad.
contention, he placed reliance upon the decision of the Coordinate Bench of the Tribunal in the case of SPR Publications (P) Ltd vs. ACIT in dated 24.06.2015 for the ay 2008- 09.
The learned DR, on the other hand, supported the orders of the authorities below and submitted that the special equipment was purchased in the last week of March, 2014 only and admittedly it was not put to use in the financial year 2014-15 and therefore, the machine could have been put to use in A.Y 2015-16 also and accordingly, the AO has rightly disallowed the claim of depreciation.
Having regard to the rival contentions and the material on record, I find that the assessee’s claim of depreciation in the year of purchase and use i.e. financial year 2013-14 relevant to A.Y 2014-15 has been allowed by the AO and the asset has become part of the block of assets. It is also not in dispute that the asset has not been used in the relevant A.Y before us or in the subsequent two A.Ys. However, it is not the case of the Revenue that the equipment is not in existence and is not ready for use. Once the assessee has purchased the machinery and has put to use and thereafter has not used for lack of orders, the assessee cannot be denied the claim of depreciation. The learned DR has also not brought to our notice any evidence to the contrary that the assessee had claimed depreciation @ 40% in the year of purchase 2013-14 relevant to the A.Y 2014-15 and the claim of depreciation subsequently cannot be disallowed. In the case of SPR Publications (Supra), the Coordinate Bench of the Tribunal at Para 13 has held as under:
ITA 1874 of 2018 Sahayak Engg P Ltd Hyderabad.
“13. The expression used 'for the purpose of business' or 'put to use for the purpose of business' as employed in section 32(1) of the Act has come up for interpretation time and again before different High Courts in a number of decisions. The Hon'ble Gauhati High Court in the case of CIT vs. India Tea and Timber Trading Co. (1996) 221 ITR 857 (Gau.) has held that the expression 'used' should have a wider meaning so as to include not only actual but also passive user. Therefore, if the machinery was kept ready by the owner for its use in the business then it will be eligible for depreciation even if it is not actually used in the business during the relevant assessment year. The Hon'ble Kerala High Court in the case of CIT vs. Geo Tech Construction Corporation (2000) 244 ITR 452 held that if the asset on which depreciation is claimed is ready for use, then depreciation is allowable. While coming to such conclusion, the Hon'ble High Court observed that the word 'used' in section 32(1) is to be given a wider meaning. The Hon'ble Madhya Pradesh High Court in the case of CIT vs. Premier Industries (India) Limited (2010) 323 ITR 672 (M.P.) held that even if a machine is kept idle but is in a ready to use condition, then depreciation is allowable. The Hon'ble Madras High Court in the case of CIT vs. Chennai Petroleum Corporation Limited 358 ITR 314 held that if the machinery is ready for use but has not been actually used, still then assessee would be eligible for depreciation. Similar view has also been expressed in the following decisions i.e., (1) CIT vs. Oswal Agro Mills Ltd., 238 CTR 113 (2) CIT vs. Oswal Woollen Mills Ltd., 206 CTR 141 (P & H). Therefore, the principle of law which emerges from the aforesaid judicial precedents is to the effect that the term 'used' as employed in section 32(1) has to be given a wider meaning and will also include passive user of the asset. It has been held that if the machinery or plant is ready for use but it is not actually used, still then assessee will be eligible for depreciation. If we apply the aforecited principle to the facts of the present case, it is to be seen that the plant and machinery and electrical installation on which assessee has claimed full depreciation were acquired in the preceding assessment year. Therefore, it can be safely concluded that the plant and machinery as well as electrical installation were ready for use in the impugned assessment year. Only because the inauguration took place in October, 2007 that cannot be a sole criteria to deny assessee's claim of depreciation at the full value when there is no material brought on record by the department to show that the plant and machinery and electrical installations were not ready for use prior to 22.10.2007. Therefore, considering the totality of the facts and circumstances of the case, we hold that disallowance of 50% out of the total depreciation claimed by the assessee on the opening WDV is without any reasonable basis. Hence, we delete the addition made on that account”.
Respectfully following the same, I allow the grounds appeal raised by the assessee. The AO’s reliance is on the decision of the Apex Court in the case of Liquidators of Pursa Ltd (Supra) which is in the context of 1992 Act. Mush water has flown after
ITA 1874 of 2018 Sahayak Engg P Ltd Hyderabad. the said judgment. Therefore, the reliance on the said decision by the AO is misplaced.
In the result, assessee’s appeal is allowed.
Order pronounced in the Open Court on 11th June, 2020.