M/S. DEEPAK NITRITE LTD. vs. DY.COMMISSIONER OF INCOME TAX

Facts

The assessee, M/s. Deepak Nitrite Ltd., filed its return of income for Assessment Year 1992-93 on December 31, 1992, declaring an income of Rs. 1,01,48,070/-. The return was processed under Section 143(1)(a) on March 31, 1993. Following notices under Sections 143(2) and 142(1), an assessment order was passed. The assessee appealed to the CIT(A), which was partly allowed. The Revenue then appealed to the Income Tax Appellate Tribunal (ITAT), which also partly allowed the appeal. The assessee, aggrieved by the ITAT's order (ITA No. 1709/Ahd/2001), filed the present Tax Appeal before the High Court of Gujarat.

Held

The High Court held that the Tribunal was not right in law in disallowing depreciation of Rs. 2,01,598/- in respect of some items of block of assets not used by the assessee during the accounting year. The Court relied on its previous decisions in Assistant Commissioner of Income Tax vs. S.K. Patel Family Trust ([2012] 251 CTR 427 (Guj.)) and Commissioner of Income Tax vs. Sonal Gum Industries ([2010] 322 ITR 542 (Guj.)). These judgments established that once a factory building is put to use, depreciation cannot be restricted to a portion used, and similarly, for block assets, items cannot be segregated for depreciation claims. If assets are used for business, it is not necessary for all items within the block to be simultaneously used to be entitled to depreciation. The issue is answered in favour of the assessee and against the Revenue. The Tax Appeal is allowed.

Key Issues

1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in disallowing depreciation of Rs. 2,01,598/- in respect of some items of block of assets not used by the assessee during the accounting year? (Question of law). Assessee's Contention: The assessee argued that once a factory building is put to use, depreciation cannot be restricted to only a portion used. Similarly, for block assets, items within the block cannot be segregated for depreciation purposes. If assets are used for business, not all items within the block need to be simultaneously used to be entitled to depreciation. Revenue's Contention: The judgment does not record any specific contentions made by the Revenue on this issue.