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Income Tax Appellate Tribunal, DELHI BENCH ‘D’, NEW DELHI
आदेश / ORDER PER SUSHMA CHOWLA, VP The present appeal filed by assessee is against order of CIT(A)-VIII, New Delhi dated 19.11.2008 relating to assessment year 2005-06 against the order passed under section 143(3) of the Income-tax Act, 1961 (in short ‘the Act’).
The assessee has raised following ground of appeal:- 1. “The Hon’ble CIT(A) has erred in law and on facts in confirming the addition of Rs.1,83,206/- on account of disallowance of depreciation on farm house of the company which is exclusively used for holding conferences and other business meetings of the company. The addition made by the Ld.AO is arbitrary and not founded on facts.”
3. The issue raised in the present appeal is against the disallowance of depreciation on farm house of Rs. 1,83,206/-.
4. Briefly in the facts of the case, the assessee company was engaged in manufacturing of auto parts. The assessee during the year under consideration had claimed depreciation on farm house of Rs. 1,83,206/-. The assessee explained that the said property was being used for business meetings with buyers, staff conferences etc., hence it was used for business purposes and depreciation on same is to be allowed. The Assessing Officer however, denied the claim of the assessee. The CIT(A) observed that use of farm house on few occasions for business purposes, would not convert the character of the same into office. The CIT(A) upheld the order of Assessing Officer, against which the assessee is in appeal before us.
The learned AR for the assessee pointed out that the said asset was part of block of assets of building for the past several years and depreciation was allowed from year to year. He referred to the depreciation chart from assessment year 2001-02 onwards. He further placed reliance on difference decisions for the proposition that once an asset has entered into block of assets then, depreciation cannot be denied to the assessee.
The learned DR for the Revenue placed reliance on the orders of the authorities below.
We have heard the rival contentions and perused the record. The limited issue which arises for adjudication is where an asset has entered into block of assets, then can the depreciation on such asset be denied to the assessee. The assessee has filed before us the depreciation chart of fixed asset starting from assessment year 2001-02 onwards. The block of assets “Building” includes factory building and the farm house owned by the assessee company; from time to time depreciation has been claimed and allowed in the hands of the assessee in the preceding years. The assessment for assessment year 2001-02 was completed under section 143(3) of the Act vide order dated 18.02.2004.
However, in the year under consideration i.e. assessment year 2005-06, the depreciation has been denied to the assessee on the ground that it is not used for business. Admittedly, the use of the asset is same as in the earlier years.
The next aspect of the issue is that if an asset has become part of the block of assets, can the value of the said asset be segregated and depreciation disallowed on the same. The answer to the question is “no”.
The Hon’ble Bombay High Court in CIT vs. M/s Sonic Biochem Extractions Pvt. Ltd. in of 2013 vide judgment dated 17th November, 2015 while deciding the issue of claim of depreciation in respect of plant and machinery of discontinued business where the asset was in block of assets with written down value, was held eligible to claim depreciation. The Hon’ble High Court (supra) laid down the proposition that depreciation is granted to the entire block of assets, whether or not any individual item therein has been used during the year or not. Upholding the proposition laid down by the Tribunal, it was observed that once the concept of block of assets was brought into effect from assessment year 1989-90 onwards, then on aggregate of written down value (in short “WDV”) of the asset in the block at the beginning of the previous year, alongwith addition made to the asset in the subject assessment year, depreciation is allowable. It is further held that the individual asset loses its identity for the purpose of depreciation and the user test is to be satisfied at the time the purchased machinery becomes part of the block of assets for the first time. The appeal of the Revenue was thus dismissed.
The Pune Bench of the Tribunal in Johnson Matthey Chemicals India Pvt. Ltd. vs DCIT in & 2036/Pun/2012 relating to Assessment Years 2004-05 & 2005-06 respectively, vide order dated 12.12.2017, decided similar issue of allowablity of depreciation on assets which was part of block of assets and the depreciation was claimed on the Written Down Value of the said assets as on the start of the Financial Year and it was held as under:-
“The next aspect of the issue is that where the assessee had already bifurcated slump price over the cost of tangible assets, value of know-how, trademarks, patents and balance to the goodwill in the preceding year i.e. assessment year 2003-04 and depreciation having been allowed to the assessee in the preceding year, consequent to which the said assets were part of block of assets and during the year under consideration, depreciation is claimed on the WDV of the said assets as on the start of financial year, then can the authorities disturb the same?. The claim of assessee vis-à-vis depreciation on tangible assets, know-how, patents and trademarks, goodwill and non-compete fee have either been allowed by the Assessing Officer or by the Tribunal in assessee‟s own case in assessment year 2003-04. The value of the said assets and allocation of price amongst tangible and intangible assets had been accepted in preceding year and depreciation has been claimed and allowed in the hands of assessee. Once the assets had entered into block of assets and have already been allowed, the depreciation and the WDV of the said assets had been determined in the preceding year, which is brought forward at the start of financial year, then the assessee is entitled to ITA No.2036/PUN/2012 claim the depreciation on the said WDV or not, was the next issue which was elaborately argued before us.
Both the learned Authorized Representatives referred to different parts of section 43(6) of the Act. The learned Authorized Representative for the assessee referred to clause (c) of section 43(6) of the Act, which talks of „block of assets‟. However, the learned Departmental Representative for the Revenue placed reliance on clause (b) of section 43(6) of the Act. The learned Departmental Representative for the Revenue was of the view that in case depreciation has not been allowed correctly in the preceding assessment years, then the same can be looked into by the Assessing Officer in succeeding year. He thus, emphasized that when an error had been made by Assessing Officer while working the value of assets under clause (b), then the same can be looked into afresh while deciding the case of allowability of depreciation in succeeding year. We find no merit in the stand of Revenue since after insertion by the Taxation Law (Amendment and Miscellaneous Provisions) Act, 1986 w.e.f. 01.04.1988, the concept of „block of assets‟ had been brought on Statute. The said section very clearly provides that aggregate of WDV of all assets falling within the „block of assets‟ at the beginning of previous year and adjusted, could be increased by the cost of any asset acquired during the previous year and could be reduced by the money payable in respect of any asset, which is falling under „block of assets‟, which has been sold or discarded, and on the balance, the assessee is entitled to claim depreciation. In view of the amendment to the Act and in view of the concept of „block of assets‟ what has to be seen is the aggregate WDV of assets which are falling within the same block at the beginning of previous year, that is the first step. Thereafter, in case any new asset is ITA No.1507/PUN/2012 ITA No.2036/PUN/2012 acquired, then the value of such asset is to be included; and in case any such asset from the „block of assets‟ is sold, then the value of same is to be excluded. However, none of the authorities can tinker with the WDV of the assets for any reason whatsoever. Once the asset has entered into „block of assets‟ and thereafter, depreciation has been allowed and in the succeeding year, the WDV of such asset is to be accepted as sacrosanct and depreciation has to be allowed on the same. Such is the proposition laid down by the Hon‟ble Bombay High Court in Director of Income Tax (IT) Vs. HSBC Asset Management (I) (P.) Ltd. (supra), wherein the Hon‟ble High Court held as under:- "9. Having perused this Appeal Memo including the impugned orders, we are of the opinion that the Delhi High Court judgment has been delivered on 5rh November 2012 and the impugned order was passed on 15th June, 2011. The Tribunal has essentially based its conclusion on the consistent stand of the assessee and that of the Assessing Officer. In dealing with the shift in stand for the subject assessment year, the Tribunal found that this claim of depreciation was raised in the assessment year 2003-04. The assessee claimed that it is allowable as per the provisions of Income Tax Act on block of assets under the head "intangible assets". The Assessing Officer allowed the claim for that assessment year by an order under section 143(3) dated 28.03.2006. The Tribunal then, proceeds to hold that when the Assessing Officer had to allow depreciation on the written down value of the block of assets, then, it cannot in the present assessment year dispute the opening written down value of the block of assets nor can he examine the correctness or otherwise of the opening written down value brought forward from the earlier year. The order under section 143(3) for assessment year 2003-04 continues to operate and no proceedings under the Act were initiated to disturb the same.
In these circumstances and without any material being placed on record to substantiate the shift in stand for the subject assessment year that the Tribunal emphasizing rule of consistency allowed Assessee‟s appeal. We do not think that such a view which has been taken in the given facts and circumstances and peculiar to the Assessee‟s case gives rise to any substantial question of law. Reliance placed on the Delhi High Court judgment therefore, cannot carry the case of the revenue in this matter any further. What comes within the purview of Section 32(1)(ii) of the Income Tax Act, 1961 and whether the department was right when it allowed the depreciation on the basis or foundation for the earlier assessment years need not be gone into in this Appeal. Question as posed and termed as substantial question of law can be determined and decided in an appropriate case. Leaving open all contentions in that behalf, we dismiss this appeal."
10. Applying the said proposition to the facts of the present case where the farm house has already entered the block of assets “Building” then it loses its identity and user in the first year of purchase is relevant and not in the instant assessment year. The assessee had been allowed depreciation in Assessment Year 2001-02 vide order passed u/s 143(3) of the Act. Accordingly, the order of CIT(A) is reversed. The ground of appeal raised by the assessee is allowed.
In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 30th June, 2020.