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Income Tax Appellate Tribunal, DELHI BENCH ‘B’, NEW DELHI
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘B’, NEW DELHI Before Sh. N. K. Saini, AM And Sh. Kuldip Singh, JM : Asstt. Year : 2005-06 Dy. Commissioner of Income Vs M/s Encorp E Services Ltd., Tax, Circle-11(1), M-4, Surya Mansion, Kausalya Park, New Delhi New Delhi-110016 (APPELLANT) (RESPONDENT) ITA Nos. 4460 & 4461/Del/2011 : Asstt. Years : 2006-07 & 2007-08 Dy. Commissioner of Income Vs M/s Encorp E Services Ltd., Tax, Circle-11(1), Office No. 202, F-46, Bhagat Singh New Delhi Market, New Delhi-110001 (APPELLANT) (RESPONDENT) PAN No. AABCE3129L Assessee by : Sh. Anoop Sharma, Adv. Revenue by : Ms. Kesang Y. Shirpa, Sr. DR Date of Hearing : 26.10.2015 Date of Pronouncement : 11.01.2016 ORDER PER N. K. Saini, AM:
These three appeals by the department are directed against the separate orders of the ld. CIT(A)-XIII, New Delhi dated 03.02.2011, 27.07.2011 & 10.08.2011 for the assessment years 2005-06 to 2007-08 respectively.
2. These appeals relating to the same assessee were heard together so these are being disposed off by this consolidated order for the sake of convenience and brevity.
ITA Nos. 1799, 4460 & 4461/Del/2011 2 Encorp E Services Ltd. 3. First we will deal with the appeal in for the assessment year 2005-06. Following grounds have been raised in this appeal:
“1. On the facts and circumstances of the case and in law, the CIT(A) has erred in deleting the addition of Rs.1,64,99,137/- on account of expenses on brand building and advertisement. 2. On the facts and circumstances of the case and in law, the CIT(A) has erred in deleting the addition of Rs.7,58,70,585/- on account of depreciation claimed by assessee. 3. The appellant craves leave to add, alter or amend any ground of appeal raised above at the time of hearing.”
4. First issue vide Ground No. 1 relates to the deletion of addition of Rs.1,64,99,137/- made by the AO on account of brand building and advertisement expenses.
Facts of the case in brief are that the assessee filed the return of income on 26.10.2005 declaring a loss of Rs.32,38,08,320/- which was processed u/s 143(1) of the Income Tax Act, 1961 (hereinafter referred to as the Act) on 03.02.2007. Later on the case was selected for scrutiny. The AO during the course of assessment proceedings noticed that the assessee had claimed advertising and Brand Building expenses to the tune of Rs.2,06,23,921/-. He asked the assessee to furnish the details of the said expenses. In response, the assessee furnished the details vide letter dated 31.10.2007. From the said details, the AO noted that the 4460 & 4461/Del/2011 3 Encorp E Services Ltd. assessee had incurred expenses of Rs.21,99,636/- on account of Designing & Production charges, Rs.1.28 crores for advertisement expenses etc. According to him those expenses totaling to Rs.2,06,23,921/- were of enduring nature to the assessee. Therefore, those were treated as capital in nature and were amortized for 5 years. Accordingly, the AO allowed 1/5th of the expenses amounting to Rs.41,24,784/-, balance of the expenses amounting to Rs.1,64,99,137/- was disallowed and added to the income of the assessee. The reliance was placed on the following case laws:
� Hylam Ltd. Vs CIT (1973) 87 ITR 310 (AP) � CIT Vs Singareni Collieries Co. Ltd. (1980) 121 ITR 466 (AP) � Assam Bengal Cement Co. Ltd. Vs CIT (1955) 27 ITR 34 (SC) 6. Being aggrieved the assessee carried the matter to the ld. CIT(A) and submitted as under:
“(i) The appellant company in its profit and loss account for the year under reference has claimed Rs.2,06,23,921/- by debiting the same under Advertisement and Brand Building Account. The expenditure were incurred mainly on business promotion, incentives, telecast of weekly draws and advertisement for monthly sale of lottery in newspaper etc. and are in the nature of business promotion. In fact, the assessee company has wrongly debited these expenses under the head Advertisement & Brand Building exp. Details of expenses are enclosed. The AO treated the above expenditure , 4460 & 4461/Del/2011 4 Encorp E Services Ltd. as capital in nature and amortized for five years. Accordingly, 1/5th amounting to Rs.41,24,784/- is allowed by him and balance of Rs.1,64,99,137/- is disallowed. (ii) The AO in his order in para 4.1 to 4.5 has tried to analyze and distinguish between the revenue expenditure and the capital expenditure by citing various case laws but he himself has not adhered to fundamental principle of distinguishing revenue expenditure and capital expenditure. The AO in para 4.2 and 4.4 referred the case of Hylam Ltd. Vs CIT (1973) 87 ITR 310 (AP) and Andhra Pradesh High Court in the case of CIT Vs Singreni Collieries Co. Ltd. (1980) 121 ITR 466 respectively wherein it was held that the purpose for which an expenditure is made determines the nature of the expenditure. However, whether purpose is to obtain an “enduring benefit” or not is to be determined on the facts and circumstances of each individual case. The AO has in para 4.4 has referred to the Apex Court in the case of Assam Bengal Cements Co. Ltd. Vs CIT (1955) 27 ITR 34 wherein it was held that “In case where the expenditure is made for the initial outlay or for extension of a business or a substantial replacement of the equipment, there is no doubt that it is capital expenditure. A capital asset of the business is either acquired or extended or substantially replaced and that outlay whatever be its source whether it is drawn from the capital or the income of the concern is certainly in the nature of capital expenditure. Expenditure can be looked at either from the point of views of what is acquired or from the point of view of what is the source from which the expenditure is incurred. If the expenditure is made for acquiring or bringing into existence an assets or advantage for the enduring benefit of the business it is properly attributable to capital and is of the nature of capital expenditure. If on the other hand it is , 4460 & 4461/Del/2011 5 Encorp E Services Ltd. made not for the purpose bringing into existence any such assets or advantage but for running the business or working it with a view to produce the profits it is a revenue expenditure. If any such asset or advantage for the enduring benefit of the business is thus acquired or brought into existence it would be immaterial whether the source of the payment was the capital or the income of the concern or whether the payment was made once and for all or was made periodically. The aim and object of the expenditure would determine the character of the expenditure whether it is a capital expenditure or a revenue expenditure. The Source or the manner of the payment would then be of no consequence. It is only in those cases where this test is of no avail that one may go to the test of fixed or circulating capital and consider whether the expenditure incurred was part of the fixed capital for the business or part of its circulating capital. If it was part of the fixed capital of the business it would be of the nature of capital expenditure and it if was part of its circulating capital it would be of the nature of revenue expenditure. These test are thus mutually exclusive and have to be applied to the facts of each particular case in the manner indicated.” Thus the courts have held that a particular expenditure is a capital expenditure or a revenue expenditure depends upon the nature and object for which it is incurred. It should consider the nature and its use in ordinary course of business and object to which the expenditure was incurred. Therefore, before deciding whether a particular expenditure is a capital expenditure or a revenue expenditure, it is necessary to see whether the expenditure in question was incurred to create a new assets or was incurred for maintaining the business of the company. In such cases, the former is a capital expenditure and the later is a revenue expenditure.
ITA Nos. 1799, 4460 & 4461/Del/2011 6 Encorp E Services Ltd. (iii) Respectfully following the above principle laid down by Apex and High Court the appellant company has incurred expenditure on advertisement in print media, television, radio, designing and printing of posters and sign boards etc. which is a part of sale promotion of the company and it has not resulted in creation of any capital assets for the company. The expenditure incurred is in the nature of recurring expenses incurred wholly and exclusively for the promotion of the business and the expenditure incurred was not of durable nature. (iv) Therefore, such expenses on advertisement are to be allowed as business expenditure and are not a deferred revenue expenditure. We rely in the case of CIT VS Berger Paints (I) Ltd. (2002) 254 ITR 503 (Calcutta) wherein the Hon’ble Court has held that “It is now settled law that if according to the revenue laws the assessee is entitled to treat a sum as revenue expenditure, then that legal right of the purchasing market is short and advertisement is needed from year to year and cannot be made once for all in any single particular year. The tribunal was justified in law in allowing the sum as revenue expenditure. Kedar Nath Jute Mfg. Co. Ltd. Vs CIT (1971) 82 ITR 363 (SC) and CIT Vs India Discount Co. Ltd. Vs CIT (1970) 75 ITR 1991 (SC). (v) Respectfully following the above case laws it is prayed that the disallowance of Rs.1,64,99,137/- made by the AO out of advertisement expenses may kindly be deleted.”
The ld. CIT(A) after considering the submissions of the assessee observed that the partywise and monthwise details of Advertisement & Brand Building expenses provided by the assessee revealed that those expenses had been incurred on account of press advertisement, cable 4460 & 4461/Del/2011 7 Encorp E Services Ltd. advertisement, printing of trend book, telecast in television, radio, designing and printing of posters and sign boards. According to the ld. CIT(A) those expenses were revenue in nature because those were incurred for increasing the profitability and more efficient running of the business of the assessee, which was business of computerized lottery. Accordingly, the addition made by the AO was deleted. The reliance was placed on the judgment of the Hon’ble Calcutta High Court in the case of CIT Vs Burger Paints India Ltd. 254 ITR 503.
Now the department is in appeal. The ld. DR strongly supported the order of the AO and further submitted that the expenses incurred by the assessee were having enduring benefit, therefore, those were capital in nature. As such the AO rightly made the addition and the ld. CIT(A) was not justified in deleting the same.
In his rival submissions the ld. Counsel for the assessee reiterated the submission made before the ld. CIT(A) and further submitted that the expenses incurred by the assessee were revenue in nature as there was no enduring benefit. The reliance was placed on the following case laws: � CIT Vs Burger Paints India Ltd. 254 ITR 503 (Cal) � CIT Vs Liberty Group Marketing Division (2009) 315 ITR 125 (P&H) , 4460 & 4461/Del/2011 8 Encorp E Services Ltd.
We have considered the submissions of both the parties and carefully gone through the material available on the record. In the present case, it is an admitted fact that the assessee incurred expenses on account of press advertisement, cable advertisement, printing of trend book, telecast in television, radio, designing & printing of posters & sign boards for increasing the profitability of its business of computerized lottery. Those expenses were incurred in the regular course of business, therefore, the AO was not justified in treating the expenses of Advertising and Brand Building as capital in nature. On the other hand, the ld. CIT(A) after considering the nature of expenses which were mainly on account of telecast of weekly lottery and advertisement of monthly sale of lottery in newspaper etc. held that those expenses were in the nature of business promotion. In our opinion, merely on this basis that those expenses were debited under the head “Advertisement & Brand Building expenses”, the AO wrongly treated them as expenditure of capital in nature. Those expenses were required to be incurred from year to year and could not be made once for all in any single particular year. On a similar issue the Hon’ble Calcutta High Court in the case of CIT Vs Burger Paints (I) Ltd. (2002) 254 ITR 503 (supra) held as under:
“that if according to the revenue laws the assessee is entitled to treat a sum as a revenue expenditure, then that legal right of the assessee is not estopped by the treatment given by the assessee to it in its own books of account. Advertisement expenses are normally to be treated as revenue expenditure.”
, 4460 & 4461/Del/2011 9 Encorp E Services Ltd. 11. Similarly the Hon’ble Punjab & Haryana High Court in the case of CIT Vs Liberty Group Marketing Division (2009) 315 ITR 125 held as under: that the expenditure incurred by the assessee on glow sign boards did not bring into existence an asset or advantage for the enduring benefit of the business which was attributable to capital. The glow sign board was not an asset of permanent nature. The Tribunal had recorded a finding that the assessee had to incur expenditure on glow sign boards regularly in almost each year. The assessee had incurred the expenditure on the glow sign boards with an object to facilitate the business operation and not with an object to acquire an asset of enduring nature. Therefore the expenditure was of revenue nature and the Tribunal had rightly treated it as of revenue nature.
The Hon’ble Jurisdictional High Court while deciding the similar issue in the case of CIT Vs Orient Ceramics and Industries Ltd. (2013) 358 ITR 49 (Del) held that the expenditure on glow sign boards displayed at various outlets were revenue in nature.
In the present case also the assessee was incurring the expenses under consideration for its sales promotion and those expenses were incurred from year to year in the regular course of business. Therefore, those were revenue in nature and as such the ld. CIT(A) rightly deleted the addition made by the AO. We do not see any infirmity in the order of the ld. CIT(A) on this issue. , 4460 & 4461/Del/2011 10 Encorp E Services Ltd.
Next issue vide Ground No. 2 relates to the deletion of addition of Rs.7,58,70,585/- made by the AO on account of depreciation.
Facts related to this issue in brief are that the AO during the course of assessment proceedings noticed that the assessee claimed depreciation @ 60% on Plant & Machinery and had given a note that the Plant & Machinery comprises of software, hardware and other equipment which were in the nature of computers. The AO however, allowed depreciation @ 25% which was applicable on Plant & Machinery and accordingly made the addition of Rs.7,58,70,585/-.
Being aggrieved the assessee carried the matter to the ld. CIT(A) and submitted as under:
“(i) The assessee company submitted before the learned assessing officer vide letter dated 30.10.2007 as under: “The company claimed depreciation at the rate of sixty percent as applicable to computer systems though the amount was debited to the plant and machinery in the books of accounts. You will kindly observe from the enclosed details of the additions to plant and machinery that all the items included therein were part and parcel of computer system and the software to run the same. Depreciation is allowable under Income tax Act on the basis of character of the item of machinery. Computers are also plant and machinery eligible for higher rate of depreciation at sixty percent and the assessee company , 4460 & 4461/Del/2011 11 Encorp E Services Ltd. has rightly claimed and entitled to depreciation at sixty percent.” (ii) The assessing officer while making the disallowance observed as under: “From the perusal of depreciation chart it is seen that assessee has claimed depreciation of Rs.13,06,34,415/- @ 60% on Plant & Machinery. The assessee has given a note that this comprises of Software, hardware and other equipment which are in the nature of computers. The claim of the assessee cannot be accepted as the assessee is using this as Plant & Machinery and as per I.T. Rules depreciation @ 25% is allowable and not @ 60% as has been claimed by the assessee. The rate of 60% is applicable only on the computers which are being used as computer. Hence depreciation amounting to Rs.5,47,63,830/- is allowed on P&M as against the claim of Rs.13,06,34,415/- and balance depreciation of Rs.7,58,70,585/- is disallowed and added to the income of the assessee. Penalty proceedings u/s 271(1)(c) of the Act is initiated for furnishing inaccurate particulars of income.” (iii) You will kindly see from the enclosed details that the items grouped under the head Plant & Machinery are POS Terminal Hardware. One set of POS Terminal consist of a monitor, a CPU, a Printer, a scanner and a Card swipe machine and a UPS, which has been separately shown in the details. The computers are also Plant & Machinery entitled for higher rate of depreciation. All the items which comprised in the POS Terminal are integral part of a computer system and therefore, the assessee company is entitled for higher rate of depreciation @ 60% as applicable to computer system. , 4460 & 4461/Del/2011 12 Encorp E Services Ltd. (iv) In view of above submissions the appellant company prays to delete the disallowance and direct the Assessing Officer to allow depreciation @ 60% as applicable to computer.”
The assessee on the direction of the ld. CIT(A), also furnished the copies of bills of computers which were debited under the head POS computer Terminals (hardware) and grouped under the head Plant & Machinery.
The ld. CIT(A) after considering the submissions of the assessee observed that the POS Terminals which had been grouped under the head Plant & Machinery consisted of CPUs, Monitors, Keyboards etc. which upon integration are called computer for which the depreciation @ 60% had been provided under the Income Tax Rules which cannot be restricted to 25% as had been provided for in the case of Plant & Machinery. Accordingly, the addition made by the AO was deleted.
Now the department is in appeal. The ld. DR supported the order of the AO and reiterated the observation made in the assessment order.
In his rival submissions the ld. Counsel for the assessee reiterated the submission made before the authorities below and strongly supported the impugned order passed by the ld. CIT(A).
We have considered the submissions of both the parties and carefully gone through the material available on the record. In the 4460 & 4461/Del/2011 13 Encorp E Services Ltd. present case, it is not in dispute that the assessee grouped the POS Terminal Hardware under the head Plant & Machinery. One set of POS Terminal was consisted of a monitor, A CPU, A Printer, a scanner, Card swipe machine and a UPS. The aforesaid items were integral part of computer system which were entitled for a depreciation @ 60%. Therefore, the ld. CIT(A) rightly directed the AO to allow the depreciation @ 60% instead of 25% allowed by him. We, therefore, do not see any infirmity in the order of the ld. CIT(A) on this issue.
In for the assessment year 2006-07 and Vide Ground Nos. 1 & 2 in the 2007-08, similar issues are raised by the department as were involved in ITA No. 1799/Del/2011 for the assessment year 2005- 06. The only difference is in the amount involved, therefore, our findings given in the former part of this order shall apply mutatis mutandis for the appeals relating to assessment years 2006-07 & 2007- 08.
Another issue vide Ground No. 3 in 2007-08 raised by the department, relates to the deletion of addition of Rs.1,86,85,586/- made by the AO on account of disallowance of deprecation on sealed premises. , 4460 & 4461/Del/2011 14 Encorp E Services Ltd.
Facts related to this issue in brief are that the AO during the course of assessment proceedings asked the assessee to furnish the details regarding a note below the depreciation chart stating that certain buildings premises had been sealed. He also asked the assessee to explain as to whether depreciation had been claimed on those sealed premises. In response the assessee submitted as under:
The assessee company was operating under the license of Arunachal Pradesh Government to run the lottery business. It was operating in Arunachal Pradesh and also in other states on the basis of same license. The company had office and Godown in Kolkata, West Bengal and it was also validly running lottery business in West Bengal. In the mean time, West Bengal Government imposed ban on the running of lottery of other states in West Bengal. The West Bengal Government sealed the office premises and Godown of the assessee company and other companies running lottery business in Kolkata.
The AO after considering the submissions of the assessee observed that the assets worth Rs.3,46,07,406/- were not put to use because of the sealing of work premises at Calcutta resulting into the assets not being in use for the year under consideration. He further observed that the assessee had claimed depreciation of Rs.1,86,85,586/- on account of sealed premises which were not used for the business in the year under consideration, therefore, depreciation was not allowable u/s 32 of the Act. Accordingly, the AO disallowed Rs.1,86,85,586/-. The reliance was placed on the following case laws:
, 4460 & 4461/Del/2011 15 Encorp E Services Ltd. � CIT Vs oriental Coal Co. Ltd. (1994) 206 ITR 682 (Cal) 26. Being aggrieved the assessee carried the matter to the ld. CIT(A) and submitted as under:
“(i) “The appellant company is engaged in the online lottery business under the band “Lotto” from its inception in December 2003. The assessee company was operating under the license of Arunachal Pradesh Government to run the lottery business. It was operating in Arunachal Pradesh and also in other states on the basis of same license. The company had office and godown in Kolkata, West Bengal and it was also validly running lottery business in West Bengal. The Government of West Bengal imposed ban on the running of lottery of other states in West Bengal and sealed the office premises and godown of the assessee company and also other companies running lottery business in Kolkata. The assessee company among other lottery operators moved to Hon’ble Kolkata High Curt against the ban imposed by West Bengal Government on running of lottery of other states in West Bengal. The Hon’ble High Court granted an interim order and directed the state of West Bengal to return all the seized equipments and terminals. (ii) Since the assets under consideration which were sealed and depreciation there on was disallowed by the learned Assessing Officer were installed and put to use in the earlier years, the depreciation allowance cannot be denied during the year under appeal merely because the assets were not used during the year under appeal. (iii) the learned Assessing Officer relied on the decision of CIT Vs Oriental Coal Co. Ltd. (1994) 206 ITR 682 (Cal), wherein , 4460 & 4461/Del/2011 16 Encorp E Services Ltd. it was held that if the assets have not at all been used for any part of the accounting year, no depreciation allowance can be claimed. The case relied upon by the learned Assessing Officer relates to the period when depreciation was allowable on each individual assets. With the introduction of block system from assessment year 1988-89 the basic structure of depreciation allowance has changed. Under the block system, identification of each asset is not possible. It would therefore, mean that in block depreciation, except to the limited extent as to requirement of use at the point of entry into the block, the concept of user cannot be applied to assets in the block. Once it enters the block, it automatically gets depreciation along with other assets as long as block itself is in use. (iv) In the present case the assets under consideration on which depreciation was disallowed entered the block in the preceding years and also the business of the appellant company continued in other states except West Bengal and it earned total revenue of Rs.109.03 Crores from business during the year under appeal. (v) The appellant company further relies on the following judgments.
CIT Vs Udaipur Distillery Company Ltd. (2004) 268 ITR 461 (Raj.), where it was held that if part of business remained closed, right to depreciation is not lost.
In the case of Vishwanath Bhaskar Sathe Vs CIT 10 ITC 386 (Bom), where the assessee was a member of ginning factories pool but his factory did not work under the pool agreement, it was held that the assessee was entitled to depreciation. , 4460 & 4461/Del/2011 17 Encorp E Services Ltd.
In the case of CIT Vs Vayithri Plantations Ltd. (1981) 128 ITR 675 (Mad.), where the machinery was not used because of labour unrest the assessee was held entitled to deprecation. (vi) Without prejudice to above submissions it is further submitted that the learned Assessing Officer asked for the details of sealed fixed assets held at Kolkata office and godown which were filed as per the records of the company maintained as per Companies Act. A copy of the same is enclosed for your perusal. The Assessing Officer disallowed the amount of accumulated depreciation of Rs.1,86,85,586/- as on 31.03.2007 as per depreciation chart under the Companies Act. (vii) The disallowance of Rs.1,86,85,586/- was without any basis and should have been calculated on WDV as per Income tax Act. The learned Assessing Officer cannot go beyond the definition of WDV under section 43(6) of the Income tax Act which does not contain any provision for adjustment to any block of assets in case some part of the assets could not be actually used during the year under assessment.”
The ld. CIT(A) after considering the submissions of the assessee observed that the Hon’ble Delhi High Court in the case of CIT Vs Oswal Agro Mills Ltd. held that the depreciation is allowable on the written down value of the block of assets and individuals assets lose their identity upon introduction into the block. He further observed that the cases relied by the AO were rendered before the introduction of the block of assets. The ld. CIT(A) deleted the disallowance made by the AO. , 4460 & 4461/Del/2011 18 Encorp E Services Ltd.
Now the department is in appeal. The ld. DR reiterated the observation made by the AO and strongly supported the assessment order dated 16.11.2009. He further submitted that the assets being sealed were not put to use, therefore, the assessee was not entitled to claim the depreciation and the AO rightly disallowed the same. The reliance was placed on the following case laws:
� CIT Vs oriental Coal Co. Ltd. (1994) 206 ITR 682 (Cal) � Dineshkumar Gulabchand Agrawal Vs CIT 267 ITR 768 (Bom) � DCIT, Special Range-4 Vs Yellamma Dasappa Hospital 290 ITR 353 � ACIT (OSD) Range 3(3), Mumbai Vs Rishiroop Polymers (P.) Ltd. 102 ITD 128 29. In his rival submissions the ld. Counsel for the assessee reiterated the submissions made before the authorities below and further submitted that the assets were included in the block of assets which were entitled for depreciation. Therefore, the ld. CIT(A) rightly directed the AO to allow the depreciation on the assets of the assessee which were included in the block of assets. The reliance was placed on the following case laws: � CIT Vs Oswal Agro Mills Ltd. 341 ITR 467 (Del) � CIT Vs Sonal Gum Industries 322 ITR 542 (Guj) 30. We have considered the submissions of both the parties and carefully gone through the material available on the record. In the , 4460 & 4461/Del/2011 19 Encorp E Services Ltd. present case, it is an admitted fact that the assets on which depreciation has been disallowed by the AO were forming part of the block of assets of the assessee. The AO disallowed the depreciation for the reason that the assets were sealed.
On a similar issue the Hon’ble Jurisdictional High Court in the case of CIT Vs Oswal Agro Mills Ltd. (supra) has held as under: “After the amendment of section 32 of the Income-tax Act, 1961, by the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986, section 32(1) of the Act allows depreciation on the written down value of a block of assets. Section 2(11) of the Act defines the term “block of assets”. Along with the amendment, the definition of “written down value” as contained in section 43(6) was also amended. Thus, for the assessment year 1998-99, the written down value of any block of assets shall be the aggregate of the written down value of all the assets falling within that block of assets at the beginning of the previous year. From, this, adjustment has to be made for the increase or reduction in the block of assets during the year under consideration. The deduction from the block of assets has to be made in respect of any asset, sold discarded or demolished or destroyed during the previous year. Thus, the depreciation is allowed on the block of assets, and the Revenue cannot segregate a particular asset therefrom on the ground that it was not put to use. Individual assets have lost their identity and the concept of “block of assets” has been introduced for calculating depreciation. Assessee are not required to maintain particulars of each asset separately. The Revenue cannot claim that for allowing the depreciation, user of each and every asset is essential even when a particular asset forms part of a “block of assets”. Moreover, the Revenue 4460 & 4461/Del/2011 20 Encorp E Services Ltd. is not put to any loss by allowing depreciation on a particular asset, forming part of the “block of assets” even when that particular asset is not used in the relevant assessment year, as whenever such an asset is sold, it would result in short-term capital gains, which would be exigible to tax. The court cannot give an expression a meaning which would make the provision superfluous.”
In the present case also the ld. CIT(A) directed the AO to allow the claim of the assessee for the impugned depreciation by following the ratio laid down by the Hon’ble Jurisdictional High Court in the aforesaid referred to case. We, therefore, do not see any valid ground to interfere with the findings of the ld. CIT(A). In that view of the matter we do not see any merit in this ground of the departmental appeal.
In the result, the appeals of the department are dismissed. (Order Pronounced in the Court on 11/01/2016)