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Income Tax Appellate Tribunal, DELHI
Before: SH. N.K.BILLAIYA & SH. ANUBHAV SHARMA
Both appeals have been preferred by the assessee against the order dated 30.08.2016 & 29.07.2016 passed by the Commissioner of Income Tax (Appeals)-2, New Delhi (hereinafter referred as Ld. First Appellate Authority or in short Ld. ‘FAA’) against the order dated 28.03.2014 & 17.03.2015 passed u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred as ‘the Act’) by the DCIT, Circle-3(1) & DCIT, Circle- 5(2), New Delhi respectively (hereinafter referred as the Ld. AO).
ITA 5602 & 5603.Del.2016 2
The facts in brief are the assessee had filed a return of income at Nil after setting off unabsorbed depreciation and the case of assessee was selected for scrutiny. The assessee company is engaged in the business of manufacture and sale of cement. Ld. AO observed that out of the 10 plants only three plants are in operation and the rest are not in operation for the last 9 years. Accordingly, the company was show caused as to why depreciation on plants which have been shut down be not disallowed like previous year. Ld. AO observed that in the order of BIFR dated 05.12.2005 it has been categorically mentioned that the 2nd stage to be implemented during 2006-07 and 2007-08 is proposed to be funded out of the sale proceeds of the seven non-operating units. He thus, observed that units are completely closed down and the manufacturing activities have not been temporarily suspended. Ld. AO observed that the asset in respect of which depreciation is claimed must have been used for the purpose of business of the production and if it is found that during the year the machinery cannot be said to have been used for the purpose of the business of assessee then depreciation cannot be allowed. He relied judgment of Hon’ble Calcutta High Court in the case of CIT vs. Union Carbide India Ltd. 124 taxman 859. Ld. AO also took into consideration the fact that in regard to previous year additions although Ld. CIT(A) had deleted the additions, the Revenue has preferred appeal.
3. As before Ld. CIT(A) it was submitted all the assets/ sets are being used by the assessee company for business purposes. It was submitted that Hon’ble Calcutta High Court judgment in the case of Union Carbide India Ltd. was not applicable as in that case plant installed had gone into the trial prodection and not in commercial protection. It was also claimed before Ld. CIT(A) that the claim of depreciation was on the basis that all the units / plants formed a block of assets and put to use for carrying on the business. Ld. CIT(A) however, took into consideration the fact that in assessee’s own
ITA 5602 & 5603.Del.2016 3 case for A.Y. 2012-13 by order dated 29.07.2016, the issue has been decided against the assessee and as there are no different circumstances, the disallowance was upheld. It will be appropriate to reproduce these findings in A.Y. 2012-13, as also reproduced in para 3.2.2 by Ld. CIT(A) as follows :
“3.2.2 Relying upon the above findings of my predecessor CIT (Appeals) for A.Ys. 2003-04 to 2006-07, the first and second appellate authorities have held the claim of depreciation of the appellant on the non-operating units to be allowable in various years. However, Hon’ble High Court of Delhi in 301 & 288 of 2015, vide their order dated 22.09.2015, have set aside and remanded the matter to the ITAT with the following remarks:- 4. Two issues have been projected by the Revenue. The first concerns the deletion of additions made by the A.O. pertaining to the depreciation claimed by the assessee on its block of assets. A perusal of the impugned order of the ITAT reveals that the ITAT has gone by the decision of the CIT(A) for A. Ys. 2003-04 to 2006-07 in which it was stated that in those years the assets were kept “as a stand by for the whole year’’. The Committee on Disputes (COD) did not permit the Revenue to file an appeal against the said decision of the CIT (A) for the said years. It is essentially on this ground that the ITAT declined to interfere with the order of the CIT (A) deleting the addition made by the A.O. The Ld. counsel for the assessee drew the attention of 5. this Court to the observation in para 6 of the impugned order where the ITAT has noted the submission of the Ld. counsel for the assessee that “even if some of the units of the assessee are closed, other units are certainly working ” In the considered view of the Court, there has been no 6. occasion for the ITAT to seriously consider whether, for the A. Ys in question, there were any working units of the assessee and if, in fact, the entire block of assets in respect of which ITA 5602 & 5603.Del.2016 4 depreciation was claimed actually put to use. The ITAT also did not consider that there is no longer a requirement for the COD to grant permission to the Revenue to file an appeal. The Court accordingly sets aside the impugned order of 7. the ITAT on the issue of depreciation and remands the appeals to this extent to the ITAT for-a fresh decision in accordance with law. ”
Accordingly, the assessee is in appeal and the grounds for A.Y. 2011- 12 as common with AY 2012-13, except the amounts involved, are reproduced below:
1. The Hon’ble Commissioner of Income Tax (Appeals) - II, New Delhi has erred on facts of the case and in Law while affirming the Order of the Ld. Assessing Officer on disallowance of depreciation u/s 32 of the Income Tax Act’1961 (Herein after referred as “The Act .) 2. The Hon’ble Commissioner of Income Tax (Appeals) - II, New Delhi, while affirming the order of the Ld. Assessing Officer on disallowance of depreciation u/s 32 of the Act amounting to Rs.53,31,982/-, has erred in Law by ignoring the facts.
The Hon’ble Commissioner of Income Tax (Appeals) - II, New Delhi erred in ignoring the facts that the assessee company has closed certain units due to financial crunch.
4. That the appellant company craves to leave to add, alter, amend, modify, substitute, delete any of the ground(s) of appeal at or before the time of the final hearing of the appeal, if necessary.”
Heard and perused the record.
5.1 The stress of ld. Counsel was on the argument that when assessee had claimed the assets to be part of the same block of assests, depreciation has to be allowed on the block basis. It was submitted that non-operating plants
ITA 5602 & 5603.Del.2016 5 remained part and parcel of the blocks of assets during the year under consideration. He submitted that since 1996 appellant is claiming depreciation on block of assets. It was submitted that the order of BIFR for sale of the non-operative plants has not been approved by the Government of India. Ld. Counsel submitted that prior to A.Y. 2003-04 all the assessment were done without any disallowance of depreciation. It was also submitted that the Tribunal has allowed claim of depreciation for 2003-04 to 2006-07 and 2007-08 to 2009-10 and the copies of same have been placed at page no. 183 to 193 of the paper book. Apart from that it was also submitted that Ld. CIT(A) has allowed depreciation of non-operating units in A.Y. 2003-04 to 2006-07, 2007-08 to 2009-10, 2014-15 and 2015-16.
5.2 Ld. DR however supported the findings of Ld. Tax Authorities below and referring to the Tribunal’s judgment for A.Y. 2007-08 and 2008-09 and 2009-10 in 2946, 5399 of 2013 it was submitted that in para no. 6 the issue has been examined and restored to the files of Ld. AO.
Giving thoughtful consideration to the matter on record, at the outset the findings of Tribunal in assessee’s own case for A.Y. 2007-08, 2008-09, 2009-10 vide order dated 31.08.2017 need to be reproduced and taken into consideration :-
“6. We have considered the rival submissions and have gone through the material available on record. From the above factual matrix and the contentions of both the parties, we find that the assessee has made two fold contentions in the instant case, inasmuch as, before the AO the assessee contended that all the plant and machinery were fully charged off and only the generator set and office equipments like computers etc. were used for day to day office operation and depreciation was charged on those items only, as the plants were not completely closed. On the other hand, the other contention of the assessee has also been that the depreciation
ITA 5602 & 5603.Del.2016 6 has to be allowed on the entire block of assets as defined u/s. 2(11) of the IT Act and use of individual assets of each unit cannot be considered for the purpose of depreciation on entire block. A perusal of the assessment order reveals that the AO has not given the details of assets which were considered as ineligible for depreciation. On the other hand, the assessee has not produced any details before us to show that the depreciation was charged only on the generator sets and office equipments like computers etc. None of the parties before us have unfolded the actual assets, their WDV etc., on which the depreciation was claimed or disallowed. As a matter of fact, the dispute still remains whether the units, on assets of which, the assessee claimed depreciation, were completely closed for ever or were kept stand by after temporary suspension of production. The assessee has not produced any material before us that the said units were kept stand by. Rather, it has also been contended on behalf of assessee before us that though as per BIFR order, those non-operative units were supposed for sale, but no action has been taken so far on account of pending approval from the Government of India. All these facts need proper examination at the level of AO before deciding the eligibility of the impugned assets for depreciation u/s.
The assessee is required to furnish complete details of assets, on which the depreciation has been claimed and the material before the AO to establish that the said units were kept stand by, pending approval of the Government for sale. After making proper examination and verification of all these facts, if it is found that the non-operative plants stood completely closed, then the Assessing Officer is required to consider the plea of the assessee that the assets of these non- operative units, remained as part and parcel of the block of assets during these years and shall decide the issue afresh in the light of the proposition of law laid down by various courts in the decisions relied by the assessee as well as the decision rendered by Hon’ble Jurisdictional High court in the case of CIT vs. Oswal Agro Mills Ltd., (2012) 341 ITR 467 (Delhi). We accordingly, remit the matter back to the file of Assessing Officer for deciding the issue afresh in the light of observations made in the body of this order above. Needless to say, reasonable opportunity of being heard shall be afforded to the assessee. Accordingly, the appeal of the assessee deserves to be allowed for statistical purposes.”
ITA 5602 & 5603.Del.2016 7 6.1 The sum and substance of aforesaid observations of the Co-ordinate Bench in favour the assesee is that though issue is restored to Ld. AO it is directed that if on re-examination of the issue, in the light of facts like actual assets and their WDV, the assessee is entitled to relief in the light of judgment of Hon’ble Jurisdictional High Court in case of CIT vs. Oswal Agro Mills Ltd. (2013) 341 ITR 467 (Delhi).
The Bench is of considered opinion that when Revenue does not dispute the fact that the units are non-operating since 1996 and prior to 2003-04 all the assessment were done without any additions on account of disallowance then the principles of consistency required Revenue to have allowed the depreciation on the assets for being part to the block of assets. The BIFR directions do not override the provisions of Act. As long as the ownership of the assets continue to be with the assessee company, as for the purpose of Section 32 of the Act, the claim of assessee company fulfils the following essentials. 1st the assets are capital in nature. 2nd assets are still owned by the assessee company. 3rd the depreciation was claimed on the assets forming part of the non-operating plants in the block of assets. 4th WDV at the beginning of the year was available and the assets were used for the purpose of business or profession since they were three other working units and the company as a whole were still working. It is a settled provision of law that use for a purpose of business when applied to block of assets would mean use of block of asset and not any specific building or machinery. Reliance in this regard can be placed on the judgment of Hon’ble Delhi High Court in CIT vs. Bharat Aluminium company Ltd. 187 taxman.111. It will be also relevant to take into consideration the observations of Hon’ble Jurisdictional High Court in the case of CIT vs. Oswal (supra) Agro Mills Ltd. which is relied by the Co-ordinate Bench while giving directions to AO to decide the matter afresh in the light of this ITA 5602 & 5603.Del.2016 8 judgment of Hon’ble Jurisdictional High Court. Hon’ble High Court has held that assets of closed units could not be segregated for purpose of allowing depreciation and depreciation has to be allowed on entire block of assets. Hon’bel High Court in this judgment has also observed in para no. 33 as follows :-
33. Having regard to this legislative intent contained in the aforesaid amendment, it is difficult to accept the submission of the learned counsel for the Revenue that for allowing the depreciation, user of each and every asset is essential even when a particular asset forms part of „block of assets‟. Acceptance of this contention would mean that the assessee is to be directed to maintain the details of each asset separately and that would frustrate the very purpose for which the amendment was brought about. It is also essential to point out that the Revenue is not put to any loss by adopting such method and 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. Whenever such an asset is sold, it would result in short term capital gain, which would be exigible to tax and for this reason, we say that there is no loss to Revenue either.
It can be appreciated that before Ld. CIT(A) judgment of Mumbai Bench of the Tribunal in M/s. SWATI SYNTHETICS LTD.Vs. ITO order dated 17.12.2009 was also cited without coming forward with any distinction of facts Ld. CIT(A) failed to consider the same. The Mumbai Bench in the case of Swati Synthetics Ltd. (supra) has held that as the year under consideration is not the first year of the assets. The assets of closed units still remained exist / part of the block of the assets and accordingly allowed depreciation.
In the light of aforesaid discussion, the bench is inclined to decide the ground raised in favour of the assessee, the appeals of assessee are allowed
ITA 5602 & 5603.Del.2016 9 and Ld. AO is directed to allow the depreciation as claimed by the assessee on the block of assets for the relevant assessment years.
Order pronounced in the open court on 20th July, 2023.