Landmark Cases on Depreciation and Allowances

Depreciation claims can be disallowed if the assessee fails to furnish evidence in support of the claim.

Additional depreciation, when restricted to 50% in the preceding year due to the asset being used for less than 180 days, can be claimed in the subsequent assessment year for the remaining eligible amount.

An assessee's claim for set-off of unabsorbed depreciation beyond the period of 8 years must be allowed, in view of the amended provisions of section 32(2) effective from April 1, 2002. This case clarifies that unabsorbed depreciation is allowed to be carried forward and set off without any time limit.

Making Ready Mix Concrete (RMC) is considered a manufacturing process, entitling assessees engaged in construction to additional depreciation on plant and machinery used in this activity.

Depreciation is allowable on goodwill arising on merger. The disallowance of depreciation on goodwill cannot be based solely on its absence in post-merger financial statements or tax audit reports.

Unabsorbed depreciation loss of earlier years is to be treated as current depreciation under Section 32(2) and profits eligible for deduction under Section 10B are to be computed after deducting such losses.

An assessee is entitled to claim the remaining 50% of depreciation in a subsequent year if the asset was put to use for less than 180 days in the year of addition, and the first 50% was not claimed. Capital investment subsidies received for setting up a project in a backward area are considered capital subsidies and do not require reduction from the cost of assets under Explanation 10 to Section 43(1).

The Supreme Court dismisses a revenue appeal concerning depreciation on ATMs on grounds of delay, leaving the substantive question of law open.

Capital investment subsidies received from a state government cannot be reduced from the cost of a capital asset for the purpose of allowing depreciation. Depreciation is mandatory and must be allowed irrespective of whether it was claimed in the return.

The Special Bench of the ITAT held that depreciation is admissible on assets leased to the Rajasthan State Electricity Board (RSEB), even if used for less than 180 days in the relevant assessment year. This decision has been followed for remanding cases back to the Assessing Officer for fresh adjudication.

Depreciation is a statutory allowance and is available as a right to the assessee once the conditions under Section 32 are met, irrespective of whether there has been an actual diminution in the asset's value.

Machinery that is ready for use but not actively employed in the business can still be considered 'used for the purposes of the business' for depreciation claims, especially if it forms part of a block of assets.

Depreciation is allowable on standby machinery that is kept ready for use, even if not actually put to use due to reasons such as raw material paucity. This is permissible as long as the business is a going concern.