Income Tax Appellate Tribunal - Delhi
Cimmco Birla Ltd., New Delhi vs Department Of Income Tax on 23 July, 2010
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH : B : NEW DELHI
BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER
AND
SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER
ITA No.4374/Del/2010
Assessment Year : 2002-03
Dy Commissioner of Income Vs. M/s Cimmco Birla Ltd.,
Tax, Indra Palace (3rd Floor),
Circle 3 (1), H-Block, Connaught Circus,
New Delhi. New Delhi.
PAN : AAACC3147K
(Appellant) (Respondent)
Assessee by : Shri Paras Nath, CA
Revenue by : Shri H.K. Lal, Sr. DR
ORDER
PER I.P. BANSAL, JUDICIAL MEMBER
This is an appeal filed by the revenue. It is directed against the order of the CIT (A) dated 23rd July, 2010 for assessment year 2002-03. Grounds of appeal read as under:-
1. The Ld. CIT (A) has erred on facts and in law in directing the Assessing Officer to verify and allow depreciation on assets which are included in the block of assets and were used for the purpose of business from earlier years, ignoring that:
a) once the individual asset is not put to use, which is pre-
requisite condition for availing depreciation u/s 32 of the Income Tax Act, 1961, the same becomes ineligible/disqualified for block of assets on which depreciation is allowed as per Rule 5 and Appendix IA of the Income Tax Rules, 1962, but shall continue to remain the part of the block of assets for all other purpose except for the purpose of claiming depreciation unless put to use.
b) in the case of CIT vs. Oriental Coal C. Limited (1994) 206 ITR 682/78 Taxman 240 (Cal), it has been observed by the 2 ITA No.4374/Del/2010 ITR 682/78 Taxman 240 (Cal), it has been observed by the Hon'ble High Court that where assets were not at all used due to lock-out, depreciation cannot be allowed. Reliance is also placed on the decisions in Liquidators of Pursa Ltd. vs. CIT (1954) 25 ITR 265 (SC), DCIT vs. Yellamma Dasappa Hospital (2007) 159 Taxman 58/290 ITR 353 (Kar.) and CIT vs Suhrid Geigy Ltd. (1982) 133 ITR 884 (Guj)/CIT vs. Jiwaji Rao Sugar Co. Ltd. (1969) 71 ITR 319 (MP) (App.)
3. The appellant craves leave for reserving the right to amend, modify, alter, add or forego any ground(s) of appeal at any time before or during the hearing of this appeal..
2. The assessee has been assessed at a loss of `20,21,52,677/- against the returned loss of ` 21,31,70,437/-. An addition of ` 89,75,310/-, inter alia was made on account of disallowance of depreciation on plant and machinery. It was found by the Assessing Officer that the plant of the assessee at Bharatpur and New Delhi were declared under lock out w.e.f. 13th November, 2000 and 8th December, 2000 respectively and they were still locked out. Therefore, the Assessing Officer denied the benefit of depreciation on the machinery pertaining to the plants at Bharatpur and New Delhi. The Assessing Officer has relied upon the decisions of Hon'ble Supreme Court in the case of Liquidators of Pursa Ltd. vs. CIT (1954) 25 ITR 265 (SC) and in the case of CIT vs Oriental Coal Co. Ltd. (1994) 206 ITR 682 (Cal).
3. An appeal was filed before the CIT (A) against the disallowance of depreciation. Before the CIT (A), it was submitted that total depreciation claimed by the assessee was `95,23,258/- which included depreciation of ` 89,75,310/- for the plant and machinery situated at Bharatpur and New Delhi units. It was submitted that though both these plants were put to use by the assessee prior to lock outs in the year 2010 and the assets located at Bharatpur and New Delhi were part of the block of assets maintained by the assessee in respect of which depreciation was claimed by the assessee. It was submitted 3 ITA No.4374/Del/2010 that in many cases it has been held that the allowance of normal depreciation does not depend upon actual working of the machinery and if machinery is kept ready for use, it will be sufficient to allow depreciation u/s 32. It was submitted that both the cases relied upon by the Assessing Officer could not be applied as those cases did not belong to the period where the concept of block of assets was not in operation. Learned CIT (A) has accepted the claim of the assessee based on the following decisions:-
i) Decision of ITAT in the case of Swati Synthetics vs. ITO in ITA No.1165/M/2006 in which it was held that if the machinery forms part of the closed unit, falling under block of assets, then, that block of assets can be said to be used for the purpose of business and, hence, depreciation was allowable.
ii) CIT vs. Bharat Aluminium Co. Ltd., 187 Taxman 111 (Del) wherein it has been held that the expression "used for the purposes of business" when applied to block of assets would mean use of block of assets and not any specific building, machinery, plant or furniture in the said block of assets as individual assets have lost their identity after becoming inseparable part of the block asset.
4. The revenue is aggrieved, hence, in appeal.
5. After narrating the facts, relying upon the decision referred to in the grounds of appeal, it was pleaded by the learned DR that the Assessing Officer had rightly denied the benefit of depreciation to the assessee in respect of closed down units and the learned CIT (A) has wrongly allowed the same.
6. On the other hand, relying upon the order of CIT (A) and also on the recent decision of Hon'ble Delhi High Court in the case of CIT vs. 4 ITA No.4374/Del/2010 Oswal Agro Mills Ltd. & Ors. dated 24th December, 2010 in ITA No.161 of 2006 (copy of the decision placed at Sl. No. 2(1) of the paper book) pleaded that the order of the CIT (A) should be upheld.
7. We have carefully considered the rival submissions in the light of the material placed before us. In our opinion, the issue raised in the present appeal is covered by the recent decision of Hon'ble jurisdictional High Court in the case of CIT vs. Oswal Agro Mills Ltd. (supra).
8. In para 25 of the said order, their Lordships have brought out the position of law with respect to the claim of depreciation which has gone a sea change after the amendment to Section 32 by the Taxation Laws (Amendment) Act, 1986 and, after considering the relevant sections in the shape of Sections 32(1) and 2(11) which defines the block of assets, Section 43(6) which defines the position of claim of depreciation in the cases of block of assets, their Lordships in para 28 have observed that for the assessment year 1998-99, the WDV of any block of assets shall be the aggregate of WDV of all the assets falling within that block of assets at the beginning of the previous year. As per amended Section 32, the depreciation in the case of block of assets at such percentage on the written down value thereof as may be prescribed. Thus, their Lordships have come to the conclusion that 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. Their Lordships have also observed that allowing depreciation on the assets which are not put to use and are falling within block of assets, there will be no loss to the revenue and, thus, their Lordships have held that the depreciation in respect of closed unit cannot be denied when the plant and machinery thereunder is a part 5 ITA No.4374/Del/2010 of block of assets. The relevant observations from the judgement are reproduced below:-
"29. As per amended Section 32, deduction is to be allowed - "In the case of any block of assets, such percentage on the written down value thereof as may be prescribed." Thus, the depreciation is allowed on block of assets, and the Revenue cannot segregate a particular asset therefrom on the ground that it was not put to use.
30. With the aforesaid amendment, the depreciation is now to be allowed on the written down value of the 'block of assets' at such percentage as may be prescribed. With this amendment, individual assets have lost their identity and concept of 'block of assets' has been introduced, which is relevant for calculating the depreciation....................................
31. It becomes manifest from the reading of the aforesaid Circular that the Legislature felt that keeping the details with regard to each and every depreciable assets was time consuming both for the assessee and the Assessing Officer. Therefore, they amended the law to provide for allowing of the depreciation on the entire block of assets instead of each individual asset. The block of assets has also been defined to include the group of asset falling within the same class of assets.
32. .....................
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."
9. Therefore, we find no infirmity in the order of the CIT (A) vide which it has been held that the disallowance of depreciation could not 6 ITA No.4374/Del/2010 be made on the basis of concept of block of assets and his decision is in accordance with the decision of Hon'ble jurisdictional High Court in the aforementioned case of CIT vs. Oswal Agro Mills Ltd. (supra). We decline to interfere.
10. In the result, the appeal filed by the Department is dismissed.
The order pronounced in the open court on 18.02.2011.
Sd/- Sd/-
[SHAMIM YAHYA] [I.P. BANSAL]
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated, 18.02.2011.
dk
Copy forwarded to: -
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR, ITAT
TRUE COPY
By Order,
Deputy Registrar,
ITAT, Delhi Benches