DCIT, Hyderabad V. M/s.Navabharat Enterprises Limited, Hyderabad

ITA 131/HYD/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 66113 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 6 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-08-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 07-06-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 27-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B V PRASAD REDDY
• Keywords: Depreciation
• Section: 143(3); 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD B BENCH, HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO.131/HYD/2011 ASSESSMENT YEAR : 2005-06 DCIT, CIR-16(1), HYDERABAD. .... APPELLANT VS. M/S. NAVABHARAT ENTERPRISES LTD., HYDERABAD. RESPONDENT PAN:AAACN 6936D APPELLANT BY : SHRI B.V. PRASAD REDDY RESPONDENT BY : SHRI K.C. DEVDAS DATE OF HEARING : 07-06-2012 DATE OF PRONOUNCEMENT : 03-08-2012 ORDER PER SAKTIJIT DEY, J.M.: THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST ORDER DATED 15-11-2010 OF CIT (A)-V, HYDERABAD PASS ED IN ITA NO.035/DC-16(1)/CIT(A)-V/2008-09 AND IT PERTAINS TO THE ASSESSMENT YEAR 2005-06. 2. THE ONLY ISSUE ARISING FOR CONSIDERATION IS THE CLAIM OF DEPRECIATION OF RS.37,06,053/- ALLOWED BY THE CIT ( A). 3. BRIEFLY THE FACTS ARE, THE ASSESSMENT WAS COMPLE TED U/S 143(3) DISALLOWING CLAIM OF DEPRECIATION OF RS.37, 06,053/- ON THE 2 ITA NO. 131 OF 2011 M/S NAVABHARAT ENTERPRISES LTD., HYD. GROUND THAT AS THE ASSESSEE HAS NOT DONE ANY BUSINE SS IT IS NOT ELIGIBLE FOR DEPRECIATION. 4. THE ASSESSEE CHALLENGED THE DISALLOWANCE BY FILI NG APPEAL BEFORE THE CIT (A). THE CIT (A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND MATERIALS PLACED BEFORE HIM HEL D THAT THE ASSESSEE HAD NOT STOPPED ITS BUSINESS ACTIVITY. TH E ASSESSEE WAS MAKING EFFORTS TO SELL ITS PRODUCT IN SPITE OF UNCE RTAINTY WITH ITS MAJOR PURCHASER RUSSIA. ON THE AFORESAID CONSIDERA TION, THE CIT (A) ALLOWED THE CLAIM OF DEPRECIATION. 5. THE LEARNED DR SUPPORTING THE DISALLOWANCE MAD E BY THE AO SUBMITTED THAT WHEN THERE WAS NO BUSINESS ACTIVI TY THE ASSESSEE IS NOT ENTITLED TO DEPRECIATION. THE LD. DR FURTHER CONTENDED THAT SINCE THERE IS NO SHRIMP BUSINESS CA RRIED ON BY THE ASSESSEE, NO DEPRECIATION CAN BE ALLOWED ON PON DS. 6. THE LEARNED AR SUBMITTED THAT USE OF INDIVIDUAL ASSET FOR THE PURPOSE OF BUSINESS CAN BE EXAMINED ONLY IN THE FIR ST YEAR WHEN THE ASSET IS PURCHASED. IN SUBSEQUENT YEARS WHEN U SE OF BLOCK OF ASSETS IS TO BE EXAMINED, EXISTENCE OF INDIVIDUAL A SSETS ITSELF AMOUNTS TO USE FOR PURPOSE OF BUSINESS. IN SUPPORT OF SUCH CONTENTION THE ASSESSEE RELIED UPON A DECISION OF THE ITAT, HYDERABAD BENCH IN CASE OF DCIT VS. COROMANDAL BIO TECH. INDUSTRIES (I) LTD REPORTED IN 51 SOT 333. 7. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIALS ON RECORD. ADMITTEDLY, THE ASSESSEE HAS CLAIMED DE PRECIATION ON BLOCK OF ASSETS. THE CIT (A) HAS GIVEN A CATEGORIC AL FINDING THAT THE ASSESSEE HAS NOT STOPPED ITS BUSINESS ACTIVITIE S AS ALLEGED BY THE AO. THE ITAT, HYDERABAD BENCH IN CASE OF COROMA NDAL BIO TECH INDUSTRIES (I) LIMITED HAS HELD IN THE FOLLOWI NG MANNER:- 3 ITA NO. 131 OF 2011 M/S NAVABHARAT ENTERPRISES LTD., HYD. 16. THE CONDITION/REQUIREMENT OF SECTION OF WORD USED FOR THE PURPOSE OF BUSINESS AS PROVIDED IN SECTION 32(1) OF THE ACT F OR THE CONCEPT OF DEPRECIATION ON BLOCK OF ASSETS CAN BE SUMMARISED, THAT USE OF INDIVIDUAL ASSET FOR THE PURPOSE OF BUSINESS CAN BE EXAMINED O NLY IN THE FIRST YEAR THE ASSET IS PURCHASED. IN SUBSEQUENT YEARS WHEN USE OF BLOCK OF ASSETS IS TO BE EXAMINED, EXISTENCE OF INDIVIDUAL ASSET IN BLOCK OF ASSETS ITSELF AMOUNTS TO USE FOR THE PURPOSE OF BUSINESS. THIS VIEW IS FULLY SU PPORTED BY VARIOUS PROVISIONS OF THE ACT WHICH WERE AMENDED CONSEQUENT TO THE SCHEME OF DEPRECIATION ON BLOCK OF ASSETS INCLUDING TO THE PR OVISO TO SECTION 32 OF THE ACT. THE SAID PROVISO TO SECTION 32 REQUIRES THAT WHERE AN ASSET IS ACQUIRED BY THE ASSESSEE DURING THE PREVIOUS YEAR AND IS PUT TO USE FOR THE PURPOSES OF BUSINESS OR PROFESSION FOR A PERIOD OF LESS THAN ON E HUNDRED AND EIGHT DAYS IN THAT PREVIOUS YEAR, THE DEDUCTION UNDER THIS SUB SE CTION IN RESPECT OF SUCH ASSET SHALL BE RESTRICTED TO FIFTY PERCENT OF THE A MOUNT CALCULATED AT THE PERCENTAGE PRESCRIBED FOR AN ASSET UNDER CLAUSE (I) OR CLAUSE (II) OR CLAUSE (IIA) AS THE CASE MAY BE. WHEN AN ASSET PURCHASED HAS SA TISFIED THE ABOVE CONDITION IN THE YEAR OF PURCHASE THAT ASSET WILL B E INCLUDED IN THE RESPECTIVE BLOCK OF ASSET, DEPRECIATION FOR THAT YEAR WILL BE CALCULATED ON WRITTEN DOWN VALUE IN ACCORDANCE WITH SECTION 43(6) OF THE ACT B Y THE INCREASING OPENING WDV BY THE ACTUAL COST OF ANY ASSET FALLING WITHIN THAT BLOCK, ACQUIRED DURING THE PREVIOUS YEAR. ONCE AN ASSET IS INCLUDED IN TH E BLOCK OF ASSETS IT REMAINS IN BLOCK FOR ITS ENTIRE LIFE. THERE ARE FOLLOWING THREE SITUATIONS PROVIDED IN THE STATUTES WHEN AN INDIVIDUAL ASSET OF THE BLOCK GOES OUT OF BLOCK: 1. AN ASSET IS SOLD OR DISCARDED OR DEMOLISHED OR DEST ROYED DURING THAT PREVIOUS YEARS AS PROVIDED IN SECTION 43(6) ( C) (I ) (B) AND 32(1)(III) OF THE ACT. 2. AN ASSET NOT EXCLUSIVELY USED FOR THE PURPOSES OF T HE BUSINESS R PROFESSION BUT USED OTHER THAN BUSINESS PURPOSES AS PROVIDED I N SECTION 38(2) OF THE ACT. 3. WHERE ANY BLOCK OF ASSETS DOES NOT CEASE TO EXIST B UT THE FULL VALUE OF THE CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF T HE TRANSFER OF THE DEPRECIABLE ASSETS BY THE ASSESSEE DURING THE PREV IOUS YEAR EXCEEDS THE AGGREGATE OF THE AMOUNTS STATED IN SECTION 50 OF T HE ACT AND WHERE ANY BLOCK OF ASSETS CEASES TO EXIST FOR THE REASON THAT ALL THE ASSETS IN THAT BLOCK ARE TRANSFERRED DURING THE PREVIOUS YEAR. 17. FURTHERMORE, THE COORDINATE BENCH OF THE TRIBU NAL IN THE CASE OF NATCO EXPORTS VS. DY.CIT (86 ITD 445) (HYD.) HAS HELD AS FOLLOWS: FROM THE ABOVE, IT IS CLEAR THAT AS LONG AS AN ASS ET FORMS PART OF THE BLOCK OF ASSETS AND THE BLOCK CONTINUES TO EXIST, P ROVISIONS OF S.50 DO NOT COME INTO PLAY AND DEPRECIATION HAS TO BE ALLOW ED ON THAT PORTION OF THE WDV OF THE ASSETS WHICH HAVE BEEN SCRAPPED, AFTER REDUCING THE 4 ITA NO. 131 OF 2011 M/S NAVABHARAT ENTERPRISES LTD., HYD. SCRAP VALUE FROM THE BLOCK OF ASSETS. THIS VIEW IS FORTIFIED BY THE JUDGMENTS OF JABALPUR BENCH OF THE TRIBUNAL IN THE CASE OF PACKWELL PRINTERS (SUPRA) THEN JUDGEMENT OF THE AHMEDABAD BE NCH OF THE TRIBUNAL IN THE CASE OF INDUCTOTHERM (INDIA) LTD. ( SUPRA) AND THE JUDGEMENT OF THE PATNA BENCH OF THE TRIBUNAL IN THE CASE OF PARIKH ENGG. & BODY BUILDING CO. LTD. (SUPRA). THEREFORE , IN VIEW OF THE DECISIONS AND INTERPRETATION OF THE CONCEPT OF BLO CK ASSETS DEPRECIATION ON PONDS AND PLANT & MACHINERY WHICH A RE FORMING PART OF THE BLOCK OF ASSETS HAS TO BE ALLOWED AS DEDUCTI ON EVEN THOUGH THESE PONDS AND PLANT & MACHINERY WERE DISCARDED AN D NOT USED AND NOT OWNED BY IT DURING THE ASSESSMENT YEARS IN QUES TION, AS THE ASSESSEE WAS NOT ENTITLED TO PAY SCRAP VALUE WHATSO EVER, CONSEQUENT TO DISCARDING 8. WE FIND THE ASSESSEES CASE IS SQUARELY COVERED BY THE RATIO OF THE AFORESAID DECISION. WE THEREFORE FOLLOW THE SAME AND UPHOLD THE ORDER OF CIT (A) ALLOWING DEPRECIATION C LAIMED BY THE ASSESSEE. GROUNDS RAISED BY THE REVENUE ARE THEREF ORE REJECTED. 9. IN THE RESULT, THE APPEAL FILED BY THE REVENUE S TANDS DISMISSED. ORDER PRONOUNCED IN THE COURT ON 3 - 8-2012. SD/- SD/- (CHANDRA POOJARI) ACCOUNTANT MEMBER (SAKTIJIT DEY) JUDICIAL MEMBER HYDERABAD, DATED THE 3 RD AUGUST, 2012. COPY TO:- 1) DCIT, CIR-16(1), AAYAKAR BHAVAN, HYDERABAD. 2) M/S. NAVABHARAT ENTERPRISES LIMITED, 6-3-654/A, SOMAJIGUDA, HYDERABAD. 3) THE CIT (A)-V, HYDERABAD 4) THE CIT CONCERNED, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDERABA D. JMR* 5 ITA NO. 131 OF 2011 M/S NAVABHARAT ENTERPRISES LTD., HYD.