M/s. Superfil Products Ltd., CHENNAI V. ACIT, CHENNAI

ITA 2053/CHNY/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 64441 (ITAT-CHENNAI)
• Duration Of Justice: 9 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-10-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 25-09-2012
• Assessment Year: 1998-1999
• Appeal Filed On: 14-12-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S MOHANANA
• Assessee Lawyers: V S JAYAKUMA
• Keywords: Capital asset; Depreciation; Revenue expenditure; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER I.T.A. NO. 2053/MDS/2011 ASST. YEAR : 1998-99 M/S. SUPERFIL PRODUCTS LTD, OLD NO.407/1, NEW NO.808/1, GR COMPLEX, BASEMENT, ANNA SALAI, CHENNAI 600 035 PAN : AAACS8817Q. (APPELLANT) V. THE ASST. COMMISSIONER OF INCOME TAX, COMPANY CIRCLE-VI(4), CHENNAI. (RESPONDENT) APPELLANT BY : SHRI V.S. JAYAKUMA, ADVOC ATE RESPONDENT BY : SHRI S. MOHANANA, JCIT, D.R. DATE OF HEARING : 25 SEPT. 2012 DATE OF PRONOUNCEMENT : 12 TH OCT. 2012 O R D E R PER CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER : THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST T HE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-VI, CHE NNAI DATED 25.10.2011 IN ITA NO.423/10-11 FOR THE ASST. YEAR 1 998-99. THE FIRST ISSUE IN THE GROUNDS OF APPEAL OF THE ASSESSE E IS THAT THE I.T.A. NO.2053/MDS/11 2 COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN C ONFIRMING THE DISALLOWANCE OF D.43,88,823/- MADE BY THE ASSESSING OFFICER BY TREATING THE SAID EXPENDITURE AS CAPITAL IN NATURE. 2. THE FACTS OF THE CASE ARE THAT THE ASSESSEE A COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURE AND SALE OF NYLON YARN, FILED ITS RETURN OF INCOME ON 30.11.1998 FOR THE ASST. YE AR 1998-99 DECLARING A TOTAL INCOME OF D 37,23,570/-. THE ASS ESSMENT WAS COMPLETED UNDER SEC.143(3) OF THE I.T. ACT ON 27.3. 2001. WHILE COMPLETING THE ASSESSMENT, THE ASSESSING OFFICER DI SALLOWED D. 13,94,779/- OUT OF D 43,88,823/- BEING THE EXPENDIT URE INCURRED ON EXPANSION OF PROJECT, HOLDING THAT THE SAID EXPENDI TURE WAS INCURRED IN EARLIER ASST. YEAR AND DID NOT PERTAIN TO THE A SST. YEAR 1998-99. THE ASSESSING OFFICER ALSO DISALLOWED DEPRECIATION OF D 55,74,831/- CLAIMED ON THERMOPAC MACHINE, HOLDING THAT THE CAPI TAL WORK-IN- PROGRESS INCURRED BY THE ASSESSEE FOR EXPANSION-CUM -DIVERSIFICATION PROJECT INCLUDES MACHINERY CALLED THERMOPAC MACHINE INSTALLED IN THE SITE DURING THE ASST. YEAR 1997-98, MACHINERY WAS S ITTING IDLE AS THE PROJECT WAS ABANDONED BY THE ASSESSE. THEREFORE, T HE ASSESSEE IS NOT ENTITLED FOR DEPRECIATION ON SUCH MACHINERY SIN CE SUCH MACHINERY I.T.A. NO.2053/MDS/11 3 WAS NOT USED BY THE ASSESSEE DURING THE ASST. YEAR 1998-99. THE ASSESSEE FILED APPEAL BEFORE THE COMMISSIONER OF IN COME TAX (APPEALS) AGAINST THESE DISALLOWANCES. THE COMMISS IONER OF INCOME TAX (APPEALS) VIDE HIS ORDER DATED 10.10.2001 DELET ED THE DISALLOWANCE OF D 13,94,779/- MADE TOWARDS PRIOR P ERIOD EXPENSES. HOWEVER, HE SUSTAINED THE DISALLOWANCE OF DEPRECIAT ION ON THERMOPAC MACHINE. THE ASSESSEE CARRIED ON THE MAT TER FURTHER TO THIS TRIBUNAL AGAINST THE DISALLOWANCE OF DEPRECIAT ION SUSTAINED BY THE COMMISSIONER OF INCOME TAX (APPEALS). THE REVE NUE FILED APPEAL BEFORE THIS TRIBUNAL AGAINST DELETION OF PRI OR PERIOD EXPENSES OF D 13,94,779/. THIS TRIBUNAL, VIDE ITS CONSOLID ATED ORDER DATED 12.6.2006 IN ITA NO.1422/MDS/2001 AND ITA NO.51/MDS /2002 DISPOSED OF THE APPEALS FILED BY THE ASSESSEE AND T HE REVENUE RESPECTIVELY. THIS TRIBUNAL, BY ITS ABOVE ORDER, R ESTORED DISALLOWANCE OF DEPRECIATION OF D. 55,74,831/- ON THERMOPAC MACH INE AND DISALLOWANCE OF PRIOR PERIOD EXPENSES OF D 13,94,77 9/- TO THE FILE OF THE ASSESSING OFFICER TO DECIDE THE ISSUES AFRESH IN ACCORDANCE WITH LAW. THE ASSESSING OFFICER PASSED ASST. ORDER ON 1 2.9.2007 GIVING EFFECT TO THE ORDER OF THIS TRIBUNAL DATED 12.6.200 6. WHILE PASSING I.T.A. NO.2053/MDS/11 4 THE CONSEQUENTIAL ASSESSMENT ORDER, THE ASSESSING O FFICER DISALLOWED THE ENTIRE PRE-OPERATIVE EXPENDITURE OF D 43,88,823 /- ON THE GROUND THAT THE SAIS EXPENDITURE WAS IN THE NATURE OF CAPI TAL EXPENDITURE. HE ALSO DISALLOWED DEPRECIATION ON THERMOPAC MACHIN E OF D. 55,74,831/- HOLDING THAT THE MACHINERY WAS NOT USED BY THE ASSESSEE AND THE ASSESSEE HAD, IN FACT, ABANDONED THE NEW PR OJECT FOR WHICH THE MACHINERY WAS PROCURED AND, THEREFORE, NOT ENT ITLED FOR DEPRECIATION. 3. THE ASSESSEE FILED APPEAL BEFORE THE COMMISSIO NER OF INCOME TAX (APPEALS) CONTENDING THAT THE ASSESSING OFFICER ERRED IN EXCEEDING THE DIRECTIONS GIVEN BY THE TRIBUNAL AND DISALLOWING THE EXPENDITURE OF D. 43,88,823/- TREATING IT AS CAPITA L EXPENDITURE. THE ASSESSEE ALSO CONTENDED THAT THE ASSESSING OFFICER ERRED IN NOT ALLOWING DEPRECIATION ON THERMOPAC MACHINE. THE CO MMISSIONER OF INCOME TAX (APPEALS) HELD THAT THE ASSESSING OFFICE R HAS CORRECTLY EXAMINED THE ALLOWABILITY OF EXPENDITURE OF D. 43,8 8,823/- AS DIRECTED BY THE TRIBUNAL AND THE ASSESSING OFFICER DID NOT E XCEED THE DIRECTIONS OF THE TRIBUNAL. THE COMMISSIONER OF IN COME TAX (APPEALS) FURTHER HELD THAT THE SAID EXPENDITURE WA S INCURRED BY THE I.T.A. NO.2053/MDS/11 5 ASSESSEE FOR SETTING UP OF NEW PROJECT AND SINCE T HIS PROJECT WAS ABANDONED AND THE EXPENDITURE INCURRED ON THE ABAND ONED PROJECT PARTOOK THE NATURE OF CAPITAL EXPENDITURE, HE CONFI RMED THE DISALLOWANCE OF D. 43,88,823/- MADE BY THE ASSESSIN G OFFICER. WHILE COMING TO THE SAID CONCLUSION, THE COMMISSIONER OF INCOME TAX (APPEALS) PLACED RELIANCE ON THE DECISION OF HON'BL E JURISDICTIONAL HIGH COURT IN THE CASE OF EID PARRY (INDIA) LTD. V. CIT (279 ITR 253). 4. THE COMMISSIONER OF INCOME TAX (APPEALS) ALSO CONFIRMED THE DISALLOWANCE OF DEPRECIATION ON THERM OPAC MACHINE AS THE SAID MACHINERY WAS NOT PUT INTO USE BY THE ASSE SSEE AND FURTHER HELD THAT THE ASSESSEE COULD NOT CONTROVERT THE VIE W OF THE ASSESSING OFFICER THAT AN ASSET NOT READY FOR USE CAN CLAIM T HE BENEFICIAL INTERPRETATION OF PASSIVE USE FOR CLAIMING DEPRECIA TION. AGAINST THIS ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS), THE ASSESSEE IS IN APPEAL BEFORE US. 5. THE COUNSEL FOR THE ASSESSEE SUBMITS THAT THE ASSESSING OFFICER WENT BEYOND THE DIRECTIONS OF THE TRIBUNAL WHILE DISALLOWING THE ENTIRE EXPENDITURE OF D. 43,88,823/ -. THE COUNSEL FOR THE ASSESSEE SUBMITS THAT IN THE ORIGINAL ASSES SMENT, THE I.T.A. NO.2053/MDS/11 6 ASSESSING OFFICER DISALLOWED EXPENDITURE OF D. 13,9 4,779/- ON THE GROUND THAT THIS EXPENDITURE PERTAINS TO PRIOR PERI OD AND THE ASSESSING OFFICER HIMSELF HAD ALLOWED D.29,94,044/- AS ALLOWABLE EXPENDITURE FOR THE ASST. YEAR 1998-99. THE COUNSE L FOR THE ASSESSEE SUBMITS THAT THIS TRIBUNAL HAS REMITTED TH E MATTER TO THE FILE OF THE ASSESSING OFFICER ONLY TO EXAMINE THE A DMISSIBILITY OF THE EXPENDITURE OF D.13,94,779/- WHICH WAS ORIGINALLY D ISALLOWED BY THE ASSESSING OFFICER BUT NOT THE ENTIRE EXPENDITURE OF D. 43,88,823/-. THEREFORE, THE ASSESSING OFFICER SHOULD HAVE CONFIN ED THE DISALLOWANCE ONLY TO THE EXTENT OF EXPENDITURE OF D .13,94,779/- WHILE COMPLETING THE ASSESSMENT AS PER THE DIRECTIONS OF THE TRIBUNAL. THE COUNSEL FOR THE ASSESSEE SUBMITS THAT IN REMAND PRO CEEDINGS THE ASSESSEE CANNOT BE PUT INTO A WORST SITUATION THAN THAT OF THE SITUATION AT THE TIME OF ORIGINAL ASSESSMENT. THER EFORE, THE COUNSEL FOR THE ASSESSEE SUBMITS THAT THE ASSESSING OFFICER HAS TRAVELLED BEYOND THE DIRECTIONS OF THE TRIBUNAL WHILE DISALLO WING THE EXPENDITURE OF D. 43,88,.823/-. I.T.A. NO.2053/MDS/11 7 6. COMING TO THE ALLOWABILITY OF EXPENDITURE, THE COUNSEL FOR THE ASSESSEE SUBMITS THAT ALL THESE EXPENSES IN CURRED ARE IN THE NATURE OF REVENUE. THEREFORE, THEY HAVE TO BE ALLO WED AS DEDUCTION EVEN THOUGH THE PROJECT WAS ABANDONED SUBSEQUENTLY. 7. THE DEPARTMENTAL REPRESENTATIVE SUPPORTING THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) SUBMITS TH AT THE ENTIRE EXPENDITURE WAS INCURRED TOWARDS NEW PROJECT FOR MA NUFACTURE OF MULTI FILAMENT YARN AND THIS EXPENDITURE WAS REFLEC TED UNDER CAPITAL WORK-IN-PROGRESS BY THE ASSESSEE IN ITS BOOKS OF AC COUNTS. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITS THAT SI NCE THIS EXPENDITURE WAS INCURRED FOR A NEW PROJECT WHICH WA S ABANDONED LATER BY THE ASSESSEE THE SAID EXPENDITURE WAS CAPI TAL EXPENDITURE AND CANNOT BE ALLOWED AS DEDUCTION. 8. WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIAL ON RECORD AND THE ORDERS OF THE AUTHORITIES BELOW. WI TH REGARD TO THE DISALLOWANCE OF EXPENDITURE OF D.43,88,829/-, WE HO LD THAT THE ASSESSING OFFICER SHOULD HAVE CONFINED HIMSELF IN E XAMINING THE ISSUE OF ALLOWABILITY OF EXPENDITURE ONLY TO THE EXTENT O F D. 13,94,779/- AS THIS TRIBUNAL DIRECTED HIM TO EXAMINE THE ISSUE OF ALLOWABILITY OF I.T.A. NO.2053/MDS/11 8 EXPENDITURE ONLY TO THE EXTENT OF D. 13,94,779/- IN ACCORDANCE WITH LAW AS THE SUBJECT MATTER IN THE APPEAL FILED BY TH E DEPARTMENT BEFORE HIS TRIBUNAL WAS FOR THE EXPENDITURE OF D.13 ,94,779/- ONLY. THEREFORE, WE HOLD THAT THE COMMISSIONER OF INCOME TAX (APPEALS) IS NOT JUSTIFIED IN HOLDING THAT THE ASSESSING OFFICER IS CORRECT IN EXAMINING THE ALLOWABILITY OF EXPENDITURE OF D 43,8 8,823/-. THEREFORE, THE ASSESSING OFFICER SHOULD RESTRICT TH E DISALLOWANCE OF EXPENDITURE ONLY TO THE EXTENT OF D. 13,94,779/-. COMING TO THE ALLOWABILITY OF THE EXPENDITURE, WE FIND THAT THE S AID EXPENDITURE WAS INCURRED DURING THE PREVIOUS YEAR 1996-97 RELEVANT TO THE ASST. YEAR 1997-98 FOR EXPANSION OF NEW PROJECT AND THIS PROJE CT WAS LATER ABANDONED IN THE YEAR 1999. IN AN IDENTICAL SITUAT ION, THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF EID PARRY (INDIA) V. CIT (SUPRA) HAS HELD AS UNDER:- IT IS CLEAR FROM THE ASSESSEE'S OWN CASE THAT THE EXPENDITURE WAS INCURRED FOR THE PURPOSE OF SETTING UP A NEW PROJEC T. THE EXPENDITURE HAD BEEN INCURRED IN THE YEARS PRIOR TO THE ASSESSMENT YEAR IN QUESTION. THE ASSESSEE'S CASE THAT IT SUBSE QUENTLY ABANDONED THAT PROJECT DOES NOT ON THAT SCORE CONVE RT WHAT WAS AN EXPENDITURE IN THE NATURE OF CAPITAL EXPENDITURE IN TO A REVENUE EXPENDITURE. THE SETTING UP OF A NEW PROJECT WAS CL EARLY IN THE CAPITAL FIELD AND NOT IN THAT OF REVENUE. THE ABAND ONMENT OF THAT I.T.A. NO.2053/MDS/11 9 PROJECT IS THE ABANDONMENT OF A PROJECT ON WHICH CA PITAL EXPENDITURE HAD BEEN INCURRED. THE EXPENDITURE INCU RRED ON THAT CAPITAL PROJECT WAS NOT SOMETHING WHICH COULD BE RE GARDED AS REVENUE EXPENDITURE LAID OUT EXCLUSIVELY AND WHOLLY FOR THE PURPOSES OF BUSINESS OF THE ASSESSEE AS WHAT THE AS SESSEE WAS TRYING TO START WAS A NEW BUSINESS FOR THE MANUFACT URE OF A NEW PRODUCT. THE EXPENDITURE INCURRED THEREIN WAS CLEAR LY CAPITAL EXPENDITURE AND NOT REVENUE EXPENDITURE. 4. COUNSEL FOR THE ASSESSEE RELIED ON THE DECISION OF THE SUPREME COURT IN THE CASE OF B. K. LTD. V. V.P. GUPTA, CIT [1978] 113 ITR 647. THE COURT THERE WAS NOT CONCERNED WITH THE ASS ESSEE STARTING A NEW INDUSTRIAL PROJECT, AND SUBSEQUENTLY ABANDONI NG THE SAME. THE CASE THERE CONCERNED A TRADER WHO HAD, WHILE RE TAINING THE SAME MANAGEMENT AND CONTROL OF THE BUSINESS, SOUGHT TO CARRY FORWARD THE LOSSES IN THE IMPORT BUSINESS OF AN EAR LIER YEAR AGAINST THE PROFIT OF THE EXPORT BUSINESS OF A LATTER YEAR. HE WAS ALLOWED TO DO SO AFTER THE COURT FOUND THAT THE TWO BUSINESSES , ONE WHICH HAD BEEN DISCONTINUED AND ONE WHICH WAS LATTER STARTED, IN FACT, CONSTITUTED THE SAME BUSINESS. 5. HERE, IT IS EVIDENT THAT THE ASSESSEE IS ENGAGED IN THE MANUFACTURE OF OTHER PRODUCTS AND WANTED TO ADD A N EW PRODUCT 'METHANOL' AND FOR THAT PURPOSE HAD INCURRED EXPEND ITURE BY WAY OF ENTERING INTO A COLLABORATION AGREEMENT FOR PURC HASE OF MACHINERY BUT HAD ABANDONED THE SAME. THE FACT THAT THE ASSESSEE CONTINUED TO CARRY ON ITS OLD BUSINESS DOE S NOT ON THAT SCORE RENDER THE EXPENDITURE INCURRED BY IT IN THE SETTING UP OF A NEW PROJECT FOR THE MANUFACTURE OF A NEW PRODUCT, A REVENUE EXPENDITURE. 6. THE SUPREME COURT IN THE CASE OF SWADESHI COTTON MILLS CO. LTD. V. CIT [1967] 63 ITR 65, CONSIDERED THE CASE OF AN ASSESSEE WHO WAS CARRYING ON THE BUSINESS OF MANUFACTURE AND SAL E OF CLOTH AND OTHER TEXTILE GOODS AND WHO HAD ENTERED INTO CONTRA CT FOR THE PURCHASE OF TEXTILE MACHINERY FOR THE PURPOSES OF E XPANDING ITS I.T.A. NO.2053/MDS/11 10 FACTORY. THE ASSESSEE THEREIN SUBSEQUENTLY CANCELLE D THE CONTRACTS AND PAID COMPENSATION TO THE CONTRACTING PARTIES. T HE AMOUNT SO EXPENDED BY THE ASSESSEE WAS HELD BY THE SUPREME CO URT TO BE AN EXPENDITURE IN THE CAPITAL FIELD AND NOT REVENUE EX PENDITURE. THE RATIO OF THAT CASE IS CLEARLY ATTRACTED TO THE FACT S OF THE CASE HERE. WHILE IN THE CASE OF SWADESHI COTTON, PAYMENT HAD B EEN MADE WITH THE OBJECT OF AVOIDING UNNECESSARY INVESTMENT IN CAPITAL ASSETS, HERE THE EXPENDITURE HAD BEEN INCURRED FOR THE PURPOSES OF SETTING UP THE PROJECT, BUT THAT EXPENDITURE WAS UN FRUITFUL, AS THE PROJECT WAS NOT ESTABLISHED BUT WAS ABANDONED. THE ABANDONMENT WAS OBVIOUSLY TO AVOID ANY FURTHER EXPENDITURE BEIN G INCURRED, AND TO AVOID ANY OTHER ADVERSE EFFECTS BY REASON OF INC URRING OF ADDITIONAL EXPENDITURE WHICH THE ASSESSEE ITSELF TH OUGHT WOULD NO LONGER BE BENEFICIAL TO PURSUE. SUCH EXPENDITURE IN CURRED BY IT FOR A NEW PROJECT WHICH WAS IN THE NATURE OF CAPITAL EXPE NDITURE REMAINS SUCH, AND BY CLAIMING IT IN A SUBSEQUENT YEAR AS RE VENUE EXPENDITURE, THE ASSESSEE CANNOT CONVERT WHAT WAS C APITAL EXPENDITURE INTO REVENUE EXPENDITURE. IN VIEW OF THE ABOVE DECISION OF THE HON'BLE JURISD ICTIONAL HIGH COURT, WE HOLD THAT THE EXPENDITURE INCURRED BY THE ASSESS EE ON THE NEW PROJECT AS CAPITAL IN NATURE. THE ASSESSING OFFICE R IS DIRECTED TO RESTRICT TO THE DISALLOWANCE TO D 13,94,779/- ONLY AS AGAINST D 43,88,823/- MADE IN THE CONSEQUENTIAL ASSESSMENT OR DER. 9. WITH REGARD TO THE DISALLOWANCE OF DEPRECIATION ON THERMOPAC MACHINE, THE COUNSEL FOR THE ASSESSEE SUB MITS THAT DEPRECIATION IS ALLOWABLE ON THE MACHINERY WHICH WA S INSTALLED AND IT I.T.A. NO.2053/MDS/11 11 WAS USED FOR THE BUSINESS OF THE ASSESSEE EVEN THOU GH THE PROJECT COULD NOT TAKE OFF DUE TO VARIOUS FACTORS. THE COU NSEL FOR THE ASSESSEE RELYING ON THE DECISION OF HON'BLE SUPREM E COURT IN THE CASE OF CIT V. SHAAN FINANCE (P) LTD. (231 ITR 308) SUBMITS THAT ONCE THE MACHINERY IS USED FOR THE PURPOSE OF BUSIN ESS OF THE ASSESSEE, DEPRECIATION HAS TO BE ALLOWED ON SUCH MA CHINERY. THE COUNSEL FOR THE ASSESSEE SUBMITS THAT EVEN OTHERWIS E, DEPRECIATION IS ALLOWABLE AS PASSIVE USER THOUGH THE MACHINERY WAS NOT PUT INTO OPERATION AS THE NEW PROJECT WAS ABANDONED. 10. THE DEPARTMENTAL REPRESENTATIVE RELIED ON THE ORDERS OF COMMISSIONER OF INCOME TAX (APPEALS). HE SUBMITS T HAT THE CONCEPT OF PASSIVE USER DOES NOT APPLY TO A NEW PROJECT WHI CH WAS ABANDONED. THE DEPARTMENTAL REPRESENTATIVE SUBMITS THAT SINCE THE MACHINERY WAS NEVER PUT TO USE BY THE ASSESSEE, NO DEPRECIATION IS ALLOWABLE. THE DEPARTMENTAL REPRESENTATIVE RELIED ON THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF B. MALANI & CO. V. CIT (79 TAXMAN 398) AND THE DECISION OF NAGPUR BENCH OF THE ITAT IN THE CASE OF BHIKAJI VENKATESH V. CIT (5 ITR 626) (NAG) IN SUPPORT OF HIS CONTENTION. I.T.A. NO.2053/MDS/11 12 11. WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIAL ON RECORD AND THE ORDERS OF THE LOWER AUTHORITIES. TH E ASSESSING OFFICER DISALLOWED DEPRECIATION ON THIS MACHINERY HOLDING T HAT THE ASSESSEE COMPANY STARTED THE EXPANSION AND DIVERSIFICATION P ROJECT IN THE YEAR 1996. AS ON 31.3.1998, THE TOTAL EXPENDITURE IN CURRED ON THIS PROJECT WAS D. 306.51 LAKHS. THE EXPENDITURE WHICH INCLUDES BOTH CAPITAL AND REVENUE IS CARRIED FORWARD BY THE ASSES SEE UNDER THE HEAD CAPITAL WORK-IN-PROGRESS. THIS PROJECT WAS FINALLY SHELVED IN THE YEAR 1999 SINCE IT IS NOT VIABLE AS PER DIRECTO RS REPORT. THE CAPITAL WORK-IN-PROGRESS INCLUDES THERMOPAC MACHINE WHICH WAS INSTALLED AT SITE DURING THE PREVIOUS YEAR RELEVANT TO THE ASST. YEAR 1997-98. AS THE PROJECT DID NOT TAKE OFF, THIS MAC HINERY WAS SITTING IDLE AND THE ASSESSEE CLAIMED 100% DEPRECIATION ON THE SAME RELYING ON JUDGMENTS WHICH ALLOWED DEPRECIATION ON ASSETS F OR PASSIVE USE. THE ASSESSING OFFICER OBSERVED THAT THE DOCTRINE OF PASSIVE USER APPLIES IN A CASE WHERE THE MACHINERY WAS ALREADY I N USE FOR SOME TIME AND SUBSEQUENTLY THERE IS A STOPPAGE IN THE BU SINESS ACTIVITY DUE TO LOW DEMAND FOR ITS GOODS ETC., IN THE MARKET AND FOR ANY OTHER REASON IF THIS MACHINE HAS TO BE STOPPED DURING THI S PERIOD OF I.T.A. NO.2053/MDS/11 13 INTERREGNUM, THEN THE DOCTRINE OF PASSIVE USER APP LIES SO THAT THE ASSESSEE CAN CLAIM DEPRECIATION OVER SUCH STAND-STI LL MACHINERY. HE OBSERVED THAT IN THE CASE OF THE ASSESSEE, THE PROJ ECT HAD NOT EVEN STARTED OFF. THEREFORE, THE ASSESSING OFFICER HELD THAT NO DEPRECIATION IS ALLOWABLE ON AN ASSET WHICH HAS NOT EVEN BEEN READY FOR USE. THE COMMISSIONER OF INCOME TAX (APPEALS) CONFIRMED THE DISALLOWANCE AGREEING WITH THE VIEW OF THE ASSESSIN G OFFICER. 12. THE MACHINERY WHICH WAS PURCHASED BY THE ASSES SEE IN THE COURSE OF EXPANSION OF NEW PROJECT WAS INSTALLE D IN THE YEAR 1996-97 RELEVANT TO THE ASST. YEAR 1997-98. THERE IS NOTHING ON RECORD TO SUGGEST THAT THE ASSESSEE HAD PUT THE MAC HINERY TO USE DURING THE ASST. YEAR 1998-99. IT APPEARS THAT THE ASSESSEE HAD CLAIMED 100% DEPRECIATION AS THE PROJECT WAS COMPLE TELY ABANDONED LATER IN THE YEAR 1999. SINCE THE MACHINERY WAS NE VER PUT TO USE BY THE ASSESSEE NO DEPRECIATION IS ALLOWABLE FOR THE A SST. YEAR 1998-99. THE CASE LAW RELIED ON BY THE COUNSEL FOR THE ASSE SSEE IN THE CASE OF SHAAN FINANCE (P) LTD (SUPRA) HAS NO APPLICATION TO THE FACTS OF THE CASE OF THE ASSESSEE. THEREFORE, WE HOLD THAT THE ASSESSEE IS NOT I.T.A. NO.2053/MDS/11 14 ENTITLED FOR DEPRECIATION ON THERMOPAC MACHINE. TH E GROUND RAISED BY THE ASSESSEE ON THIS ISSUE IS DISMISSED. 13. IN THE RESULT, THE APPEAL FILED BY THE ASSESSE E IS PARTLY ALLOWED. 14. ORDER PRONOUNCED ON FRIDAY, THE 12TH DAY OF OCTOBER 2012. SD/- SD/- ( N.S. SAINI) (CHALLA NAGEND RA PRASAD) ACCOUNTANT MEMBER JUDICIAL MEMBER CHENNAI, DATED : 12 TH OCTOBER 2012. JLS. COPY TO :- 1) ASSESSEE 2) RESPONDENT 3) CIT(APPEALS) 4) C.I.T. (5) D.R., 6) GUARD FILE.