DCIT, New Delhi V. M/s. Cimmco Birla Ltd., New Delhi

ITA 4374/DEL/2010

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 0452 (ITAT-DELHI)
• Duration Of Justice: 4 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-02-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 11-02-2011
• Assessment Year: 2002-2003
• Appeal Filed On: 28-09-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: H K LAL
• Assessee Lawyers: PARAS NATH
• Keywords: Depreciation
• Section: 32

Judgement Text

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 TAX, CIRCLE 3 (1), NEW DELHI. VS. M/S CIMMCO BIRLA LTD., INDRA PALACE (3 RD FLOOR), H-BLOCK, CONNAUGHT CIRCUS, 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 DIRECT ED AGAINST THE ORDER OF THE CIT (A) DATED 23 RD 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 W ERE USED FOR THE PURPOSE OF BUSINESS FROM EARLIER YEARS, IGNORING THAT: A) ONCE THE INDIVIDUAL ASSET IS NOT PUT TO USE, WHICH I S PRE- REQUISITE CONDITION FOR AVAILING DEPRECIATION U/S 32 O F 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 I A OF THE INCOME TAX RULES, 1962, BUT SHALL CONTINUE TO REMAI N THE PART OF THE BLOCK OF ASSETS FOR ALL OTHER PURPOSE EX CEPT FOR THE PURPOSE OF CLAIMING DEPRECIATION UNLESS PUT TO USE. B) IN THE CASE OF CIT VS. ORIENTAL COAL C. LIMITED (19 94) 206 ITR 682/78 TAXMAN 240 (CAL), IT HAS BEEN OBSERVED BY THE ITA NO.4374/DEL/2010 2 ITR 682/78 TAXMAN 240 (CAL), IT HAS BEEN OBSERVED BY THE HONBLE HIGH COURT THAT WHERE ASSETS WERE NOT AT ALL USE D DUE TO LOCK-OUT, DEPRECIATION CANNOT BE ALLOWED. RELIA NCE IS ALSO PLACED ON THE DECISIONS IN LIQUIDATORS OF PUR SA LTD. VS. CIT (1954) 25 ITR 265 (SC), DCIT VS. YELLAMMA D ASAPPA 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 RIGH T TO AMEND, MODIFY, ALTER, ADD OR FOREGO ANY GROUND(S) OF APPEAL AT ANY TIME BEFORE OR DURING THE HEARING OF THI S 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 ADD ITION OF ` 89,75,310/-, INTER ALIA WAS MADE ON ACCOUNT OF DISALL OWANCE OF DEPRECIATION ON PLANT AND MACHINERY. IT WAS FOUND B Y THE ASSESSING OFFICER THAT THE PLANT OF THE ASSESSEE AT BHARATPUR AND NEW DELHI WERE DECLARED UNDER LOCK OUT W.E.F. 13 TH NOVEMBER, 2000 AND 8 TH DECEMBER, 2000 RESPECTIVELY AND THEY WERE STILL LOCKED OUT. TH EREFORE, 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 HONBLE SUP REME 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 T HAT TOTAL DEPRECIATION CLAIMED BY THE ASSESSEE WAS `95,23,258/- WH ICH INCLUDED DEPRECIATION OF ` 89,75,310/- FOR THE PLANT AND MAC HINERY 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 SU BMITTED ITA NO.4374/DEL/2010 3 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 SUF FICIENT TO ALLOW DEPRECIATION U/S 32. IT WAS SUBMITTED THAT BOTH THE C ASES RELIED UPON BY THE ASSESSING OFFICER COULD NOT BE APPLIED AS THOSE CA SES DID NOT BELONG TO THE PERIOD WHERE THE CONCEPT OF BLOCK OF ASSETS WAS NOT IN OPERATION. LEARNED CIT (A) HAS ACCEPTED THE CLAIM O F 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 MACH INERY FORMS PART OF THE CLOSED UNIT, FALLING UNDER BLOCK OF ASSETS, THEN, THAT BLOCK OF ASSETS CAN BE SAID TO BE USED FOR TH E PURPOSE OF BUSINESS AND, HENCE, DEPRECIATION WAS ALLOWAB LE. II) CIT VS. BHARAT ALUMINIUM CO. LTD., 187 TAXMAN 11 1 (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 BUILDIN G, MACHINERY, PLANT OR FURNITURE IN THE SAID BLOCK OF A SSETS AS INDIVIDUAL ASSETS HAVE LOST THEIR IDENTITY AFTER BECOMI NG INSEPARABLE PART OF THE BLOCK ASSET. 4. THE REVENUE IS AGGRIEVED, HENCE, IN APPEAL. 5. AFTER NARRATING THE FACTS, RELYING UPON THE DECISI ON REFERRED TO IN THE GROUNDS OF APPEAL, IT WAS PLEADED BY THE LEARNED DR THAT THE ASSESSING OFFICER HAD RIGHTLY DENIED THE BENEFIT OF DEP RECIATION TO THE ASSESSEE IN RESPECT OF CLOSED DOWN UNITS AND THE LEARNED C IT (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 HONBLE DELHI HIGH COURT IN T HE CASE OF CIT VS. ITA NO.4374/DEL/2010 4 OSWAL AGRO MILLS LTD. & ORS. DATED 24 TH 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 UPHE LD. 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 HO NBLE 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 DEPRECIA TION 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) WHIC H DEFINES THE BLOCK OF ASSETS, SECTION 43(6) WHICH DEFINES THE POSITIO N OF CLAIM OF DEPRECIATION IN THE CASES OF BLOCK OF ASSETS, THEIR LORD SHIPS 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 TH E ASSETS FALLING WITHIN THAT BLOCK OF ASSETS AT THE BEGINNING OF THE PR EVIOUS YEAR. AS PER AMENDED SECTION 32, THE DEPRECIATION IN THE CASE OF BLOCK OF ASSETS AT SUCH PERCENTAGE ON THE WRITTEN DOWN VALUE THE REOF 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 T HAT IT WAS NOT PUT TO USE. THEIR LORDSHIPS HAVE ALSO OBSERVED THAT ALL OWING DEPRECIATION ON THE ASSETS WHICH ARE NOT PUT TO USE AND ARE FALLING WITHIN BLOCK OF ASSETS, THERE WILL BE NO LOSS TO THE REV ENUE AND, THUS, THEIR LORDSHIPS HAVE HELD THAT THE DEPRECIATION IN RE SPECT OF CLOSED UNIT CANNOT BE DENIED WHEN THE PLANT AND MACHINERY THERE UNDER IS A PART ITA NO.4374/DEL/2010 5 OF BLOCK OF ASSETS. THE RELEVANT OBSERVATIONS FROM THE JUDGEMENT ARE REPRODUCED BELOW:- 29. AS PER AMENDED SECTION 32, DEDUCTION IS TO BE ALL OWED IN THE CASE OF ANY BLOCK OF ASSETS, SUCH PERCENTAGE O N THE WRITTEN DOWN VALUE THEREOF AS MAY BE PRESCRIBED. THU S, THE DEPRECIATION IS ALLOWED ON BLOCK OF ASSETS, AND THE RE VENUE CANNOT SEGREGATE A PARTICULAR ASSET THEREFROM ON THE GROU ND THAT IT WAS NOT PUT TO USE. 30. WITH THE AFORESAID AMENDMENT, THE DEPRECIATION IS NO W TO BE ALLOWED ON THE WRITTEN DOWN VALUE OF THE BLOCK OF A SSETS AT SUCH PERCENTAGE AS MAY BE PRESCRIBED. WITH THIS AMEND MENT, INDIVIDUAL ASSETS HAVE LOST THEIR IDENTITY AND CONCEPT OF BLOCK OF ASSETS HAS BEEN INTRODUCED, WHICH IS RELEVANT FOR CAL CULATING THE DEPRECIATION 31. IT BECOMES MANIFEST FROM THE READING OF THE AFORESA ID 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 OFFI CER. THEREFORE, THEY AMENDED THE LAW TO PROVIDE FOR ALLOWIN G OF THE DEPRECIATION ON THE ENTIRE BLOCK OF ASSETS INSTEAD OF EA CH INDIVIDUAL ASSET. THE BLOCK OF ASSETS HAS ALSO BEEN DEFINED TO INCLUDE THE GROUP OF ASSET FALLING WITHIN THE SAME CLAS S OF ASSETS. 32. 33. HAVING REGARD TO THIS LEGISLATIVE INTENT CONTAINED IN THE AFORESAID AMENDMENT, IT IS DIFFICULT TO ACCEPT THE SUBMIS SION OF THE LEARNED COUNSEL FOR THE REVENUE THAT FOR ALLOWING TH E DEPRECIATION, USER OF EACH AND EVERY ASSET IS ESSENTIA L 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 SEPAR ATELY AND THAT WOULD FRUSTRATE THE VERY PURPOSE FOR WHICH THE AMENDMENT WAS BROUGHT ABOUT. IT IS ALSO ESSENTIAL TO POI NT OUT THAT THE REVENUE IS NOT PUT TO ANY LOSS BY ADOPTING SUCH M ETHOD AND ALLOWING DEPRECIATION ON A PARTICULAR ASSET, FORMI NG PART OF THE BLOCK OF ASSETS EVEN WHEN THAT PARTICULAR ASSET IS NOT USED IN THE RELEVANT ASSESSMENT YEAR. WHENEVER SUCH AN ASS ET 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 DEPRE CIATION COULD NOT ITA NO.4374/DEL/2010 6 BE MADE ON THE BASIS OF CONCEPT OF BLOCK OF ASSETS AND H IS DECISION IS IN ACCORDANCE WITH THE DECISION OF HONBLE JURISDICTI ONAL 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 18.02.20 11. 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