DCIT, New Delhi V. M/s. The Fertilizer Corporation of India Ltd, Noida

ITA 5468/DEL/2015

AI Insights

The case involves multiple appeals by the Revenue against the decisions of the CIT(A) which had favored the assessee, M/s The Fertilizer Corporation of India, in matters concerning the disallowance of prior period expenses, extraordinary items written off, and interest on loans from the Government of India. The Tribunal examined each issue in the context of the relevant financial years and the specific provisions of the Income-tax Act, 1961, along with judicial precedents. The Tribunal found that the CIT(A) had correctly applied the law and facts of the case, leading to the dismissal of the Revenue's appeals.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 122129 (ITAT-DELHI)
• Duration Of Justice: 7 year(s) 8 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2023
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 15-05-2023
• Assessment Year: 2004-2005
• Appeal Filed On: 06-09-2015
• Other Referred Cases: National Cooperative Consumers Federation of India Ltd vs CIT, Binani Cement Ltd vs CIT, CIT vs Oswal Agro Mills Ltd, CIT vs Refrigeration & Allied Industries Ltd, Capital Bus Services (P.) Ltd. vs CIT, Panacea Biotech Ltd vs CIT
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Depreciation; Tax effect; Revenue expenditure
• Section: 32; 43B; 143(3); 41(2); 139(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : E BENCH : DELHI BEFORE SHRI C.M. GARG, JUDICIAL MEMBER AND SHRI M. BALAGANESH, ACCOUNTANT MEMBER ITAs No.3725, 5467, 5468/Del/2015 Assessment Years: 2002-03, 2003-04 & 2004-05, ITAs No.3354, 2719, 2798, 3355, 3356, 3357 & 2884/Del/2016 Assessment Years : 2004-05,2005-06, 2006-07, 2007-08, 2008-09, 2009-10 & 2011-12 Assistant Commissioner of Income Tax, Circle 25(1), New Delhi. Vs M/s The Fertilizer Corporation of India, PDIL Bhawan, A-14, Sector-1, Noida – 201301(UP). PAN: AAACF1661P (Appellant) (Respondent) Assessee by : Shri Sanjay Agarwal, CA Revenue by : Ms Sarita Kumari, CIT, DR Date of Hearing : 16.05.2023 Date of Pronouncement : 01.06.2023 ORDER PER BENCH: These appeals by the Revenue in ITAs No.3725, 5467, 5468/Del/2015 and in ITAs No.3354, 2719, 2798, 3355, 3356, 3357 & 2884/Del/2016 for Assessment Years 2002-03, 2003-04, 2004-05, 2004-05, 2005-06, 2006-07, 2007-08, 2008- ITAs No.3725, 5467, 5468/Del/2015 ITAs No.3354, 2719, 2798, 3355, 3356, 3357 & 2884/Del/2016 2 09, 2009-10 & 2011-12 respectively are directed against the orders of the Commissioner of Income Tax (Appeals)-3, Delhi [hereinafter referred to as ‘ld. CIT(A)’, in short] in Appeals No. 297/2014-15, 298/2014-15, 299/2014-15, 307/2014-15, 300/2014-15, 303/2014-15, 304/2014-15, 305/2014-15, 306/2014- 15 & against the order of the CIT(A)-33, New Delhi and in Appeal No.116/15-16 dated 30.03.2015, 17.06.2015, 17.06.97, 18.03.2016, 25.02.2016, 25.02.2016, 17.03.2016, 17.03.2016, 17.03.2016 & 15.02.2016 respectively against the orders of assessment passed u/s 143(3) (u/s 143/147 in the case of ITA NO.3354/Del/2016) of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 25.02.2005, 18.01.2006, 28.09.2006, 19.12.2011, 16.11.2007, nil, 06.11.2009, 09.11.2010, 28.12.2011 & 14.03.2014 by the ld. Assessing Officer, Circle-25(1), New Delhi (hereinafter referred to as ‘ld. AO’). 2. The issues involved in all these appeals are identical and hence they are taken up together and disposed of by this common order for the sake of convenience. ITA No. 3725/Del/2015 - A.Y.2002-03 3. The first identical issue to be decided in this appeal is as to whether the ld. CIT(A) was justified in deleting the disallowance of prior period expenses in the sum of Rs 13,16,49,000/- in the facts and circumstances of the case. 3.1. We have heard the rival submissions and perused the materials available on record. The assessee is a public sector enterprise with offices and plants at various distant locations. The assessee had to collect the information from various branches and finalise its accounts at Head office. Inspite of best efforts of the assessee, due to delays on receipt of information from various branches, some expenses get delayed in booking in the accounts. The assessee submitted that though the transactions made relate to earlier years, but the liability ITAs No.3725, 5467, 5468/Del/2015 ITAs No.3354, 2719, 2798, 3355, 3356, 3357 & 2884/Del/2016 3 crystallizes only when the transaction was settled on receipt of bills and other details. Moroever, being a Public Sector Enterprise, every bill had to undergo the process of approvals at various stages. Hence there is bound to be some delay in booking the transactions in the accounts, meanwhile the financial year would have ended. Hence the expenditure does not get booked within the same financial year. As soon as the bills are settled , the expenses are incorporated under various heads of the schedule as ‘Prior Period Adjustments’ in accordance with the Accounting Standard 5 issued by The Institute of Chartered Accountants of India (ICAI). The assessee also submitted that it could not make any provision for these expenses in the year to which it relates, as there was no finality about the liability that had been crystallized before the end of the financial year. The liability per se gets finalized only in the next financial year and hence it is booked as Prior Period Expenses, because the expenses pertain to earlier year, but crystallized during the year. The details of such prior period expenses / prior period income are as under:- ITAs No.3725, 5467, 5468/Del/2015 ITAs No.3354, 2719, 2798, 3355, 3356, 3357 & 2884/Del/2016 4 3.2. The assessee also submitted the aforesaid details plant wise before the ld. AO. It was also submitted that the major portion of prior period expenditure was Rs 3,29,34,000/- towards Depreciation and Interest on loans accounted on reconciliation and receipt of details for Rs 9,24,14,000/-. This interest (FICC) was short provided in earlier years and was accounted when the same had come to the notice of the assessee. 3.3. It was also submitted that the assessee company is under closure after the orders of Board for Industrial & Financial Reconstruction (BIFR) as well as the Government of India. Accordingly, most of the employees had already taken voluntary retirement and assessee company is working with only skeletal staff strength. It was submitted that the adjustment of prior period expenses is a regular feature in the assessee company and the same is followed on year to year basis. In any case, the assessee corporation is making huge losses and it would not matter even if the expenses and liabilities are accounted in full in the year to which they pertain and there is no scope for wiping out these losses. Correspondingly, there would be no tax effect on the prior period expenses. It was also submitted that the rate of tax remained the same in all the years. The assessee corporation had also accounted prior period income in the same fashion as it could be seen from the above list of prior period items. ITAs No.3725, 5467, 5468/Del/2015 ITAs No.3354, 2719, 2798, 3355, 3356, 3357 & 2884/Del/2016 5 3.4. We find that the ld. AO did not heed to the aforesaid contentions of the assessee and proceeded to disallow the same as expenses not pertaining to the year under consideration. This action was reversed by the ld. CIT(A) by observing that assessee has been consistently following the practice of charging the prior period expenditure and income where the details or bills are received after the closure of the financial year and where the approval of higher authorites required is taken later. The ld. CIT(A) further observed that the allowance of expenditure in one year or the other would not make any difference more so where the assessee has been continuously incurring huge losses. Aggrieved, the revenue is in appeal before us. 3.5. At the outset, it is not in dispute that the aforesaid list of prior period items comprising of both expenditure and income thereon , were booked as expenditure / income during the year under consideration , eventhough the same relates to earlier year. This has been explained by the assessee by stating that each and every invoice had to be approved at a higher level which consumes time and moreover, the invoices are to be collated and to be received from various branches for the purpose of finalization of accounts. Meanwhile, the accounts of the assessee corporation are closed as per the stipulated time limit agreed upon by the Directors of the company. Hence these expenditures / income , though pertain to earlier year, were booked as expenditure / income during the year as they stood crystallized during the year by way of approval and payments made during the year. Hence the same would be allowable as expenditure (net) in the hands of the assessee during the year. In any case, we find tha the incurrence of the aforesaid expenditure and earning of aforesaid prior period income for business purposes, is not disputed by the revenue. We find that the ld. AO had not doubted the genuineness of prior period expenditure and prior period income while making the disallowance on net basis. Moroever, ITAs No.3725, 5467, 5468/Del/2015 ITAs No.3354, 2719, 2798, 3355, 3356, 3357 & 2884/Del/2016 6 we find that there is no change in tax rates in the year under consideration and earlier year. Further, we find that the assessee has been incurring continuously huge losses. Hence it would not make any difference with regard to allowability of expenditure in one year or the other. We find that the co-ordinate bench of this Tribunal had an occasion to address the similar issue in the case of National Cooperative Consumers Federation of India Ltd in ITA No. 3626/Del/2010 dated 04.07.2012. In view of the aforesaid observations, we do not find any infirmity in the order of the ld. CIT(A) granting relief to the assessee in this regard. Accordingly, the Ground No. 1 raised by the revenue is dismissed. 4. The next issue to be decided in this appeal is as to whether the ld. CIT(A) was justified in deleting the disallowance made on account of extraordinary items written off in the sum of Rs 15,17,00,000/- in the facts and circumstances of the case. 4.1. We have heard the rival submissions and perused the materials available on record. The ld. AO observed that in the profit and loss account of the assessee, an amount of Rs 15.17 crores was debited on account of ‘Extra-ordinary Items Written Off’. In the notes to accounts vide Note No. 9.4. , the details of the said expenses were given as under:- a) Expenses of revenue nature reflected under ‘Expenditure during Construction Period pending allocation’ – Rs 1259.42 lakhs b) Share of training and sales promotion expenses for the period 1972-73 to 1978-79 hitherto shown as ‘deferred revenue expenditure’ – Rs 73.44 lakhs c) Technical know how fee hitherto shown as ‘Capital Work in Progress’ – Rs 184.46 lakhs ITAs No.3725, 5467, 5468/Del/2015 ITAs No.3354, 2719, 2798, 3355, 3356, 3357 & 2884/Del/2016 7 4.2. We find that these expenses were incurred in earlier years at Korba Division and had been charged to profit and loss account as ‘extra ordinary items written off’ during the year under consideration. In other words, these items were lying as balance sheet item in earlier years, and the same had been written off during the year and debited to profit and loss account. The assessee had submitted that in the year 1960, Government of India approved establishing a fertilizer plant at Korba which was discontinued in 1965. In 1972, in-principle approval was again given for the project at a cost of Rs 118.25 crores. Part of the land was purchased by the Corporation and part was provided by the Government. The Government of India conveyed its approval for winding up of Korba Project vide reference No. 34/2/87/FDB dated 21.02.1990. The BIFR also gave its no objection in March 2000. BIFR gave approval for disposal of all items at Korba Plant in June 2001. Accordingly, the Directors of the assessee corporation approved the write off of the expenditure incurred at Korba Project as an abandoned project expenditure. It was submitted that Korba Project was neither completed nor functioned at any point of time. It was further submitted that the assessee, being a Public Sector Enterprise, is subjected to audit and scrutiny by the Comptroller & Auditor General of India (C &AG) , who had not pointed out any adverse comments on this issue in their report. The assessee also placed reliance on the decisions of various Hon’ble High Courts to drive home the point that the expenditure incurred on abandoned project would be eligible as deduction in the year in which they were written off in the books. 4.3. We find that the ld. AO had disallowed the said write off of expenditure on the ground that it pertains to abandoned project and the same are capital in nature and accordingly cannot be allowed as revenue expenditure. The ld. CIT(A) duly appreciated the contentions of the assessee and granted relief to the ITAs No.3725, 5467, 5468/Del/2015 ITAs No.3354, 2719, 2798, 3355, 3356, 3357 & 2884/Del/2016 8 assessee by stating that there would be absolutely no enduring benefit that would accrue to the assessee by retaining these expenditures incurred on project which stood abandoned, in its balance sheet . Aggrieved, the revenue is in appeal before us. 4.4. We find that there is absolutely no dispute that the expenditures to the tune of Rs 15.17 crores had been incurred by the assessee corporation for Korba Project. It is not in dispute that the said project was mandated to be closed down by the Government of India and by orders of BIFR. Once the project is abandoned either by the assessee or at the behest of the Government , all the expenditures incurred towards such project (be it capital or revenue) would fetch no value to the assessee and the same had to be written off by the assessee. It is not in dispute that the assessee had indeed written off the said abandoned project expenditure of Rs 15.17 crores in its books during the year and had reflected the same as ‘Extra-Ordinary Items Written Off’. Since this issue does not arise on a regular basis to the assessee, we find that the assessee had rightly shown this as ‘Extra Ordinary Items’ in accordance with Accounting Standard 5 issued by ICAI in its profit and loss account as a separate line item. We find that this issue in no longer res integra in view of the decision of the Hon’ble Calcutta High Court in the case of Binani Cement Ltd vs CIT reported in 60 taxmann.com 384 (Cal HC) wherein it was held that expenditure incurred for construction/acquisition of new facility which was subsequently abandoned at work-in-progress stage was allowable in year of write off as incurred wholly and exclusively for purpose of assessee's business. 4.5. In view of the aforesaid observations and respectfully following the judicial precedents relied upon hereinabove, we hold that the extra ordinary expenses written off in respect of expenditure incurred on abandoned project in the sum of ITAs No.3725, 5467, 5468/Del/2015 ITAs No.3354, 2719, 2798, 3355, 3356, 3357 & 2884/Del/2016 9 Rs 15.17 crores, would be allowable as deduction. Accordingly, the Ground No.2 raised by the revenue is dismissed. 5. The next issue to be decided in this appeal is as to whether the ld. CIT(A) was justified in deleting the disallowance made on account of miscellaneous expenses written off in the sum of Rs 1,66,00,000/- in the facts and circumstances of the case. 5.1. We have heard the rival submissions and perused the materials available on record. The ld. AO observed that in the profit and loss account of the assessee, an amount of Rs 1.66 crores was debited on account of Miscellaneous Expenses Written Off. The assessee had replied that the said expenses were incurred on rehabilitation of health study during 2001-02 conducted by three different agencies, which were earlier shown as part of the Capital Work in Progress in the Balance Sheet. These expenditures were incurred on feasibility report study which were originally intended to be capitalized to Plant and Machinery when the same was commissioned or installed. Since the feasibility report could not be implemented, the said expenditure was written off in the profit and loss account and claimed as deduction in the return of income. In other words, the deduction had been claimed by the assessee company towards abandoned project expenditure. We find that the ld. AO had disallowed the said write off of expenditure on the ground that it pertains to abandoned project and the same would be capital loss and accordingly cannot be allowed as revenue expenditure. The ld. CIT(A) duly appreciated the contentions of the assessee and granted relief to the assessee by stating that there would be absolutely no enduring benefit that would accrue to the assessee by retaining these expenditures incurred on project which stood abandoned, in its balance sheet . Aggrieved, the revenue is in appeal before us. ITAs No.3725, 5467, 5468/Del/2015 ITAs No.3354, 2719, 2798, 3355, 3356, 3357 & 2884/Del/2016 10 5.2. We find that the assessee had submitted that it got a feasibility study conducted by FEDO in association with Toyo Engineering Corporation in 1986 for revamping of Gorakhpur Plant after which a proposal was sent to Government of India. PDIL submitted a proposal for Rs 67 crores which was finally approved by the Cabinet Committee on Company Affairs in June 1990. Meanwhile, due to an accident, the Plant was shut down. Since the feasibility study became old, a fresh study was conducted by SPIC Maintenance Organisation. The amount paid upto the year 1991-92 were as under:- SPIC - Rs 92.88 lakhs FEDO - Rs 48.86 lakhs PDIL - Rs 24.71 lakhs ---------------------- Rs. 166.45 lakhs 5.3. The case of the assessee is that it did not implement any new plant but the revamping and renovation was to be carried out for operational efficiency and the since the same did not materialize, the amount was written off. It was further submitted that the assessee, being a Public Sector Enterprise, is subjected to audit and scrutiny by the Comptroller & Auditor General of India (C &AG) , who had not pointed out any adverse comments on this issue in their report. It is not in dispute that the feasibility study report obtained was for a project for improving the operational efficiency of the existing plant and in any case the said project was abandoned. Hence the aforesaid expenditure incurred upto the year 1991-92 which were retained as a Balance Sheet item by the assessee corporation, was sought to be written off as abandoned project expenditure during the year. This in our considered opinion, would be an allowable expenditure. This issue is no longer res integra in view of the decision of Hon’ble Jurisdictional High Court in the case of decision of the Hon’ble ITAs No.3725, 5467, 5468/Del/2015 ITAs No.3354, 2719, 2798, 3355, 3356, 3357 & 2884/Del/2016 11 Calcutta High Court in the case of Binani Cement Ltd vs CIT reported in 60 taxmann.com 384 (Cal HC) wherein it was held that expenditure incurred for construction/acquisition of new facility which was subsequently abandoned at work-in-progress stage was allowable in year of write off as incurred wholly and exclusively for purpose of assessee's business. 5.4. In view of the aforesaid observations and respectfully following the judicial precedents relied upon hereinabove, we do not find any infirmity in the order of the ld. CIT(A) granting relief to the assessee in this regard. Accordingly, the Ground No 3 raised by the revenue is dismissed. 6. The last issue to be decided in this appeal is as to whether the ld. CIT(A) was justified in deleting the disallowance of Rs 831,58,12,000/- made by the ld. AO on account of interest / penal interest on Government of India Loans. 6.1. We have heard the rival submissions and perused the materials available on record. The ld. AO observed that the assessee had debited an amount of Rs 854.47 crores as interest on loans from Government of India, Cash Credit from Banks, LIC, HDFC etc. Out of this amount, a sum of Rs 831.58 crores represent interest on account of borrowings from Government of India , which was not paid by the assessee during the year. Accordingly, the ld. AO invoked the provisions of section 43B(d) and (e) of the Act and disallowed the same in the assessment. The assessee reproduced the provisions of section 43B of the Act in its written submissions filed before the ld. CIT(A) and pleaded that the interest on loans taken from Government of India are not covered by any of the clauses in section 43B of the Act. We find that the ld. CIT(A) had appreciated the provisions of section 43B of the Act and held that the interest payable on Government of India Loans would not get hit by the provisions of section 43B of the Act. The ld. CIT(A) also held that penal interest payable on Government of ITAs No.3725, 5467, 5468/Del/2015 ITAs No.3354, 2719, 2798, 3355, 3356, 3357 & 2884/Del/2016 12 India loans also partake the same character of interest as they are charged according to the terms and conditions of the loan agreement and they are not charged for violation of any law in force. We find that the provisions of section 43B of the Act covers only interest payable on loans taken from Public Financial Institution or a State Financial Corporation or a State Industrial Investment Corporation or a Scheduled Bank. It does not cover interest payable on loans taken from Government of India. There is no dispute in the instant case that the sum of Rs 831.58 crores represent interest payable on loans from Government of India only. Hence in our considered opinion , it is outside the ambit of provisions of section 43B of the Act. We are in agreement with the observations of the ld. CIT(A) that there is no scope to intend something more or less than what is written in the plain language of the statute. Neither anything extra can be read into it which is not there in the statute, nor anything less can be read from what is written in the statute. 6.2. In view of the aforesaid observations, we do not find any infirmity in the order of ld. CIT(A) granting relief in this regard. Accordingly, the Ground No. 4 raised by the revenue is dismissed. 7. In the result, the appeal of the revenue in ITA No. 3725/Del/2015 for A.Y. 2002-03 is dismissed. ITA No. 5467/Del/15 – A.Y. 2003-04 – Revenue Appeal ITA No. 5468/Del/15 – A.Y. 2004-05 – Revenue Appeal 8. The decision rendered by us hereinabove in ITA No. 3725/Del/2015 for A.Y. 2002-03 shall apply mutatis mutandis, in respect of identical issues , except with variance in figures, to appeals of the revenue in ITA No. 5467/Del/15 for A.Y. ITAs No.3725, 5467, 5468/Del/2015 ITAs No.3354, 2719, 2798, 3355, 3356, 3357 & 2884/Del/2016 13 2003-04 and ITA No. 5468 /Del/15 for A.Y. 2004-05. Accordingly, the appeals preferred by the revenue for A.Y. 2003-04 and 2004-05 are dismissed. ITA No. 2719/Del/16 – A.Y. 2005-06 – Revenue Appeal 9. The Ground No. 1 raised by the revenue in A.Y. 2005-06 is identical to Ground No. 4 raised by the revenue supra in A.Y. 2002-03. Hence the decision rendered by us in A.Y. 2002-03 shall apply mutatis mutandis to A.Y. 2005-06 also, except with variance in figures. 10. The last issue to be decided in this appeal is as to whether the ld. CIT(A) was justified in deleting the disallowance of depreciation in the sum of Rs 20,50,59,630/- in the facts and circumstances of the case. 10.1. We have heard the rival submissions and perused the materials available on record. We find that the assessee had claimed depreciation in the sum of Rs 20,50,59,630/- in the return of income. This was sought to be disallowed by the ld. AO on the ground that no manufacturing activity was carried out by the assessee during the year and accordingly, the depreciation would not be allowable. We find that the concept of block of assets was introduced from 1.4.1988 in the statute and once the asset enters the block, its identity is lost and thereafter in subsequent years, the same would not be identifiable individually. As per the Income Tax Act, the depreciation is allowed on the block of assets and not on any individual assets. The plant and machinery for manufacture of fertilizers was kept in ready to use condition by the assessee company. In this regard, the ld. AR rightly placed reliance on the decision of Hon’ble Jurisdictional High Court in the case of CIT vs Oswal Agro Mills Ltd reported in 341 ITR 467 (Del) ITAs No.3725, 5467, 5468/Del/2015 ITAs No.3354, 2719, 2798, 3355, 3356, 3357 & 2884/Del/2016 14 “12. It cannot be disputed that by catena of judgments, it stands settled that the assessee should have used the asset for the whole of assessment year in question to claim full depreciation. Passive user of the asset is also recognized as 'user for purpose of business'. This passive user is interpreted to mean that the asset is kept ready for use. If this condition is satisfied, even when it is not used for certain reason in the concerned assessment year, the assessee would not be denied the depreciation. This was so discussed and restated, after taking stock of various judgments, by a Division Bench of this Court in CIT v. Refrigeration & Allied Industries Ltd. [2001] 247 ITR 12. In that case, the assessee owned a cold storage at Karnal. The machinery installed, was not put to use during the whole of the previous year. The non-user was on account of the fact that there was very weak crop of potatoes available in the season and potatoes did not come from the hirers in the cold storage. Therefore, there was no business from cold storage. Accordingly claim for depreciation on cold storage machinery was disallowed. In appeal, Appellate Assistant Commissioner (in short 'the AAC') observed that the plant was kept in operational condition so that the facility can be availed of by any one as and when necessity arises. It was observed that the word "user" embraces passive as well as active user and depreciation was allowable even though machinery had not actually worked during the accounting period. It was noted that the case was not one where it was the first year of operation of company's business and it was a case where the business was only inactive or dormant because of circumstances prevailing in the year in question on account of fact situation indicated above. 16. In the case of Capital Bus Services (P.) Ltd. v. CIT [1980] 123 ITR 404 (Delhi), this Court remarked that the words "used for the business" are capable of larger and a narrower interpretation. If the expression "used" is to be construed strictly, it can be taken as connoting or requiring the active employment or the actual working of a machinery, plant or building in the business, etc. On the other hand, wider meaning would include passive user of the same in the business. After taking note of the various judgments, the Court opined that survey of those decisions clearly shows that the consensus of judicial opinion is in favour of adopting the liberal interpretation was provided as under : "18. Though it is true that a machinery generally depreciates with actual user, the decision indicate that it is not necessary to import this concept in interpreting the expression "used" is the statute. In the first place, a machinery may well depreciate even where it is not used in the business and even due to non-user or being kept idle. Secondly, a very strict correlation between the actual use of machinery and the concept of depreciation would lead to several anomalies and difficulties, for a machinery cannot be used throughout the day and night or even throughout the working hours or even during the days when the business is in full scale operation. Thirdly, there will be no strain on the statutory language by interpreting it widely and not limiting it to the actual working or actual employment of the machinery in the business. On the other hand, it would be more appropriate to envisage ITAs No.3725, 5467, 5468/Del/2015 ITAs No.3354, 2719, 2798, 3355, 3356, 3357 & 2884/Del/2016 15 the expression as comprehending cases where the machinery is kept ready by the owner for its use in the business and the failure to use it actively in the business is not on account of its incapacity for being used for that purpose of its non-availability. . . ". 17. In the facts of that case, while allowing depreciation on four buses, the Court held the view that these buses were in working order and were kept ready for being operated upon if and when some tourist contract materialized. Reason because of which the same could not ply on the road is that they were under repair or were unfit, but there were not enough contracts for the year. The Court, thus, held that depreciation was allowable. 18. In the case of Panacea Biotech Ltd. (supra) , after taking note of various judgments including the aforesaid two judgments, the principle that the expression "use for the purpose of business" was reiterated. 19. What follows from the above is that actual user of the asset in a particular year may not be necessary. Even passive user qualifies for deduction. Passive user is to be understood in the sense that the asset is ready for use, but could not be used for part of a year or even whole year. 20. The learned counsels appearing for the revenue, however, articulated their plea on altogether different level. Their submission was that if the property is not put to use for number of years, the assessee should be allowed the benefit of depreciation on the purported ground that it was 'passive user'. In other words, it was argued that in the instant case the entire Bhopal Unit and not a part of the said unit, was non-functional and assets of that unit were not put to use for number of years. A fervent plea was, thus, made that in case like this, principle of 'passive user' cannot be extended. 21. We feel that counsel for the Revenue is right in their submission. In the instant case, the entire Bhopal Unit came to a standstill and there was a complete halt in its functioning from the assessment year 1997-98. In that year, the Assessing Officer still allowed the depreciation treating it to be a 'passive user'. However, when it was found that even in subsequent year, the Bhopal Unit remained non- functional, Assessing Officer(s) disallowed the depreciation. Present appeals relate to the assessment years from 1998-99. In the process six years passed till the last assessment year before us, but there was no sign of this unit becoming functional. The 'passive user', in these circumstances, cannot be extended to absurd limits. Other- wise, the words "used for the purpose of business" will lose their total sanctity. It cannot be the intention of the Legislature that the words 'used' when it is to be interpreted in a wider sense to mean, 'ready to use', the same is stretched to the limits of non-user for number of years. 22. We may point out at this stage that some of the High Courts have taken the view that the expression 'used' should mean actual user [See CIT v. J. K. Transport [1998] 231 ITR 798 (MP), CIT v. Suhrid Geigy Ltd. [1982] 133 ITR 884 (Guj.), Malabar Agricultural Co. Ltd. v. CIT [1998] 229 ITR 548 ITAs No.3725, 5467, 5468/Del/2015 ITAs No.3354, 2719, 2798, 3355, 3356, 3357 & 2884/Del/2016 16 (Ker.), Dineshkumar Gulabchand Agrawal v. CIT [2004] 267 ITR 768 (Bom.)]. Though we are subscribing in view of the judgments of our own High Court, at the same time we would not like to give the expression a meaning which would make the provision superfluous. 23. Mr. C. S. Aggarwal, learned Senior counsel appearing for the assessee, had highlighted that the assessee was a 50 year old company and non-user of the Bhopal Unit for six years or so should be treated as temporary non-user. It is difficult to accept such a plea. As per Mr. Aggarwal himself, the assessee company had closed its Bombay unit, as it was not viable. If it was striving to make Bhopal unit viable and making efforts in that behalf, that may not provide justification to claim depreciation when actual non-user remained for number of years. (2) Depreciation on Block of Assets 24. We now proceed on the basis that particular assets, viz. , assets of Bhopal Unit were not 'used for the purpose of business' in the concerned assessment years. Whether the assessee would still be entitled to depreciation as it has been claiming depreciation on entire 'block of assets'. Counsel for the revenue had argued that conditions laid down in section 32 of the Act are to be necessarily satisfied and it has to be shown that asset is used for business. Insofar as concept of 'block of assets' is concerned, it is only a mode of calculation. On the other hand, the learned counsel for the assessee had argued that after the introduction of 'block of assets' concept in section 2(11) by amendment made with effect from 1-4-1988, the assessee was entitled to claim depreciation on the entire block of assets and it was no more open to the revenue as to whether particular asset is put to use or not. 25. We have considered these submissions of the learned counsel for the parties and are of the opinion that the arguments of the learned counsel for the assessee have to prevail. Mr. Aggarwal, learned Senior counsel for the assessee is right in his submission that the position concerning the manner in which the depreciation is to be allowed, has gone a sea change after the amendment of section 32 by the Taxation Laws (Amendment) Act, 1986. Section 32(1) of the Act allows the depreciation on the written down value of the assets. 26. Section 2(11) of the Act defines the term 'block of assets' as under : "2(11) "Block of assets" means a group of assets falling within a class of assets comprising - (a) Tangible assets, being buildings, machinery, plant or furniture; (b) Intangible assets, being know-how, patents, copyrights, trade-marks, licences, franchises or any other business or commercial rights of similar nature, in respect of which the same percentage of depreciation is prescribed;" ITAs No.3725, 5467, 5468/Del/2015 ITAs No.3354, 2719, 2798, 3355, 3356, 3357 & 2884/Del/2016 17 27. Along with the aforesaid amendment, definition of written down value as contained in section 43(6) has also been amended and the amended provisions read as under : "43(6) "Written down value" means :— (a) & (b) ** ** ** (c) In the case of any block of assets, — (i) In respect of any previous year relevant to the assessment year commencing on the 1st day of April, 1988, the aggregate of the written down values of all the assets falling within that block of assets at the beginning of the previous year and adjusted,— (A) by the increase by the actual cost of any asset falling within that block, acquired during the previous year; and (B) by the reduction of the moneys payable in respect of any asset falling within that block, which is sold or discarded or demolished or destroyed during that previous year together with the amount of the scrap value, if any, so, however, that the amount of such reduction does not exceed the written down value as so increased; and (ii) in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, 1989, the written down value of that block of assets in the immediately preceding previous year as reduced by the depreciation actually allowed in respect of that block of assets in relation to the said preceding previous year and as further adjusted by the increase or the reduction referred to in item (i) . " 28. Thus, for the assessment year 1998-99, the WDV of any block of assets shall be the aggregate of the WDV of all the assets falling within that block of assets at the beginning of the previous year. From this, the adjustment has to be made for the increase or reduction in the block of assets during the year under consideration. The deduction from the block of assets has to be made in respect of any asset, sold discarded or demolished or destroyed during the previous year. 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 ITAs No.3725, 5467, 5468/Del/2015 ITAs No.3354, 2719, 2798, 3355, 3356, 3357 & 2884/Del/2016 18 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. It would be of benefit to take note of the Circular issued by the revenue itself explaining the purpose behind the amended provision. The same is contained in CBDT Circular No. 469, dated 23-9-1986, wherein the rationale behind the aforesaid amendment is described as under : "6. 3 As mentioned by the Economic Administration Reforms Commission (Report No. 12, para 20) , the existing system in this regard requires the calculation of depreciation in respect of each capital asset separately and not in respect of block of assets. This requires elaborate book-keeping and the process of checking by the Assessing Officer is time consuming. The greater differentiation in rates, according to the date of purchase, the type of asset, the intensity of use, etc. , the more disaggregated has to be the record-keeping. Moreover, the practice of granting the terminal allowance as per section 32(1) (iii) or taxing the balancing charge as per section 41(2) of the Income-tax Act necessitate the keeping of records of depreciation already availed of by each asset eligible for depreciation. In order to simplify the existing cumbersome provisions, the Amending Act has introduced a system of allowing depreciation on block of assets. This will mean the calculation lump sum amount of depreciation for the entire block of depreciable assets in each of the four classes of assets, namely, buildings, machinery, plant and furniture." 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 assets falling within the same class of assets. 32. Another significant and contemporaneous development, which needs to be noticed is that the Legislature has also deleted the provision for allowing terminal depreciation in respect of each asset, which was previously allowable under section 32(1) (iii) and also taxing of balancing charge under section 41(2) in the year of sale. Instead of these two provisions, now whatever is the sale-proceed of sale of any depreciable asset, it has to be reduced from the block of assets. This amendment was made because now the assessees are not required to maintain particulars of each asset separately and in the absence of such particular, it cannot be ascertained whether on sale of any asset, there was any profit liable to be taxed under section 41(2) or terminal loss allowable under section 32(1) (iii) . ITAs No.3725, 5467, 5468/Del/2015 ITAs No.3354, 2719, 2798, 3355, 3356, 3357 & 2884/Del/2016 19 This amendment also strengthen the claim that now only detail for "block of assets" has to be maintained and not separately for each asset. 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. 34. The upshot of the aforesaid discussion is that though we are not entirely agreeing with the reasoning of the Tribunal contained in the impugned judgment, we are upholding the conclusion of the Tribunal based on the 'block of assets' as discussed above. The consequence would be to dismiss these appeals. However, there will be no order as to costs. (emphasis supplied by us) 10.2. Before us also, the ld. DR made the same arguments that were advanced by the revenue’s counsel before the Hon’ble Delhi High Court supra. It is also pertinent to note that the depreciation claim was allowed by the revenue in the earlier years and there is no reason to take a divergent stand during this year, without any change in facts and circumstances. Either way, as stated supra, the asset loses its identity once it enters the block of assets. Hence there is no way for disallowing the depreciation on block of assets and the same would be taken care at the time of disposal of the assets in the block while computing short term capital gains u/s 50 of the Act on deeming fiction. Hence in view of the aforesaid observations and respectfully following the judicial precedent relied upon hereinabove, we do not find any infirmity in the order of the ld. CIT(A) granting relief to the assessee in this regard. Accordingly, the Ground No.2 raised by the revenue is dismissed. ITAs No.3725, 5467, 5468/Del/2015 ITAs No.3354, 2719, 2798, 3355, 3356, 3357 & 2884/Del/2016 20 11. In the result, the appeal of the revenue in ITA No. 2719/Del/16 for A.Y. 2005-06 is dismissed. ITA No. 2798/Del/16 – A.Y. 2006-07 – Revenue Appeal 12. The Ground Nos. 1 & 2 raised by the revenue in A.Y. 2006-07 are identical to Ground No. 4 raised by the revenue supra in A.Y. 2002-03 and Ground No. 2 raised by the revenue supra in A.Y. 2005-06 and hence the decision rendered thereon by us shall apply mutatis mutandis to A.Y. 2006-07 also, except with variance in figures. The ld. AR also pointed out that the revenue had mentioned the wrong figure of depreciation of RS 20,50,59,630/- in A.Y. 2006-07 as against the correct figure of Rs 9,40,37,357/-. The ld. AO is directed to take note of the same while giving effect to this order. 13. The Ground No. 3 raised by the revenue for A.Y. 2006-07 is challenging the deletion of disallowance made on account of employees contribution to PF and ESI. 13.1. We have heard the rival submissions and perused the materials available on record. At the outset, this issue is no longer res integra in view of the decision of the Hon’ble Supreme court in the case of Checkmate Services Pvt. Ltd vs CIT reported in 448 ITR 518. It is not in dispute that the employee’s contribution to PF and ESI were deposited by the assessee to the Government account beyond the due dates prescribed under the respective acts but well before the due date of filing of return of income u/s. 139(1) of the Act. We find that the recent decision of the Hon’ble Supreme Court had settled the entire dispute to rest by deciding it in favour of the Revenue. Pursuant to the aforesaid decision of the Hon’ble Supreme Court, the claim of deduction towards employee’s contribution to PF & ESI made by the assessee becomes an incorrect ITAs No.3725, 5467, 5468/Del/2015 ITAs No.3354, 2719, 2798, 3355, 3356, 3357 & 2884/Del/2016 21 claim warranting primafacie adjustment u/s.143(1) of the Act. Respectfully following the decision of the Hon’ble Supreme Court referred to supra, we decide the issue against the assessee. Accordingly, the Ground No. 3 raised by the revenue is allowed. 14. In the result, the appeal of the revenue for A.Y. 2006-07 is partly allowed. ITA No. 3355/Del/16 – A.Y. 2007-08 – Revenue Appeal ITA No. 3356/Del/16 – A.Y. 2008-09 – Revenue Appeal ITA No. 3357/Del/16 – A.Y. 2009-10 – Revenue Appeal ITA No. 2884/Del/16 – A.Y. 2011-12 – Revenue Appeal ITA No. 3354/Del/16 – A.Y. 2004-05 – Revenue Appeal against Section 147 proceedings 15. We find that all the grounds raised by the revenue in the aforesaid three years are covered in favour of the assessee by our decision rendered hereinabove for A.Y. 2002-03 and A.Y. 2005-06. Hence the grounds raised by the revenue for all these years are dismissed. 16. In the result, the appeal of the revenue in A.Y. 2006-07 is partly allowed. All other appeals of the revenue are dismissed. Order pronounced in the open court on 01.06.2023 Sd/- Sd/- (C.M. GARG) (M. BALAGANESH) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 01 st June, 2023. dk ITAs No.3725, 5467, 5468/Del/2015 ITAs No.3354, 2719, 2798, 3355, 3356, 3357 & 2884/Del/2016 22 Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asstt. Registrar, ITAT, New Delhi