TMI Blog2016 (7) TMI 1242X X X X Extracts X X X X X X X X Extracts X X X X ..... Decided in favour of assessee. - ITA No.412/RJT/2013, ITA No.414/RJT/2013 - - - Dated:- 21-7-2016 - Shri S. S. Godara, JM Shri Manish Borad, AM Appellant by Shri Yogesh Pandey, CIT,DR Respondent by Shri Vimal Desai, AR O R D E R PER Manish Borad, Accountant Member. These cross appeals relating to Asst. Year 2009-10 are directed against the order of ld. CIT(A), Jamnagar, dated 26.8.2013 vide order no.CIT(A)/Jam/228/11-12/333. Assessment order u/s 143(3) of the IT Act, 1961 (in short the Act) was framed for Asst. Year 2009-10 on 31.12.2011 by ACIT, Circle-3, Jamnagar. 2. Briefly stated facts of the case are that the assessee is a limited company engaged in the business of transportation of petroleum products through pipe-lines and sales of petroleum products. Return of income was e-filed on 29.09.2009 declaring loss of ₹ 7,70,47,108/-. The case was selected for scrutiny assessment and notice u/s 143(2) of the Act was issued on 16/09/2010. During the course of assessment proceedings ld. Assessing Officer observed that the operation activities of the assessee company were abandoned during the year which was apparent from the fact that n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... part of assessee that the operation activities of the company was abandoned during the year and the main income was reported for FY 2008-09 which itself proves that plant and machinery were not used for a single day during the year and as per the provisions of section 32 of the Act depreciation is allowable if the assets are used for the purpose of business or profession which was not the case of assessee. Ld. DR further submitted as under :- 1. It is an admitted fact that the business activities had stopped during the year under consideration and as a result the plant and machinery were not in operation during the year. The 'operating expenses were NIL during the year. The assessee has claimed the depreciation on the ground that the plant and machinery were used in earlier you; and the depreciation should be allowed in the year under consideration on plant and machinery as they were ready to be used though not actually used. However, the passive use of the assets, if at all the meaning of 'used is extended to passive use, is relevant only when the business activities are present. In absence of business activity during the entire previous year, the asset cannot be sai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... illed with. Taking a cue from the above remark of Hon'ble Gujarat High Court, in present ease, it cannot be said that one is engaged in dinking when the liquid inside the cup is frozen. In other words, in a lockout like situation. it cannot be said that the assets were used. In fact, Hon'ble Karnataka High Court has altogether rejected the kept ready theory in case of DCIT v. Yellamma Dasappa Hospital (2007) 290 ITR 0353 (Karn) in the light of the Apex Court rulings in case of The Federation of Andhra Pradesh Chambers of Commerce Industry v. State of Andhra Pradesh Ors. AIR 2000 SC 2905 where it was held that only land which is actually in use for an industrial purpose as defined In the said Act (A.P. Non-Agricultural Lands Assessment Act) that can he assessed to non-agricultural assessment at the rate specified for land used for industrial purpose. The wider meaning given to the word used in the judgment under challenge is untenable. Having regard to the fact that the said Act is a taxing statute, no court is justified in imputing to the legislature an intention that it has not clearly expressed in the language it has employed 2. Assessing Officer has relied on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ). In this case it was held that the basic concept underlying this allowance is that depreciation should result as a consequence of the machinery being actually used or employed in the earning of income. That being so. it is not material whether or not the machinery is kept ready for use so long as it is not actually used in the earning of income. 5) Guiarat High Court in the case of CIT v. Suhrid Geigy Ltd. |1982( 133 ITR 884(Guj). In this case it was held that merely because the machinery had already been installed, it could not be said that the building was used by the assessee for the purpose of its business at a point of time when the machines had not become functional. 6) Supreme Court in case of Liquidators of Pursa Ltd. [19541 25 ITR 265 (SC). In this case it was held that in order to attract the operation of clauses (v), (vi) and (vii / of section 10(2) the machinery and plant must be such as were used, in whatever sense that word is taken, at least for a part of the accounting year. If the machinery and plant have not at all been used at any time during the accounting year no allowance can be claimed under clause (vii) in respect of them and the second proviso to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2905. Secondly, the meaning of passive use of any asset cannot be extended beyond :i previous Year in absence of business activity during the entire previous year in view of the judgment of Hon'ble Supreme Court in case of Liquidators of Pursa Ltd. [19541 25 ITR 265 (SC) Thirdly, the above decision of Hon'ble Supreme court was with respect to the Income Tax Act 1922 where in respect of depreciation the word use was used which could be both active use and passive use. In section 32 of Income Tax Act 1961. the \\oix! used is used. The word used denotes actually used and not merely ready for use. The expression used means actually used for the purposes of the business, therefore, assets ready for use'! is not entitled to depreciation as held in case of Dineshkumar Gulabchand Agrawal Vs CIT 267 ITR 768 (Bom) where the SLP filed against this order has been dismissed by Hon'ble Supreme Court in (2004) 266 ITR (St.) 106. 8. On the other hand, ld. AR submitted that claim of depreciation on the impugned plant and machinery has been allowed in the previous year as well as in the subsequent years and assets were not purchased during the year. Impugned plant and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also no such condition that revenue should-be generated from the assets on which depreciation is being claimed in the respective year. Once the asset is put to use, depreciation is allowable on it The aforesaid view is supported by catena of legal decisions as under: \ (a) CIT vs. Refrigeration Allied Industries Ltd - 247 IT R 3.2 (Del.) There is no requirement that the assets should be used for the whole of the assessment year in question, The words used for the purposes of the business are capable of a larger and a narrower interpretation. If the expression used is 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. On the other hand, the wider meaning will include not only cases where the machinery, plant, etc. are actively employed but also cases where there is what may be described as a passive user of the same in the business. As asset can be said to be in use when it is kept ready for use. In view of the conclusions arrived at by AAC and Tribunal about the obligation to keep the machinery in good working condition so that it can be used at any moment and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowing claim of depreciation on plant and machinery. We observe that assessee company is engaged in business of transportation of petroleum products through pipe lines since last many years. The impugned plant and machinery on which assessee has claimed depreciation during the year were acquired by assessee in earlier years and depreciation has been claimed regularly and allowed by Revenue authorities and similarly, depreciation has been allowed in subsequent years also. Claim of depreciation on plant and machinery was denied due to absence of operation activities during the year and ld. Assessing Officer referred to the word used appearing in the provisions of section 32 of the Act and was of the view that as the plant and machinery have not been actually used during the year, no depreciation would be allowed. 10. We observe that both the ld. DR and the ld. AR have referred and relied on various judgments of Hon. Apex Court, High Courts and Co-ordinate Bench on the issue relating to allowability of depreciation when the assets are not actually used and we find that facts dealt with in these judgments and decisions travelled on a narrow road which is unable to bring out a c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prescribed rate on the written down value (w.d.v) of the asset. In our view the intention of the Legislature is that it has to be first ensured that asset is owned, wholly or partly and is used for business or profession and once it is used then it comes under automatic mode of claim of depreciation on the w.d.v. method on the value of asset as on the last date of the previous financial year subject to carrying on business activities during the year. In the appeal before us it has been accepted by ld. Assessing Officer as he has allowed some part of depreciation and has also allowed the claim of other expenses incurred by the assessee during the year. We are, therefore, of the view that ld. CIT(A) has rightly allowed the claim of depreciation on the plant and machinery which were acquired in earlier years and depreciation was allowed. In the result, appeal of Revenue is dismissed. 13. Now we take up assessee s appeal in ITA No.414/Ahd/2013 wherein following grounds have been raised:- All the below mentioned grounds of appeal are independent and without prejudice to each other. 1. The assessment order u/s. 143(3) is bad in law.. 2. The Assessing Officer has erred on fac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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