TMI Blog2022 (9) TMI 333X X X X Extracts X X X X X X X X Extracts X X X X ..... ed for the purpose of calculating the depreciation. We note that CBDT issued a Circular No. 469 dated 23.09.1986 explaining the purpose behind the amended provisions of section 32 of the Act wherein the rationale behind the introduction of concept of block of assets is described. Thus, once an asset is part of the block of assets and depreciation is granted on that block, it cannot be denied in subsequent years on the ground that one of the assets is not used by the assessee in some of the years. The concept of user of assets has to apply on the block of assets as a whole instead of an individual asset. The notes to clauses as mentioned in Finance Bill, 2001 in respect of amendment of section 32 of the Act for the insertion of explanation (5) states that a new explanation (5) in clause (ii) explanation (1) of section 32 of the Act is inserted so as to clarify that the provisions of sub-section (1) of section 32 of the Act shall apply whether or not the assessee has claimed the deduction of depreciation in computing his total income. It also states that this amendment will take effect from 1st April, 2002 and will, accordingly, apply in relation to the AY 2002-03 and subsequ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... PER GIRISH AGRAWAL , ACCOUNTANT MEMBER: This appeal by the assessee is directed against the order of ld. CIT(A)-20, Kolkata vide Order No. ITBA/APL/S/250/2019- 20/1024653634(1) dated 04.02.2020 for A.Y. 2010-11 passed against the assessment order u/s 143(3) of the Income-tax Act, 1961 (hereinafter referred to as the Act ) by DCIT, Circle-4, Kolkata dated 13.02.2013. 2. At the outset, we note that there is a delay of 51 days in filing the present appeal which was filed on 30.06.2020. From the perusal of the material placed on record, we note that the order passed by Ld. CIT(A) is dated 04.02.2020. Assessee claims to receive the said order on 11.03. 2020, as noted in Form 36 placed on record. Accordingly, the appeal ought to have been filed on or before 10.05.2020 which has been filed on 30.06.2020. The period of delay of 51 days falls within the lock-down owing to Covid-19 pandemic for which the Hon ble Supreme Court has directed that the period from 15.03.2020 to 28.02.2022 is to be excluded for the purpose of computing the limitation period during the COVID-19 pandemic. Further, a period of 90 days is allowed after 28.02.2022 vide same order. When the matter was confronte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany was not open to leasing out plant and machinery. (iii) Assessee has shown loss under the head profit and gains of business and profession and AO had never disputed this fact. (iv) Citing some case laws assessee says that it is not necessary that business carried out in the following previous year should be the same as it was carried on in the preceding years. (v) Assessee was never out of business for ever and there was a passive use of plant and machinery. (vi) Plant and machinery includes all types of machinery including machinery installed at office of the appellant, as also vehicles used by appellant for its business. (vii) While allowing depreciation under the provisions of Income-tax Act, bifurcation of block of asset is not permitted under the Act. (viii) Depreciation cannot be disallowed for the entire block, bifurcating one item from the block on the ground that it is ineligible asset for claim of depreciation. 5. In the course of the first appellate stage, assessee also placed reliance on the decision of Coordinate Bench of ITAT, Mumbai in the case of DCIT v. Boskalis Dreadging India Pvt. Ltd. 53 SOT 17 (Mum) to assert tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lock of assets shall be the aggregate of the W.D.V of all the assets falling within that block of assets at the beginning of the previous year. From this, the adjustments have 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. 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 prescribed. Thus, the depreciation is allowed on block of assets, and the Revenue cannot segregate a particular asset there from on the ground that it was not put to use. 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. We take note of the Circular issued by the Revenue itself explaining the purpose behind the amended provision. The same i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee 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). This amendment also strengthened the claim that now only details for block of assets has to be maintained and not separately for each asset. In CIT Vs.Oswal Agro Mills Ltd (2011) 341 ITR 467 (Del) wherein their Lordship Justice A.K.Sikri (his Lordship then was ) has analysed the aforesaid law in detail and took into consideration the legislative intent which led to the aforesaid amendment. Therefore, his Lordship did not accept the submission of 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 Repelling this argument of Revenue, their Lordship in his own words held 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibed. 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 23-9-1086, wherein the rationale behind the aforesaid amendment is described [Para 30]. 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 asset was time consuming both for the assessee and the Assessing Officer. Therefore, it 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 [Para 31]. 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) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business which is not likely to be revived has held as under: c. On further appeal to the Tribunal the impugned order held that the refining machinery was a part of the block of assets of plant and machinery. In such a case depreciation is granted to the entire block of assets whether or not an individual item therein has been used during the subject assessment year. In support the impugned order placed reliance upon on its decision in the case of DCIT Vs. Boskalis Dredging India (P) Ltd. 53 SOT 17 (Mum) wherein it has been held that once the concept of block of assets was brought into effect from assessment year 1989-90 onwards then the aggregate of written down value of all the assets in the block at the beginning of the previous year along with additions made to the assets in the subject Assessment Year depreciation is allowable. The individual asset looses its identity for purposes of depreciation and the user test is to be satisfied at the time the purchased Machinery becomes a part of the block of assets for the first time. In the circumstances the respondent s appeal was allowed and the disallowance of depreciation was deleted. d. Mrs. Bharucha, learned Counsel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and machinery have to be simultaneously used for being entitled to depreciation. 25. Therefore, following the aforesaid judgments since the assets of M/s.MSL after amalgamation have become assets of assessee company by operation of Law it falls in to the Block of assets of the assessee company from 01.04.2009 and though such assets, non-functional, yet they cannot be segregated and depreciation has to be allowed taking the first year as AY 2010-11 onwards and WDV to be calculated for AY 2012- 13 as discussed above and we order the AO to calculate the WDV accordingly and allow the same in accordance to law. Grounds 6, 7 and 8 for AY 2012-13 are therefore stands allowed. 7.2 Ld. Counsel also placed reliance on the decision of Coordinate Bench of ITAT, Delhi in the case of Pawan Hans Helicopters Ltd. v. DCIT in ITA No. 419/Del/1994 dated 14.07.2021 wherein also the similar issue was addressed and held in favour of the assessee. 8. Per contra, Ld. Sr. DR placed strong reliance on the decision of Ld. CIT(A) and referred to the judicial precedents dealt in the same. 9. We have heard the rival contentions, perused the material available on record and gone through the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 of 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. 10.1 Thus, once an asset is part of the block of assets and depreciation is granted on that block, it cannot be denied in subsequent years on the ground that one of the assets is not used by the assessee in some of the years. The concept of user of assets has to apply on the block of assets as a whole instead of an individual asset. 11. We further note that an explanation was inserted in sub-section (1) of section 32 of the Act by Finance Act, 2001 w.e.f. 01.04.2002 which is reproduced as under: Explanation 5. for the removal of doubts, it is hereby declared that the provisions of this sub-section shall apply whether or not the assessee has claimed the deduction in respect of depreciation in computing his total income. 11.1 The notes to clauses as mentioned in Fina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... portant to note that once it is found that the assets are used for business, it is not necessary that all the items falling within that particular block of assets had to be simultaneously used for being entitled to depreciation. In the present case, we note that assessee submitted that it has changed its business model from manufacturing to trading in tea though no sale or manufacturing of tea happened during the year under consideration. Ld. AO also noted that the machineries might have been tested and maintained to keep it ready to dispose off as per the approval granted by the shareholders, fact of which is noted in the Director s report referred above. In the Director s report, assessee had also submitted that it was open for the assessee to lease out the plant and machinery. All these reflect the intention of the assessee which are in the nature of passive use of the assets on which depreciation has been claimed. 12.3 We also note that the case laws on which ld. CIT(A) has placed reliance do not cover the case of the assessee. Ld. CIT(A) placed reliance on the decision of Hon ble Jurisdiction High Court of Calcutta in the case of CIT v. Oriental Coal Co. Ltd. (1994) 206 ITR ..... X X X X Extracts X X X X X X X X Extracts X X X X
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