By C. N. Vaze
Shailesh Kamdar
Jagdish T. Punjabi
Chartered Accountants
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58 2010 TIOL 78 ITAT MUM
Swati Synthetics Ltd. vs ITO
A.Y.: 2001-02. Date of order: 17.12.2009
Block of assets, s. 32, 38(2) — Under the scheme of block of
assets, (i) Depreciation cannot be disallowed on the ground that some of the
assets contained in the block have not been used for the purpose of the
business; (ii) the user of an individual asset for the purpose of business needs
to be examined only in the first year when the asset is purchased; (iii)
existence of individual assets in the block itself amounts to use for the
purpose of business. However, proportionate disallowance of depreciation can be
made if an individual asset contained in the block has been used for purposes
other than business.
Facts:
The assessee was carrying on two businesses with one division
at Dombivli and the other in Surat. Though the Surat division had closed down,
the assessee continued to claim depreciation on its assets. The Assessing
Officer (AO) disallowed the proportionate amount of depreciation attributable to
the assets of the Surat division, on the ground that the assets of the Surat
division were not used for the purpose of business. Aggrieved, the assessee
preferred an appeal to the CIT(A), who confirmed the action of the AO.
Aggrieved, the assessee preferred an appeal to the Tribunal.
Held:
The Tribunal discussed in detail the meaning of the term
`depreciation’, considered various statutory provisions which have been amended
consequent to the insertion of the concept of block of assets and also Circular
No. 469, dated 23rd September, 1986 issued by CBDT. It also considered various
judicial pronouncements, examined the principle of commercial expediency and
also examined in detail how the scheme of depreciation on block of assets works,
and held as follows:
(i) Depreciation allowance u/s 32 is a statutory allowance
not confined expressly to diminution in value of the asset by reason of wear
and tear;
(ii) Main objective of introducing the block of assets
concept was only to reduce time and effort spent in detailed record
maintenance;
(iii) If the asset has neither been used for business nor
for non-business purposes, but remained in block of assets, the provisions of
S. 38(2) are not applicable;
(iv) The ratio of the decision of the SB of the Chandigarh
Tribunal in the case of Gulati Saree Centre vs ACIT 71 ITD 73 (Chd)(SB) does
not apply to the present case, since in the case before the SB, the cars owned
by the assessee firm were being used for personal purposes by the partners,
whereas in the present case, assets remained in block of assets and were not
used for non-business purposes like personal use, etc.;
(v) The condition/requirement `used for the purpose of
business’, as provided in s. 32(1) for the concept of depreciation on block of
assets can be summarized as: (a) Use of individual asset for the purpose of
business can be examined only in the first year when the asset is purchased;
(b) In subsequent years, use of block of assets is to be examined. Existence
of individual assets in the block of asset itself amounts to use for the
purpose of business;
(vi) The judgment of the Bombay High Court in the case of
Dineshkumar Gulabchand Agarwal vs CIT & Anr 267 ITR 768 (Bom) is not
applicable to the facts of the present case, since the issue in the case under
consideration is whether under the facts and circumstances of the case, the
assessee is entitled to depreciation on the assets of the closed unit. The
decision of the Bombay High Court has been distinguished by the ITAT in the
case of G R Shipping Ltd (ITA No. 822/Mum/05 order, dated
17.7.2008)(2008-TIOL-729-ITAT-Mum) by observing that in that case, the asset
in question was not at all put to use.
