Depreciation allowable even on assets of discontinued business – Hyderabad ITAT


DCIT Vs M/s Coromandal Bio Tech Industries (I) Ltd [ITA No.287/Hyd/2007] Hyderabad ITAT

Facts of the case

The Assessee company for the AY 2001-02 and 2002-03, filed its return of income declaring loss after claiming depreciation on Ponds and Plant & Machinery business of which is discontinued long back. The Assessing Officer observed that the claim of depreciation was not proper and the assessment was reopened u/s 147. In the reassessment, the AO disallowed and added back the depreciation on ponds and plant & machinery.

Similarly, for the AY 2003-04 and 2004-05, on the grounds the business of prawn and shrimp farming had been apparently discontinued, the AO held that the assets were not put to use and the assessee was not entitled to depreciation on ponds and plant & machinery.

Assessee’s contentions

  • As per section 43(6)(c) (b), the WDV of all assets falling within that block of assets at the beginning of the previous year as reduced by money 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 scrap value if any, so however, that the amount of such reduction does not exceed the written down value.
  • Since no money has become payable in respect of such asset they continue to form part of the block of assets and once the assets enter into the block of assets, depreciation on the block should be allowed.
  • Assessee relied on CBDT Circular No.469 dated 23rd Sept. 1986 issued at the time of insertion of block system of depreciation by the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986.

HELD:

  • Use of individual asset for the purpose of business can be examined only in the first year the asset is purchased. In subsequent years when use of block of assets is to be examined, existence of individual asset in block of assets itself amounts to use for the purpose of business.
  • Once an asset is included in the block of assets it remains in block for its entire life
  • Reliance is placed on the coordinate Bench of the Tribunal in the case of Natco Exports Vs. Dy.CIT (86 ITD 445) (Hyd.)
  • In the result, the appeals filed by the Revenue are dismissed.

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