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Monday, 21 September 2015 16:49

Section 32 - Depreciation on Plant & Machinery installed and ready for use is entitled for depreciation and will be considered as used for the purpose of the assessee's business - Delhi High Court

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Plant and Machinery installed and ready for use will qualify for depreciation u/s 32. Asset will be considered as used for the purpose of the business.


1. Assessee is a registered firm carrying on business of manufacturing bag stitching machines in a factory situated at Noida since 1981

2. In the year 1987 the Assessee applied for and was allotted plot No. A-11, Sector-57, Noida

3. It constructed a factory building thereon in the accounting year ending 31st March 1989 (AY 1989-90) and the cost of the factory building was Rs. 9,77,775.58. Machinery worth Rs. 1,10,825 was installed in the said factory (styled Unit II) in the previous year 1989-90

4. The Assessing Officer while framing assessment under Section 143 (3) of the Act noted that the Assessee had claimed depreciation of Rs. 1,97,458 in the AY 1990-91

5. The AO disallowed the above claim of depreciation on the ground that (i) no sales have been made from Unit-II; (ii) purchases made for Unit-II are only Rs. 361.70; (iii) no expenses under any head have been claimed; (iv) all the wages payments and official documents showed that no manufacturing activity took place; (v) no separate staff was engaged and (vi) no power bill has been received. The AO held that the Assessee failed to prove that it had undertaken any manufacturing activity during the AY in question

6. The CIT (A) allowed the depreciation and came to the conclusion that the assets were kept ready for actual use and were profit making apparatus

7. Aggrieved with the above order of the CIT (A), the Revenue went in appeal before the ITAT

8. The ITAT referred to the decision of the Supreme Court in Federation of Andhra Pradesh Chambers of Commerce and Industry v. State of Andhra Pradesh [2001] 247 ITR 36 (SC) and concluded that “in order to claim depreciation, it is important, inter alia, that the asset must be actually used for the purpose of business.”

9. Accordingly, it was held that “the CIT (A) was not justified in granting depreciation.”

10. Assessee moved to the High Court and following question was framed -

“Whether the Tribunal was correct in law in holding that the Assessee-firm was not entitled to depreciation claimed by it in respect of Unit-II?”

11. High Court after hearing assessee decided the issue in favour of assessee and against the revenue


The Court in of the view that the installation of the plant and machinery in the building would amount to use of the building so as to justify the claim for depreciation on the building. Further, the plant and machinery installed in the building during AY 1989-90 was ready for use for the purpose of business of the Assessee. Therefore, it is concluded that the building and machinery in Unit II were used for the purpose of the business of the Assessee during the AY in question.

Cases referred to

1. Federation of Andhra Pradesh Chambers of Commerce and Industry v. State of Andhra Pradesh [2001] 247 ITR 36 (SC)

2. National Thermal Power Corporation Limited v. Commissioner of Income Tax (2013) 357 ITR 253 (Del)

3. Whittle Anderson Ltd. v. CIT (1971) 79 ITR 613 (Bom)

4. CIT v. Yamaha Motor India Pvt. Ltd. (2010) 328 ITR 297 (Del)

5. CIT v. Vayithri Plantations Ltd. (1981) 128 ITR 675 (Mad)

6. CIT v. Refrigeration and Allied Industries Ltd. (2001) 247 ITR 12 (Del)

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Read 15722 times Last modified on Saturday, 13 February 2016 15:35

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