The Tax Publishers2012 TaxPub(DT) 1642 (Del-HC) : (2012) 045 (I) ITCL 0340

INCOME TAX ACT, 1961

--Depreciation--AllowabilityAsset kept ready for use--AO disallowed the claim of depreciation on the ground that plant and machinery was not actually used for the purpose of the assessee's business during the relevant previous year. Assessee contend that plant and machinery were kept ready for use once the business revived and such passive use also amounted to use of the asset within the meaning of section 32. Tribunal allowed the claim of depreciation and found that assessee had not closed its business and had every intention to revive the same. Held: Plant and machinery and other assets on which depreciation was claimed was kept ready for use and accordingly the depreciation was allowable under section 32.

Even if the plant and machinery or other asset was kept ready for use in the assessee's business, the assessee would be entitled to depreciation. The only condition is that the business should not have been closed down once for all and that the assessee should demonstrate that the hopes of the business being revived were alive and real. It was however not a matter that can turn entirely on the assessee's hopes alone. There should be evidence or material to show that the assessee took efforts to keep the business alive in the hope of reviving the same. Maintaining the office and establishment, complying with the statutory formalities, not disposing of the plant and machinery, incurring expenses on the repair of plant and machinery, etc., are some of the indications of nurturing the hopes of reviving the business. The above are only illustrative instances and are by no means exhaustive and the question as to whether the assets were kept ready for use in the business was largely to be decided on the facts and circumstances of each case. [Para 9]

Income Tax Act, 1961, Section 32

IN THE DELHI HIGH COURT

SANJIV KHANNA & R.V. EASWAR, JJ.

CIT v. Integrated Technologies Ltd.

ITA No. 530/2011

A.Y. 2004-05

16 December, 2011

Income Tax Act, 1961, S. 32

Decision: In assessees favour.

Appellantby : Kamal Sawhney, with Amit Shrivastava, Advocate,

ORDER

This is an appeal filed by the revenue under section 260A of the Income Tax Act, 1961 ('Act', for short) against the order dt. 30-4-2010 passed by the Income Tax Appellate Tribunal ('Tribunal', for short), Delhi Bench 'C' in ITA No. 1559/Del./2008 in respect of the assessment year 2004-05.

2. The assessee is a company. It filed a return of income on 18-10-2004 declaring a loss of Rs. 4,85,08,380. The return was processed under section 143(1) of the Act but was subsequently picked up for scrutiny and notice under section 143(2) was issued. In the course of the assessment proceedings, the assessing officer noticed that though the assessee has debited expenses amounting to Rs. 4,82,93,278 to the profit and loss account, no business was done in the relevant previous year and there were no purchases or sales or manufacturing activities carried on by the assessee. He further noted that the expenses debited above included depreciation, bad debts, raw material stock written off and administrative expenses. According to the assessing officer the expenses were not allowable in computing the business income of the assessee because no business activities were carried on in the relevant previous year. He therefore, proposed to disallow the expenditure claimed by the assessee. In response thereto, the assessee submitted that the administrative expenses were statutory in nature and not related to any business carried on by the assessee and such expenses as were incurred for complying with the legal and statutory requirements under various laws were allowable as deduction.

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