Assets of closed business unit not entitled for dep. if Co. making effort to sell them to clear financial dues: ITAT

Case Details: Triveni Glass Ltd. v. ITO - [2022] 134 taxmann.com 212 (Allahabad - Trib.)

Judiciary and Counsel Details

• • Vijay Pal Rao, Judicial Member and Ramit Kochar, Accountant Member
  • Ms. Tanu Singhal, CA for the Appellant. 
  • A.K. Singh, Sr. DR for the Respondent.

Facts of the Case

The assessee company was engaged in manufacturing glass, and it had two manufacturing units. It had claimed depreciation under section 32 on its assets.
The Assessing Officer (AO) observed that one of the two units was closed for several years, and its fixed assets were also not put to use or business in the year under consideration. Accordingly, he disallowed said claim to 30 per cent of total depreciation claimed by the assessee in respect of assets of said closed unit.

On appeal, the Commissioner (Appeals) also upheld the order passed made by the Assessing Officer. Aggrieved-assessee filed the instant appeal before the Tribunal.

ITAT Held

The Tribunal held that one of assessee’s manufacturing units was lying closed for several years. The director’s report discovered that the assets of said manufacturing unit were not being used during the year; both active use and passive use were not there.
Further, the assessee was trying to sell the plant and machinery at the manufacturing unit to clear its financial liabilities, as the assessee was registered as a sick company with BIFR.
Thus, the revenue had rightly denied the depreciation of the assets at the manufacturing unit.

Case Review III

• • Addl. CIT v. Nortel Networks India (P.) Ltd. [IT Appeal No. 504 (Del.) of 2017, dated 23-7-2020]
  • General Motors India (P.) Ltd. v. Dy. CIT [2012] 25 taxmann.com 364/210 Taxman 20 (Mag.) [2013] 354 ITR 244 (Guj. HC) dated 23-8-2012
  • CIT v. KMC Specialty Hospitals India (P.) Ltd. [2021] 130 taxmann.com 215/283 Taxman 13/436 ITR 534 (Madras HC), dated 6-7-2021
  • Pr. CIT v. Petrofils Co-operative Ltd. [2021] 130 taxmann.com 191/282 Taxman 319/431 ITR 501 (SC), dated 28-1-2021
  • Pr. CIT v. Petrofils Co-operative Ltd. [2021] 130 taxmann.com 190 (Guj.) (para 21.1)

Case Review IV

• • Swati Synthetic Ltd. v. ITO [2010] 38 SOT 208 (Mum.)
  • CIT v. Visvanath Bhaskar Sathe [1937] 5 ITR 621(Bom.);
  • Gulati Saree Centre v. Asstt. CIT [1999] 71 ITD 73 (Chd. SB)
  • Singla Agencies v. Asstt. CIT [1997] 60 ITD 410 (Chd. Trib.) (para 21.1)

List of Cases Referred to

• • Collector Land Acquisition v. Mst. Katiji 1987 taxmann.com 1072 (SC) (para 2)
  • CIT v. Vishnu Industrial Gases [ITR No. 229 of 1988, dated 6-5-2008] (Para 6)
  • ACIT v. NBCC Ltd. [IT Appeal No. 5870 (Delhi) of 2010, dated 8-4-2016] (para 6)
  • Addl. CIT v. Nortel Networks India (P.) Ltd. [IT Appeal No. 504 (Delhi) of 2017, dated 23-7-2020] (para 14)
  • General Motors India (P.) Ltd. v. Dy. CIT [2012] 25 taxmann.com 364/210 Taxman 20 (Mag.)/[2013] 354 ITR 244 (Guj.) (para 14)
  • CIT v. KMC Specialty Hospitals India (P.) Ltd. [2021] 130 taxmann.com 215/283 Taxman 13/436 ITR 534 (Mad.) (para 14)
  • Pr. CIT v. Petrofils Co-operative Ltd. [2021] 130 taxmann.com 191/282 Taxman 319/431 ITR 501 (SC) (para 14)
  • Pr. CIT v. Petrofils Co-operative Ltd. [2021] 130 taxmann.com 190/282 Taxman 319/431 ITR 501 (Guj.) (para 14)
  • Swati Synthetic Ltd. v. ITO [2010] 38 SOT 208 (Mum.) (para 20)
  • CIT v. Visvanath Bhaskar Sathe [1937] 5 ITR 621(Bom.) (para 20)
  • Gulati Saree Centre v. Asstt. CIT [1999] 71 ITD 73 (Chd.) (SB) (para 20.3)
  • Singla Agencies v. Asstt. CIT [1997] 60 ITD 410 (Chd. – Trib.) (para 20.3).