Depreciation can’t be disallowed if business assets are ready for use despite market conditions

Case Details: Sambhav Energy Ltd. v. ACIT - [2023] 148 taxmann.com 210 (Jodhpur-Trib.)

Judiciary and Counsel Details

• • B.R. Baskaran, Accountant Member & Sandeep Gosain, Judicial Member
  • Amit Kothari, (CA) for the Appellant.
  • Smt. Alka Rajvanshi Jain, CIT-DR for the Respondent.

Facts of the Case

Assessee-company engaged in the business of generation and sale of electricity. While filing the return of income, assessee claimed depreciation on the business assets. During the assessment proceedings, the Assessing Officer (AO) noticed that the assessee had not carried out any business activity in the relevant assessment year.

In response, assessee submitted that it had stopped business activity since the production became unviable as the sale price was less than its manufacturing cost. Considering that the assessee had no intention to carry on the business activity, AO disallowed the depreciation claim and made additions to the income of assessee.

On appeal, the CIT(A) confirmed the additions made by the AO, and the matter reached Jodhpur Tribunal.

ITAT Held

The Tribunal held that the assessee had not completely stopped the business as presumed by the tax authorities. Though the AO stated that the assessee did not start business activities in the subsequent years also, it was not shown that the electricity generation business was completely abandoned.

In the instant case, the assessee kept the assets ready for use, and it was expecting only a favourable market situation. Assessee may revive its business when the market position turns favourable. Further, the business establishment was properly maintained, and it was generating other types of income. Therefore, the additions made by the AO were deleted.

List of Cases Reviewed

• • CIT v. Swarup Vegetable Products India Ltd. [2005] 145 Taxman 253/277 ITR 60 (All.)
  • National Thermal Power Corpn. Ltd. v. CIT [2012] 28 taxmann.com 89/211 Taxman 505/[2013] 357 ITR 253 (Delhi) (para 14) followed.

List of Cases Referred to

• • CIT v. Geo Tech Construction Corpn. [2000] 112 Taxman 373/244 ITR 452 (Ker.) (para 10)
  • National Thermal Power Corpn. Ltd. v. CIT [2012] 28 taxmann.com 89/211 Taxman 505/[2013] 357 ITR 253 (Delhi) (para 10)
  • CIT v. Swarup Vegetable Products India Ltd. [2005] 145 Taxman 253/277 ITR 60 (All.) (para 10)
  • CIT v. Refrigeration & Allied Industries Ltd. [2000] 113 Taxman 103/[2001] 247 ITR 12 (Delhi) (para 10)
  • CIT v. Oswal Woollen Mills Ltd. [2007] 289 ITR 261 (Punj. & Har.) (para 10)
  • Dy. CIT v. Ashik Woollen Mills [2017] 80 taxmann.com 357/164 ITD 331 (Mum.) (para 11).