CIT vs. Sonic Biochem Extractions Pvt. Ltd (Bombay High Court)

The assessee claimed depreciation in respect of its machinery valued at Rs.16.96 lacs which was used in its business of refining edible oil. The machinery had not been used during the assessment year as the respondent has discontinued its business of refining edible oil. The above depreciation was claimed on the block of assets on the written down value including the refining edible oil machinery. The Assessing Officer disallowed the claim of depreciation on the ground that one of the twin requirements of ownership and user under Section 32(1)(ii) of the Act viz. user was not satisfied. On appeal the Commissioner of Income Tax (Appeals) held that in the absence of the Machinery being put to use and the business of Refining edible oil having been discontinued, the assessee is not entitled to depreciation. On further appeal, the Tribunal held that the refining machinery was a part of the block of assets of plant and machinery. In such a case depreciation is granted to the entire block of assets whether or not an individual item therein has been used during the subject assessment year. On appeal by the department to the High Court HELD dismissing the appeal:

Once the concept of block of assets was brought into effect from assessment year 1989-90 onwards then the aggregate of written down value of all the assets in the block at the beginning of the previous year along with additions made to the assets in the subject Assessment Year depreciation is allowable. The individual asset loses its identity for purposes of depreciation and the user test is to be satisfied at the time the purchased Machinery becomes a part of the block of assets for the first time (DCIT Vs. Boskalis Dredging India (P) Ltd. 53 SOT 17 (Mum) & G. R. Shipping Ltd Income Tax Appeal No. 598 of 2009 dated 20.07.2008 referred)