IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH I, MUMBAI BEFORE SHRI A.L. GEHLOT, A.M. AND SMT. ASHA VIJAYAR AGHAVAN, J.M. ITA NO. 1165/M/2006 ASSESSMENT YEAR: 2001-02 M/S SWATI SYNTHETICS LTD., APPELLANT 405, SONA CHAMBERS, 507/509, J.S.S. ROAD, CHIRA BAZAR, MUMBAI 400 002. (PAN AAACS5874K) VS. INCOME TAX OFFICER, RESPONDENT 4(3)(4), MUMBAI APPELLANT BY : MR. VIPUL JOSHI RESPONDENT BY : MR. DIWANHAR PRASAD ORDER PER A.L. GEHLOT, A.M. THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF CIT(A) XIV, MUMBAI PASSED ON 18.11.2005 FOR THE ASSESSMENT YEAR 2001-02. 2. THE SOLE GROUND RAISED IN THE APPEAL IS IN RESPE CT OF DISALLOWANCE OF PROPORTIONATE DEPRECIATION OF RS. 7 ,27,249/- ON ACCOUNT OF CLOSE OF ONE UNIT OUT OF TWO UNITS OF TH E ASSESSEE. 3. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSES SEE WAS CARRYING ON TWO BUSINESSES HAVING ONE DIVISION AT D OMBIVILI AND THE OTHER AT SURAT. DIVISION AT SURAT WAS MEANT FOR YARN TEXTURISING IN THE NAME AND STYLE OF M/S SWATI POLYESTER AND DI VISION AT DOMBIVILLI CARRIED ON THE BUSINESS OF DYEING BY THE NAME OF SWATI DYEING. THE DIVISION OF SURAT HAD BEEN CLOSED SINCE TWO/THREE YEARS. THE AO NOTICED THAT THE ASSESSEE HAD CLAIMED DEPRECIATION ON THE ASSETS OF SURAT DIVISION, WHICH WAS CLOSED. THE DISALLOWED THE CLAIM OF DEPRECIATION OF THE ASSESSEE AND THE S AME HAS BEEN CONFIRMED BY THE CIT(A) OBSERVING THAT THE ASSETS W ERE NOT USED ITA NO. 1165/M/06 M/S SWATI SYNTHETICS LTD . 2 DURING THE RELEVANT ACCOUNTING YEAR AS THE DIVISION AT SURAT WAS CLOSED. 4. THE LEARNED AR SUBMITTED THAT AFTER INSERTION OF BLOCK SYSTEM FOR ALLOWING DEPRECIATION, THE DEPRECIATION IS ALLOWABLE ON ENTIRE BLOCK EVEN SOME OF THE ASSETS OF BLOCK HAVE NOT BEEN USED. THE LEARNED AR DREW OUR ATTENTION ON CBDT CIRCULAR NO. 469, DATED 23 RD SEPTEMBER, 1986, WHICH HAS BEEN ISSUED BY THE CBDT AT THE TIME OF INSERTION OF BLOCK SYSTEM OF DEPRECIATI ON BY THE TAXATION LAWS (AMENDMENT AND MISCELLANEOUS PROVISIO NS) ACT, 1986. 4.1 THE LEARNED AR FURTHER SUBMITTED THAT BY NEW SC HEME FOR ALLOWING DEPRECIATION FROM AY 1989-90, SECTION 43(6 ) HAS BEEN INSERTED WHICH PROVIDES THAT DEPRECIATION SHALL BE WORKED OUT ON WDV AS PER THE ABOVE SECTION. THE LEARNED AR FURTHE R SUBMITTED THAT THE WORK USED APPEAR IN SECTION 32 MEAN THE USE OF BLOCK AS A WHOLE NOT AN INDIVIDUAL ASSET. IN SUPPORT OF HIS CONTENTION, THE LEARNED AR HAS RELIED UPON THE FOLLOWING DECISIONS: - 1. PACKWELL PRINTERS VS. ACIT [1996] 59 ITD 390 [J AB.] 2. DCIT VS. FINOLEX CABLES LTD. [2008] 114 TTJ (PU NE) 785 3. UNITEX PRODUCTS LTD. V. ITO [2008] 22 SOT 429 ( MUM.) 4. NATHANI STEELS LTD., V. DCIT [1996] 57 ITD 584 (BOM.) 5. SOUTH EASTERN COALFIELDS LTD. V. JCIT [2003] 260 ITR (AT) 1 (NAG.) 6. INDUCTOTHERN (INDIA) LTD. V. DCIT, [2003] 73 ITD 329 (AHD.) 7. NATCO EXPORTS V. DCIT [2003] 86 ITD 445 (HYD). 8. ACIT V. SRF LTD. [2008] 21 SOT (DEL.) 122 9. GOETX (INDIA) LTD. V. DCIT, [2008] 25 SOT 171 (D EL.) 5. THE LEARNED DR ON THE OTHER HAND RELIED UPON THE ORDER OF CIT(A) AND SUBMITTED THAT THE WORDS INTENSITY OF U SE ETC, MENTIONED IN THE CIRCULAR NO. 469 (SUPRA) MEANS THE RE MUST BE SOME USE THAT DOES NOT MEAN THAT ASSETS NOT TO USE AT ALL ARE ELIGIBLE FOR DEPRECIATION. THE LEARNED DR FURTHER S UBMITTED THAT SECTION 43(6) PROVIDES METHODOLOGY OF CALCULATION O F DEPRECATION ITA NO. 1165/M/06 M/S SWATI SYNTHETICS LTD . 3 WHEREAS THE BASIC REQUIREMENT OF SECTION 32 IS THAT THE ASSET MUST BE USED FOR THE PURPOSE OF BUSINESS. THE LEARNED DR SUBMITTED THAT WHILE INTERPRETING THE REVENUE STATUTES REQUIR E RATIONAL CONSTRUCTION TO ACHIEVE THE INTENTION OF THE LEGISL ATION. STRICTLY LITERAL CONSTRUCTION LEADS TO ABSURD RESULTS, WHICH IS NOT INTENDED TO BE SUB SERVED BY THE OBJECT OF THE LEGISLATION. THE LEARNED DR SUBMITTED THAT THE LEGISLATURE WAS NEVER INTENDED I F THE ASSETS ARE NOT USED FOR THE PURPOSE OF BUSINESS, DEPRECIATION IS ALLOWABLE. THE LEARNED DR RELIED UPON THE FOLLOWING DECISIONS FOR HIS CONTENTIONS:- 5.1 COMMISSIONER OF INCOME-TAX J.H. GOTLA, 156 IT R 323 [1985] 23 TAXMAN 14 (SC) WHEREIN THE APEX COURT LAY DOWN THE RULE OF INTERPRETATION OF A STATUTORY PROVISION. 5. 2. COMMISSIONER OF INCOME-TAX V. UDAIPUR MINERAL DEVELOPMENT SYNDICATE (P.) LTD. 269 ITR 263 [2003], 132 TAXMAN 139 (RAJ.) WHEREIN IT WAS HELD THAT WHEN MACHINERY IN QUESTION WAS NOT PUT TO USE IN YEAR UNDER CONSIDERATION, ASS ESSMENT YEAR 1984-85 EVEN FOR A DAY AND BUSINESS REMAINED CLOSED , THEREFORE DEPRECIATION WAS NOT ALLOWABLE. 5.3 COMMISSIONER OF INCOME-TAX V. MAPS TOURS AND T RAVELS 260 ITR 655 [2004] 141 TAXMAN 38 (MAD.)- SHORT NOTE--SE CTION 32 OF THE INCOME-TAX ACT, 1961 - DEPRECIATION - ALLOWANCE/RAT E OF - ASSESSMENT YEAR 1989-90 - WHETHER WHERE ASSESSEE BO UGHT CARS ON LAST DAY OF ACCOUNTING YEAR AND HAD NOT REGISTERED SAME FOR BEING BROUGHT ON ROADS AND THERE BEING NO EVIDENCE OF ASS ESSEE HAVING USED SAID CARS BEFORE END OF ACCOUNTING YEAR, IT WA S NOT ENTITLED TO DEPRECIATION IN RESPECT OF THOSE VEHICLES - HELD, Y ES. 5.4 DINESH KUMAR GULABCHAND AGRAWALV.COMMISSIONER OF INCOME-TAX 267 ITR 768 [2004] 141 TAXMAN 62 (BOM.)- SHOT NOTE-- VEHICLE, KEPT READY FOR USE, BUT NOT ACTUALLY USED, IS NOT ENTITLED TO DEPRECIATION SECTION 32 OF THE INCOME-TAX ACT, 1961 - DEPRECIATION - ALLOWANCE/RATE OF - WHETHER WORD USED DENOTES A CTUALLY USED FOR PURPOSES OF BUSINESS AND NOT MERELY READY FOR U SE - HELD, YES - ITA NO. 1165/M/06 M/S SWATI SYNTHETICS LTD . 4 WHETHER WHERE VEHICLE WAS NOT ACTUALLY USED, BUT IT WAS KEPT READY FOR USE, ASSESSEE WAS NOT ENTITLED TO CLAIM THE BEN EFIT OF DEPRECIATION ON SUCH ASSETS - HELD, YES. 6. AFTER HEARING THE CASE, IT HAS COME TO THE NOTICE THAT THERE IS A DECISION OF ITAT SPECIAL BENCH, CHANDIGA RH IN THE CASE OF GULATI SAREE CENTRE, [1999] 71 ITD 73 (CHD)(SB) ON THE ISSUE. THEREFORE, THE CASE WAS RE FIXED TO HEAR TO BOTH T HE SIDES ON THE ISSUE. 6.1 THE LEARNED AR REITERATED ITS SUBMISSIONS , WHICH WERE MADE EARLIER AND SUBMITTED THAT IN AY 2006-07, THE ASSESSEE HAS SOLD ASSETS OF THE UNIT-II AND SHOWN SHORT TIME CAP ITAL GAINS CALCULATED IN ACCORDANCE WITH SECTION 50 OF THE ACT . THE SHORT TERM CAPITAL HAS BEEN ACCEPTED BY THE DEPARTMENT U/S 143 (1)(A) OF THE ACT. HE FURTHER SUBMITTED THAT IN AY 2002-03, 2003- 04 AND 2004- 05, THE ASSESSEE CLAIMED DEPRECIATION ON ASSETS OF UNIT-II AND THE SAME WERE ACCEPTED BY THE AO U/S 143(1)(A) OF THE A CT. HOWEVER IN 2005-06, THE AO WHILE MAKING ASSESSMENT U/S 143(3) OF THE ACT DISALLOWED THE DEPRECIATION FOLLOWING AY 2001-02. T HE LEARNED AR SUBMITTED THAT THE AO HAS ACCEPTED THE SHORT TERM C APITAL GAIN IN AY 2006-07, IT MEANS, THE AO HAS ACCEPTED THE ALLOW ANCE OF DEPRECIATION IN EARLIER YEARS ALSO. THE LEARNED AR SUBMITTED THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION OF IT AT IN ITA NO. 822/M/05 FOR AY 2001-02 IN THE CASE OF GR SHIPPING LTD. VIDE ORDER DATED 17 TH JULY, 2008 WHEREIN THE ITAT HAS CONSIDERED THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CA SE OF DINESHKUMAR GULABCHAND AGRAWAL VS. CIT, 267 ITR 768 (BOM.) AND HELD THAT THE SAID JUDGMENT IS NOT APPLICABLE TO TH E FACTS OF THE CASE AS IN THE PRESENT CASE THE ASSESSEE HAS ALREAD Y USED THE ASSET FOR THE PURPOSE OF BUSINESS. THE ASSET HAS ALREADY ENTERED THE BLOCK OF ASSETS. WHEREAS IN DINESHKUMAR GULABCHAND AGRAWAL VS. CIT, (SUPRA) THE ASSET IN QUESTION WAS NOT AT ALL P UT TO USE. THE LEARNED AR SUBMITTED THAT THE REVENUE FILED APPEAL AGAINST THE ORDER OF THE ITAT IN THE CASE OF GR SHIPPING LTD. B EFORE THE HON,BLE JURISDICTIONAL HIGH COURT VIDE INCOME TAX APPEAL NO . 598 OF 2001, ITA NO. 1165/M/06 M/S SWATI SYNTHETICS LTD . 5 WHICH HAS BEEN DISMISSED BY HONBLE JURISDICTIONAL HIGH COURT FOLLOWING THEIR EARLIER JUDGMENTS, NAMELY, WHITTLE ANDERSON LTD. V. CIT, [1971] 79 ITR 613 (BOM) AND CIT VS. G.N. AGRAW AL (INDIVIDUAL) 217 ITR 250, FOR WANT OF SUBSTANTIAL QUESTION OF LA W VIDE JUDGMENT DATED 28 TH JULY, 2009. IN OTHER WORDS, THE ORDER OF ITAT IN C ASE OF G.R. SHIPPING LTD. HAS BEEN UPHELD BY THE JURISDICT IONAL HIGH COURT. 6.2 THE LEARNED DR, ON THE OTHER HAND, RELIED UPON THE ORDER OF ITAT SPECIAL BENCH, CHANDIGARH IN THE CASE OF GULATI SAREE CENTRE V. ACIT AND SUBMITTED THAT INDIVIDUAL ASSETS IS IDENTIFIABLE AND ACCORDING TO SECTION 32 OF THE ACT USE OF THAT ASSETS FOR THE PURPOSE OF BUSINESS DURING THE YEAR IS MANDATORY. THE LEARNED DR SUBMITTED THAT THE DECISIONS CITED B Y THE LEARNED AR ARE CONTRARY TO THE DECISION OF ITAT AS THE SAME ARE NOT IN ACCORDANCE WITH THE DECISION OF ITAT SPECIAL BENCH. THE LEARNED DR SUBMITTED THAT THERE WERE TWO UNITS OF THE ASSES SEE, WHICH WERE HAVING COMMON MANAGEMENT; COMMON BOOKS OF ACCOUNT, COMMON FUNDS, THEREFORE, BOTH THE UNITS CONSTITUTE THE SAM E BUSINESS. WHEN THE ASSESSEE DID NOT USE THE ASSETS OF UNIT-II , THE ASSESSEE IS NOT ENTITLED TO DEPRECIATION. THE LEARNED DR IN SUP PORT OF HIS CONTENTION RELIED UPON THE JUDGMENT OF PATNA HIGH C OURT IN THE CASE OF CHHABIRANI AGRO INDUSTRIAL ENTERPRISES LTD . V. CIT, 191 ITR 226 (PAT.). THE LEARNED DR FURTHER SUBMITTED TH AT THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF DINESHKUM AR GULABCHAND AGRAWAL V. CIT & ANR, 267 ITR 768 (BOM.) HAS CLEARL Y HELD THAT USE IN SECTION 32 DENOTES ACTUALLY USED FOR THE P URPOSE OF THE BUSINESS. SINCE IN THE CASE UNDER CONSIDERATION, TH ERE WAS NO USE OF THE ASSETS, THEREFORE, DEPRECIATION HAS BEEN RIG HTLY DISALLOWED. 7 WE HAVE HEARD THE LEARNED REPRESENTATI VES OF THE PARTIES AND PERUSED THE RECORD AS WELL AS GONE THROUGH THE DECISIONS CITED. IN PRINCIPLE WE AGREE WITH THE RATIOS LAID DOWN IN THE DECISIONS CITED BY LEARNED D/R, AS THOSE DECISIONS HAVE BEEN DECIDED ON FACTS OF RESPECTIVE CASES AND UNDER THE CIRCUMSTANC ES WHERE THERE WAS NO CONCEPT OF DEPRECATION ON BLOCK OF ASSET. TH US THOSE ITA NO. 1165/M/06 M/S SWATI SYNTHETICS LTD . 6 DECISIONS ARE NOT APPLICABLE TO THE FACTS OF THE CA SE UNDER CONSIDERATION. AS REGARDS JUDGMENT CITED BY THE LEARNED DR IN THE CASE OF COMMISSIONER OF INCOME TAX. V. J.H. GOTLA, 156 ITR 323 [1985] 23 TAXMAN 14J (SC) WE FIND THAT THE RATIO OF THAT JUDGMENT HELPS THE ASSESSEE INSTEAD OF THE REVENUE. THE APEX COURT HELD THAT WHERE THE PLAIN LITERAL INTERPRETATION OF A STATUTO RY PROVISION PRODUCES A MANIFESTLY UNJUST RESULT WHICH COULD NEV ER HAVE BEEN INTENDED BY THE LEGISLATURE, THE COURT MIGHT MODIFY THE LANGUAGE USED BY THE LEGISLATURE SO AS TO ACHIEVE THE INTENT ION OF THE LEGISLATURE AND PRODUCE A RATIONAL CONSTRUCTION. TH E TASK OF INTERPRETATION OF A STATUTORY PROVISION IS AN ATTEM PT TO DISCOVER THE INTENTION OF THE LEGISLATURE FROM THE LANGUAGE USED . WE WILL TRY TO RESOLVE THE ISSUE UNDER CONSIDERATION BY APPLYING T HE ABOVE RULE OF INTERPRETATION. THE JUDGMENT HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF DINESHKUMAR GULABCHAND AGRAWAL V. CIT & ANR, 267 ITR 768 (BOM.) CITED BY THE LEARNED DR HAS BEEN D ISTINGUISHED BY THE ITAT OF IN THE CASE OF G.R SHIPPING LTD ITA NO 822/MUM/ 05 ORDER DATED 17.7.2008 OBSERVING THAT IN THAT CASE A SSET IN QUESTION WAS NOT AT ALL PUT TO USE. THE ISSUE IN THE CASE UNDER CONSIDERATION BEFORE US IS WHETHER UNDER THE FACTS AND CIRCUMSTAN CES OF THE CASE THE ASSESSEE ENTITLES TO DEPRECIATION ON THE ASSETS OF CLOSED UNIT. THE ASSESSEE WAS CARRYING ON TWO BUSINESSES HAVING ONE DIVISION AT DOMBIVILI AND THE OTHER AT SURAT. DIVISION AT SURAT WAS MEANT FOR YARN TEXTURISING IN THE NAME AND STYLE OF M/S SWATI POLYESTER AND DIVISION AT DOMBIVILLI CARRIED ON THE BUSINESS OF D YEING BY THE NAME OF SWATI DYEING. THE DIVISION OF SURAT HAD BEE N CLOSED. THE ASSETS PERTAIN TO THAT CLOSED UNIT REMAINED WITH TH E ASSESSEE. THE AO DISALLOWED THE ASSESSEES CLAIM ON THE GROUND TH AT THE ASSETS OF CLOSED UNIT WERE NOT USED FOR THE PURPOSE OF BUSINE SS. THE CONTENTIONS OF THE ASSESSEE ARE THAT THE ASSESSEE E NTITLES TO DEPRECIATION ON THE ASSETS OF CLOSED UNIT BECAUSE O F CONCEPT OF DEPRECIATION ON BLOCK OF ASSET. TO EXAMINE THE ISSU E FIRST WE WOULD LIKE TO DISCUSS WHAT IS MEANING OF DEPRECATION WHIC H IS AS UNDER:- 7.1 LIKE EVERY OTHER ANIMATE AND INANIMATE O BJECT, BUSINESS PREMISES, MACHINERY, PLANT OR FURNITURE EMPLOYED BY AN ASSESSEE IN ITA NO. 1165/M/06 M/S SWATI SYNTHETICS LTD . 7 THE COURSE OF HIS BUSINESS, PROFESSION, ETC., HAVE A LIMITED EFFECTIVE LIFE. THE VIGOR, STRENGTH, CAPABILITY, ETC., OF EVE RY SUCH OBJECT GRADUALLY EXHAUSTS BY THE FACTORS OF USE AND TIME. THESE HAVE UNDOUBTEDLY AIDED THE ASSESSEE TO EARN INCOME FRO M SUCH BUSINESS OR PROFESSION WHICH IS SUBJECTED TO THE LE VY OF TAX. UNLESS PROVISION WAS MADE FOR PROPER RECOMPENSE OF SUCH DI MINUTION IN THE VIGOUR, STRENGTH, CAPABILITY, ETC., THE APPAREN T PROFITS FROM THE BUSINESS, PROFESSION, ETC., WOULD NOT GIVE A CORREC T PICTURE. ALLOWANCE FOR DEPRECIATION IS BORNE OUT OF NECESSIT Y FOR SUCH RECOMPENSE. DEPRECIATION, ACCORDING TO WEBSTERS NEW WORLD DICTIONARY, MEANS A DECREASE IN VALUE OF PROPERTY THROUGH WEAR, DETERIORATION OR OBSOLESCENCE: THE ALLOWANCE MADE F OR THIS IN BOOK- KEEPING, ACCOUNTING ETC.,. DEPRECIATION IS THE INH ERENT DECLINE IN THE VALUE OF AN ASSET FROM ANY CAUSE WHATSOEVER (AS OBSERVED BY WILLIAM PICKLES IN ACCOUNTANCY, PAGE 74). DEPRECIAT ION IS THE DIMINUTION WHICH TAKES PLACE IN THE VALUE OF A WAST ING ASSET DESPITE THE AMOUNT EXPENDED ON IT IN REPAIRS (AS ST ATED IN THE BUSINESS ENCYCLOPEDIA, VOLUME II, PAGE 365). DEPREC IATION IS THE MEASURE OF THE EFFECTIVE LIFE OF AN ASSET OWING TO USE OR OBSOLESCENCE DURING A GIVEN PERIOD. THE OBJECT OF P ROVIDING FOR DEPRECIATION IS TO SPREAD THE EXPENDITURE INCURRED ON THE ASSET OVER ITS EFFECTIVE LIFE-TIME, AND THE AMOUNT WRITTE N OFF DURING AN ACCOUNTING PERIOD IS INTENDED TO REPRESENT THE PROP ORTION OF SUCH EXPENDITURE WHICH HAS EXPIRED DURING THE PERIOD (AS STATED BY SPICER AND PEGLER IN BOOK-KEEPING AND ACCOUNTS, 14T H EDITION, PAGE 47). FOR THE PURPOSES OF DETERMINING THE TRUE PROFI TS IN THE COMMERCIAL SENSE OR UNDER THE PROPER PRINCIPLES OF ACCOUNTANCY, THE WEAR AND TEAR OF THE ASSETS UTILISED BY THE ASS ESSEE FOR THE PURPOSE OF EARNING HIS PROFIT WILL HAVE TO BE CONSI DERED AND ALLOWANCE WILL HAVE TO BE MADE FOR WEAR AND TEAR. T HIS IS WHAT IS NOTIONALLY UNDERSTOOD AS DEPRECIATION. THE ALLOWABL E DEPRECIATION AMOUNT IS A CAPITAL LOSS TO THE DEPRECIABLE ASSETS WHICH MUST BE REPLACED FIRST TO GIVE A TRUE OR CORRECT PICTURE AS OTHERWISE THERE IS BOUND TO BE A DISTORTED PICTURE IN THE PROFIT AND L OSS ACCOUNT. THE DEPRECIATION AMOUNT IS TO BE TREATED AS A CHARGE ON THE PROFITS. THE PRINCIPAL FACTORS RESPONSIBLE FOR, REDUCTION IN VAL UE OF A CAPITAL ITA NO. 1165/M/06 M/S SWATI SYNTHETICS LTD . 8 ASSET AND, THEREFORE, RESPONSIBLE FOR DEPRECIATION ARE: (I) ORDINARY WEAR AND TEAR; (II) UNUSUAL DAMAGE; (III) INADEQUAC Y; AND (IV) OBSOLESCENCE. THESE FACTORS INCLUDE NOT ONLY THOSE RELATING TO PHYSICAL DETERIORATION BUT ALSO THOSE REFERRING TO THE SUITABILITY OF THE ASSET AS AN ECONOMICALLY PRODUCTIVE UNIT AFTER A PERIOD OF TIME. 7.2 NOW WE COME TO RELEVANT STATUTORY PROVISIO NS OF THE ACT WHICH ARE AS UNDER:- 7.2.1 SECTION 32 DEALS WITH DEPRECIATION WHICH READS AS UNDER:- DEPRECIATION. 32. (1) [IN RESPECT OF DEPRECIATION OF (I) BUILDINGS, MACHINERY, PLANT OR FURNITURE, BEIN G TANGIBLE ASSETS; (II) KNOW-HOW, PATENTS, COPYRIGHTS, TRADEMARKS, LI CENSES, FRANCHISES OR ANY OTHER BUSINESS OR COMMERCIAL RIGH TS OF SIMILAR NATURE, BEING INTANGIBLE ASSETS ACQUIRED ON OR AFTER THE 1ST DAY OF APRIL, 1998, OWNED, WHOLLY OR PARTLY, BY THE ASSESSEE AND USED FOR THE PURPOSES OF THE BUSINESS OR PROFESSION, THE FOLLOWI NG DEDUCTIONS SHALL BE ALLOWED] [(I).. (II) [ PROVIDED [***] THAT NO DEDUCTION SHALL BE ALLOWED UNDER THIS CLAUSE IN RESPECT OF (A) . (B) [ PROVIDED FURTHER THAT WHERE AN ASSET REFERRED TO IN CLAUSE (I) OR CLAUSE (II) [OR CLAUSE (IIA)], AS THE CASE M AY BE, IS ACQUIRED BY THE ASSESSEE DURING THE PREVIOUS YEAR A ND IS PUT TO USE FOR THE PURPOSES OF BUSINESS OR PROFESSI ON FOR A PERIOD OF LESS THAN ONE HUNDRED AND EIGHTY DAYS IN THAT PREVIOUS YEAR, THE DEDUCTION UNDER THIS SUB-SECTION IN RESPECT OF SUCH ASSET SHALL BE RESTRICTED TO FIFTY PER CENT OF THE AMOUNT CALCULATED AT THE PERCENTAGE PRESCRIBED FOR AN ASSET UNDER CLAUSE (I) OR CLAUSE (II) [OR CLAUSE (I IA)], AS THE CASE MAY BE :] [ PROVIDED ALSO THAT WHERE AN ASSET BEING COMMERCIAL VEHICLE IS ACQUIRED BY THE ASSESSEE ON OR AFTER THE 1ST DAY OF OCTOBER, 1998 BUT BEFORE THE 1ST DAY OF APRIL, 1999 AND IS PUT TO USE BEFORE THE 1ST DAY OF APRIL, 1999 FOR TH E PURPOSES OF BUSINESS OR PROFESSION, THE DEDUCTION IN RESPECT OF SUCH ASSET SHALL BE ALLOWED ON SUCH PERCENTAGE ON THE WR ITTEN DOWN VALUE THEREOF AS MAY BE PRESCRIBED. EXPLANATION.FOR THE PURPOSES OF THIS PROVISO, (A). (B) ITA NO. 1165/M/06 M/S SWATI SYNTHETICS LTD . 9 [ PROVIDED ALSO .. [ PROVIDED ALSO. . [EXPLANATION 1... EXPLANATION 2 [EXPLANATION 3. EXPLANATION 4. [EXPLANATION 5. PROVIDED THAT NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF (A) (B)............. (C). (D). [(III) IN THE CASE OF ANY BUILDING, MACHINERY, P LANT OR FURNITURE IN RESPECT OF WHICH DEPRECIATION IS CLAIM ED AND ALLOWED UNDER CLAUSE (I) AND WHICH IS SOLD, DISCARD ED, DEMOLISHED OR DESTROYED IN THE PREVIOUS YEAR (OTHER THAN THE PREVIOUS YEAR IN WHICH IT IS FIRST BROUGHT INTO USE ), THE AMOUNT BY WHICH THE MONEYS PAYABLE IN RESPECT OF SU CH BUILDING, MACHINERY, PLANT OR FURNITURE, TOGETHER W ITH THE AMOUNT OF SCRAP VALUE, IF ANY, FALL SHORT OF THE WR ITTEN DOWN VALUE THEREOF : PROVIDED THAT SUCH DEFICIENCY IS ACTUALLY WRITTEN OFF IN THE BOOKS OF THE ASSESSEE. EXPLANATION.FOR THE PURPOSES OF THIS CLAUSE, (1) MONEYS PAYABLE IN RESPECT OF ANY BUILDING, M ACHINERY, PLANT OR FURNITURE INCLUDES (A) ANY INSURANCE, SALVAGE OR COMPENSATION MONEYS PAYABLE IN RESPECT THEREOF; (B) WHERE THE BUILDING, MACHINERY, PLANT OR FURNIT URE IS SOLD, THE PRICE FOR WHICH IT IS SOLD, (2)SOLD INCLUDES A (IV) [***] (V) [***] (VI) [***] (1A) [***] [(2) 7.2.2 THE DEPRECIATION ALLOWANCE UNDER SECTIO N 32 IS, HOWEVER, A STATUTORY ALLOWANCE NOT CONFINED EXPRESSLY TO DIM INUTION IN VALUE OF THE ASSET BY REASON OF WEAR AND TEAR. THE FOLLOW ING ARE THE INGREDIENTS FOR DEPRECIATION ALLOWANCE: (I) THAT THE DEPRECIABLE ASSET IS OWNED BY THE ASSESSEE , AND ITA NO. 1165/M/06 M/S SWATI SYNTHETICS LTD . 10 (II) THAT IT IS USED FOR THE PURPOSE OF THE ASSESSEES B USINESS OR PROFESSION (III) THE DEDUCTIONS SHALL BE ALLOWED - IN THE CASE OF A NY BLOCK OF ASSETS, SUCH PERCENTAGE ON THE WRITTEN DOWN VALU E THEREOF AS MAY BE PRESCRIBE] 7.2.3 IN THE CASE UNDER CONSIDERATION THERE IS NO FACTUAL DISPUTE THAT THE ASSETS IN QUESTION WERE OWNED BY T HE ASSESSEE, THEREFORE NEEDS NO DETAILED DISCUSSIONS ON THIS ISS UE. THE OTHER IMPORTANT WORDS NOTED ARE BLOCK OF ASSETS WRITTE N DOWN VALUE AND USED FOR THE PURPOSES OF THE BUSINESS OR PROFESSION. DE TAIL DISCUSSIONS ARE REQUIRED ON THESE WORDS/ TERMS WHIC H ARE AS UNDER:- 7.3 BLOCK OF ASSETS 7.3.1 THE TERM BLOCK OF ASSETS HAS BEEN DEFINED IN SECT ION 2(11) OF THE INCOME-TAX ACT, WHICH AT THE RELEVANT TIME READS AS UNDER : 2(11) BLOCK OF ASSETS MEANS A GROUP OF ASSETS FA LLING WITHIN A CLASS OF ASSETS, BEING BUILDINGS, MACHINERY, PLANT OR FURNITURE, IN RESPECT OF WHICH THE SAME PERCENTAGE OF DEPRECIATIO N IS PRESCRIBED. 7.3.2 AS PER THE ABOVE DEFINITION, BLOCK OF ASSETS MEAN S (I) GROUP OF ASSETS, (II) WHICH FALLS WITHIN A CLASS OF ASSETS, BEING BUILDING, MACHINERY, PLANT OR FURNITURE, (III) IN R ESPECT OF WHICH SAME PERCENTAGE OF DEPRECIATION IS PRESCRIBED. IN S ECTION 2(11), THERE IS NEITHER ANY EXPLICIT NOR IMPLIED CONDITION THAT THE ASSET SHOULD BE USED FOR THE PURPOSE OF BUSINESS DURING T HE YEAR UNDER CONSIDERATION. THE USER OF THE ASSET IS IMPORTANT F OR THE PURPOSE OF ACTUAL ALLOW ABILITY OF THE DEPRECIATION, BUT NOT F OR DETERMINING WHETHER THE ASSET FALLS WITHIN THE BLOCK OF ASSETS OR NOT. THIS SHOWS THAT THE MAIN OBJECT OF INTRODUCING THE BLOCK OF ASSETS CONCEPT WAS ONLY TO REDUCE TIME AND EFFORT SPENT IN DETAILED RECORD MAINTENANCE. ITA NO. 1165/M/06 M/S SWATI SYNTHETICS LTD . 11 7.4 WRITTEN DOWN VALUE 7.4.1 THE OTHER TERMS RELEVANT TO BE EXAMINE I S WRITTEN DOWN VALUE WHICH IS PROVIDED IN CLAUSE (C) OF SECTION 43(6) OF THE ACT.. CLAUSE (C) OF SECTION 43(6) READS AS UNDER: 43(6) WRITTEN DOWN VALUE MEANS (A) ** ** ** (B) ** ** ** (C) IN THE CASE OF ANY BLOCK OF ASSETS, (I) IN RESPECT OF ANY PREVIOUS YEAR RELEVANT TO TH E ASSESSMENT YEAR COMMENCING ON THE 1ST DAY OF APRIL, 1988, THE AGGREGATE OF THE WRITTEN DOWN VALUES OF A LL THE ASSETS FALLING WITHIN THAT BLOCK OF ASSETS AT THE BEGINNING OF THE PREVIOUS YEAR AND ADJUSTED, (A) BY THE INCREASE BY THE ACTUAL COST OF ANY ASSE T FALLING WITHIN THAT BLOCK, ACQUIRED DURING THE PREVIOUS YEAR; AND (B) BY THE REDUCTION OF THE MONEYS PAYABLE IN RESP ECT OF ANY ASSET FALLING WITHIN THAT BLOCK, WHICH IS SOLD OR DISCARDED OR DEMOLISHED OR DESTROYED DURING THAT PREVIOUS YEAR TOGETHER WITH THE AMOUNT OF THE SCRAP VALUE, IF ANY, SO, HOWEVER, THAT THE AMOUNT OF SUCH REDUCTION DOES NOT EXCEED THE WRITTEN DOWN VALUE AS SO INCREASED; AND (II) IN RESPECT OF ANY PREVIOUS YEAR RELEVANT TO T HE ASSESSMENT YEAR COMMENCING ON OR AFTER THE 1ST DAY OF APRIL, 1989, THE WRITTEN DOWN VALUE OF THAT BLOCK O F ASSETS IN THE IMMEDIATELY PRECEDING PREVIOUS YEAR A S REDUCED BY THE DEPRECIATION ACTUALLY ALLOWED IN RES PECT OF THAT BLOCK OF ASSETS IN RELATION TO THE SAID PRE CEDING PREVIOUS YEAR AND AS FURTHER ADJUSTED BY THE INCREA SE OR THE REDUCTION REFERRED TO IN ITEM (I). 7.5 USED FOR THE PURPOSES OF THE BUSINESS OR PROF ESSION. 7.5.1 IN THE CASE UNDER CONSIDERATION CRUX OF THE MATTER/ISSUE TO BE EXAMINED CENTRALISES TO THE WORD USED OF AS SET THEREFORE THAT REQUIRES DETAIL DISCUSSIONS WHICH WE ARE DOING AFTER EXAMINING OTHER ASPECTS OF THE SCHEME OF DEPRECATION AS PER B LOCK OF ASSET. 7.6 HOW THE SCHEME OF DEPRECIATION ON BLOCK OF ASSET WORKS ITA NO. 1165/M/06 M/S SWATI SYNTHETICS LTD . 12 7.6.1 NOW LET US EXAMINE THE SCHEME OF DEPRECIATI ON ON BLOCK OF ASSET, HOW IT WORKS. IF THERE ARE NO CHANGES IN BLOCK OF ASSET, THE PROCEDURE IS VERY SIMPLE. SECTION 32(1) (II) PROVIDES THAT DEPRECIATION WILL BE ALLOWED AS A PRESCRIBED PERCEN TAGE OF THE WRITTEN DOWN VALUE OF BUILDINGS, MACHINERY, PLANT A ND FURNITURE. THE AMENDING ACT HAS PROVIDED THAT IN THE CASE OF A NY BLOCK OF ASSETS, DEPRECIATION WILL BE ALLOWABLE AT A PRESCRI BED PERCENTAGE OF THE WRITTEN DOWN VALUE THEREOF. THE WRITTEN DOWN VALUE OF ANY ASSET SHALL BE WORKED OUT IN ACCORDANCE WITH THE SECTION 43(6) (C).THE WRITTEN DOWN VALUE OF THE BLOCK OF ASSETS IN THE IM MEDIATELY PRECEDING PREVIOUS YEAR, SHALL BE REDUCED BY THE DE PRECIATION ACTUALLY ALLOWED IN RESPECT OF THE BLOCK OF ASSETS IN RELATION TO THE SAID PRECEDING PREVIOUS YEAR. ALL OTHER SITUATIONS OF CHANGES IN BLOCK OF ASSET ARE BEING TAKEN CARE BY RESPECTIVE P ROVISIONS OF THE ACT. THE DIFFERENT CHANGING SITUATIONS AND RELATED PROVISIONS FOR DEPRECIATION ON BLOCK OF ASSET ARE DISCUSSED AS UND ER:- 7.6.2 PURCHASE OF NEW ASSET. 7.6.2.1 WHEN ANY NEW ASSET IS PURCHASED, FOR GETT ING DEPRECIATION ALLOWANCE THE ASSESSEE IS TO SATISFY F OLLOWING TWO BASIC CONDITIONS AS LAID DOWN IN SECTION 32 OF THE ACT. I) THAT ASSET IS OWNED, WHOLLY OR PARTLY, BY THE ASSESSEE. THIS CONDITION CAN BE CHECKED AND VERIFIED THEN AND THER E AT THE TIME OF PURCHASES OF ASSET ITSELF. II) THAT ASSET IS USED FOR THE PURPOSES OF THE BUSI NESS OR PROFESSION. AS REGARD THIS CONDITION IT IS RELEVANT TO STATE THAT BUSINESS PROFIT FOR THE PURPOSE OF INCOME TAX IS TO BE CALCULATED IN ACCORDANCE WITH BOOKS OF ACCOUNT MAINTAINED ON THE ON THE BASIS OF FINANCIAL YEAR. ALL THE ADJUSTMENTS IN BO OKS OF ACCOUNT INCLUDING DEPRECATION ARE TO BE MADE ONLY AT THE E ND OF THE YEAR , THEREFORE BY THAT TIME AN ASSESSEE CAN ASCERTAIN T HE SITUATION WHETHER THE ASSET PURCHASED HAS BEEN USED FOR THE PURPOSE OF BUSINESS OR NOT. WHETHER THE PROVISO TO SECTION 32 OF THE ACT IS SATISFIED OR NOT , WHICH REQUIRES THAT WHERE AN ASSET REFERRED TO IN ITA NO. 1165/M/06 M/S SWATI SYNTHETICS LTD . 13 CLAUSE (I) OR CLAUSE (II) OR CLAUSE (IIA), AS THE C ASE MAY BE, IS ACQUIRED BY THE ASSESSEE DURING THE PREVIOUS YEAR A ND IS PUT TO USE FOR THE PURPOSES OF BUSINESS OR PROFESSION FOR A PE RIOD OF LESS THAN ONE HUNDRED AND EIGHTY DAYS IN THAT PREVIOUS YEAR, THE DEDUCTION UNDER THIS SUB-SECTION IN RESPECT OF SUCH ASSET SHA LL BE RESTRICTED TO FIFTY PER CENT OF THE AMOUNT CALCULATED AT THE P ERCENTAGE PRESCRIBED FOR AN ASSET UNDER CLAUSE (I) OR CLAUSE (II) OR CLAUSE (IIA)], AS THE CASE MAY BE. 7.6.2.2 THE NEXT STEP TO BE TAKEN IS TO ALLOCATE T HE ASSET TO THE RESPECTIVE BLOCK. AS PER THE DEFINITION, BLOCK OF ASSETS AS PROVIDED IN SECTION 2(11) OF THE ACT, IT IS TO BE GROUPED IN ASSETS, WHICH FALLS WITHIN A CLASS OF ASSETS, BEING BUILDIN G, MACHINERY, PLANT OR FURNITURE IN RESPECT OF WHICH SAME PERCENT AGE OF DEPRECIATION IS PRESCRIBED. ACCORDING TO THE CLAUSE (II) OF SECTION 43(6)(C), THE OPENING WRITTEN DOWN VALUE AS ON THE FIRST DAY OF RELEVANT PREVIOUS YEAR SHALL BE INCREASED BY THE ACTUAL COST OF ANY ASSET FALLING WITHIN THAT BLOCK WHICH IS ACQUIRED B Y THE ASSESSEE DURING THE PREVIOUS YEAR. 7.7 SOLD, DISCARDED, DEMOLISHED OR DESTROYED OF ASSET 7.7.1 SALE, DISCARDED, DEMOLISHED OR DESTROYED OF ASSET OUT OF BLOCK OF ASSET, THIS SITUATION OF BLOCK OF ASSET I S TAKEN CARE BY THE SECTION(III) OF SUB SECTION (1)OF SECTION 32 OF THE ACT, WHICH PROVIDES THAT IN THE CASE OF ANY BUILDING, MACHINERY, PLANT OR FURNITURE IN RESPECT OF WHICH DEPRECIATION IS CLAIMED AND ALLOWE D UNDER CLAUSE (I) AND WHICH IS SOLD, DISCARDED, DEMOLISHED OR DES TROYED IN THE PREVIOUS YEAR (OTHER THAN THE PREVIOUS YEAR IN WHIC H IT IS FIRST BROUGHT INTO USE), THE AMOUNT BY WHICH THE MONEYS P AYABLE IN RESPECT OF SUCH BUILDING, MACHINERY, PLANT OR FURNI TURE, TOGETHER WITH THE AMOUNT OF SCRAP VALUE, IF ANY, FALL SHORT OF THE WRITTEN DOWN VALUE THEREOF. THE WRITTEN DOWN ASPECT IS TAKE N CARE BY THE CLAUSE (III) OF SECTION OF SECTION 43(6)(C) WHICH P ROVIDES THAT THE SUM SO ARRIVED AT AFTER CONSIDERING OPENING WRITTE N DOWN VALE AND NEW PURCHASES OF ASSET, SHALL BE REDUCED BY THE SAL E PROCEEDS AND ITA NO. 1165/M/06 M/S SWATI SYNTHETICS LTD . 14 OTHER AMOUNTS RECEIVABLE BY THE ASSESSEE IN REGARD TO ANY ASSET FALLING WITHIN THAT BLOCK WHICH IS SOLD, DISCARDED, DEMOLISHED OR DESTROYED DURING THAT PREVIOUS YEAR. AT THE TIME OF INTRODUCING THIS NEW CONCEPT OF DEPRECATION ON BLOCK OF ASSET, T HE BOARD ISSUED A CIRCULAR NO. 469 DATED 23RD SEPTEMBER, 1986 REPORTE D IN 162 ITR STATUTES PAGE 21) AND CLARIFIED THAT THE OBJECTIVE UNDERLYING THE TERMINAL ADJUSTMENT IS TO ENSURE THAT THE TOTAL DEP RECIATION IN RELATION TO ANY PARTICULAR ITEM OF ASSET IS LIMITED TO 100 PER CENT. THIS IS ACHIEVED BY THE EXISTING PROVISIONS OF SECT ION 32(1)(III) ALLOWING A DEDUCTION FOR THE SHORTFALL IN THE YEAR OF SALE, ETC. CONVERSELY SECTION 41(2) OF THE INCOME-TAX ACT PROV IDES FOR TAXING IN THE YEAR OF SALE, ETC., THE EXCESS DEPRECIATION ALLOWED IN THE PAST. BECAUSE OF THE INTRODUCTION OF THE SYSTEM OF ALLOWING DEPRECIATION ON BLOCKS OF ASSETS AT ENHANCED RATES, BOTH THESE PROVISIONS HAVE LOST THEIR RELEVANCE AND HENCE THEY HAVE BEEN OMITTED BY THE AMENDING ACT. UNDER THE NEW SYSTEM, THE MONEYS PAYABLE IN RESPECT OF ASSETS SOLD, DISCARDED, DEMOL ISHED OR DESTROYED WILL BE REDUCED FROM THE WRITTEN DOWN VAL UE OF THE BLOCK. THE EXISTING PROVISIONS OF SUB-SECTIONS (2) AND (2A ) OF SECTION 41 OF THE INCOME-TAX ACT AND THE EXPLANATION THERE UNDER RELATING TO BALANCING CHARGE IN RESPECT OF DISCARDED ASSETS HAV E BEEN OMITTED. BOTH THE ABOVE SITUATIONS PURCHASE OF NEW ASSET AND SOLD, DISCARDED, DEMOLISHED OR DESTROYED OF ASSET HAVE BE EN EXPLAINED BY THE CBDT BY THEIR CIRCULAR (CIRCULAR NO. 469 DATED 23RD SEPTEMBER, 1986 REPORTED IN 162 ITR STATUTES PAGE 2 1) BY GIVING EXAMPLES WHICH ARE AS UNDER:- 7 . 7.2 THE FOLLOWING EXAMPLES ILLUSTRATE AS TO HO W THE AMENDED PROVISIONS RELATING TO ALLOWANCE OF DEPRECIATION WI LL BE APPLIED: EXAMPLE I: SUPPOSE A COMPANY X HAS FINANCIAL YEA R AS ITS ACCOUNTING YEAR AND HAS THREE ITEMS OF PLANT AND MA CHINERY IN RESPECT OF WHICH THE PRESCRIBED PERCENTAGE OF DE PRECIATION FOR THE ASSESSMENT YEAR 1987-88 IS THE GENERAL RATE OF FIFTEEN PER CENT. FURTHER THAT FOR THE ASSESSMENT YEAR 1987 -88, THE WRITTEN DOWN VALUE OF THESE ITEMS OF PLANT AND MACH INERY BEFORE ALLOWING DEPRECIATION FOR THAT YEAR WAS AS F OLLOWS: ITA NO. 1165/M/06 M/S SWATI SYNTHETICS LTD . 15 RS. ITEM 1 1,50,000 ITEM 2 2,00,000 ITEM 3 3,00,000 TOTAL 6,50,000 THE DEPRECIATION THAT WILL BE ALLOWABLE IN RESPECT OF THESE ITEMS FOR THE ASSESSMENT YEAR 1987-88 AS ALSO THE WRITTEN DOW N VALUE OF THESE ITEMS AT THE BEGINNING OF THE ASSESSMENT YEAR 1988-89 WILL BE AS FOLLOWS: DEPRECIATION WDV AT THE BEGINNING OF THE ASSESSMENT YEAR 1988-89 RS. RS. ITEM 1 22,500.00 1,27,500.00 ITEM 2 30,000.00 1,70,000.00 ITEM 3 45,000.00 2,55,000.00 AGGREGATE WDV AT THE BEGINNING OF THE ASSESSMENT YEAR IS 5,52,500.00 =========== 7.7.3 SINCE THE ITEMS OF PLANT AND MACHINERY WHICH CURRENTLY QUALIFY FOR DEPRECIATION AT THE RATE OF 15 PER CENT ARE PROPOSED TO BE CLASSIFIED INTO A BLOCK OF ASSETS WHICH WILL BE ENTITLED TO DEPRECIATION AT THE RATE OF 331/3 PER CENT FOR THE ASSESSMENT YEAR 1988-89 AND SUBSEQUENT YEARS, IN THIS EXAMPLE THE A GGREGATE WRITTEN DOWN VALUE OF THE BLOCK OF ASSETS AT THE BE GINNING OF THE PREVIOUS YEAR WILL BE RS. 5,52,500/-. PRESUMING THA T DURING THE FINANCIAL YEAR 1987-88, THE ASSESSEE SOLD ITEM 1 FO R A CONSIDERATION OF RS. 2,00,000 AND BOUGHT A NEW ITEM (ITEM 4) FALL ING IN THE SAME BLOCK OF ASSETS DURING THE SAID FINANCIAL YEAR FOR A CONSIDERATION OF RS. 2,50,000, THE DEPRECIATION TO BE ALLOWED IN RES PECT OF THE ASSESSMENT YEAR 1988-89 WILL BE AS FOLLOWS : RS. - AGGREGATE WDV OF THE BLOCK AT THE BEGINNING OF T HE PREVIOUS YEAR 5,52,500 - THE ACTUAL COST OF THE NEW ASSET ACQUIRED DURING THE 2,50,000 PREVIOUS YEAR 8,02,500 ITA NO. 1165/M/06 M/S SWATI SYNTHETICS LTD . 16 LESS : SALE PROCEEDS IN RESPECT OF THE ASSETS SOLD 2,00,000 WDV OF THE BLOCK FOR THE ASSESSMENT YEAR 1988-89 6, 02,000 DEPRECIATION FOR THE ASSESSMENT YEAR 1988-89 AT 331 /3% OF RS. 6,02,000 2,00,667 WDV FOR THE ASSESSMENT YEAR 1989-90 4,01,333 7.8 ASSET NOT EXCLUSIVELY USED FOR THE PURPOSES OF THE BUSINESS OR PROFESSION 7.8.1 SECTION 38(2) OF THE ACT DEALS WITH THIS SITUATION OF ASSET NOT EXCLUSIVELY USED FOR THE PURPOSES OF THE BUSINE SS OR PROFESSION, WHICH READS AS UNDER:- (2) WHERE ANY BUILDING, MACHINERY, PLANT OR FURNI TURE IS NOT EXCLUSIVELY USED FOR THE PURPOSES OF THE BUSINESS O R PROFESSION, THE DEDUCTIONS UNDER SUB-CLAUSE (II) OF CLAUSE (A) AND CLAUSE (C) OF SECTION 30, CLAUSES (I) AND (II) OF SECTION 31 AND 36[CLAUSE (II) OF SUB-SECTION (1)] OF SECTION 32 SHALL BE RESTRICTED TO A FAIR PROPORTIONATE PART THEREOF WHICH THE 37[ASSESSING] OFFICER MAY DETERMINE, HAVING REGARD TO THE USER OF SUCH BUILDI NG, MACHINERY, PLANT OR FURNITURE FOR THE PURPOSES OF THE BUSINESS OR PROFESSION. 7.8.2 IN THE ABOVE SECTION A QUESTION OF PROPORTI ONATE ALLOWANCE WOULD ARISE ONLY WHEN THE ASSET IN QUESTION IS NOT EXCLUSIVELY USED FOR THE PURPOSE OF BUSINESS, WHICH MEANS IT WAS USE D FOR THE PURPOSE OF BUSINESS AS WELL AS NON BUSINESS PURPOSE S. THUS IF THE ASSET IS NEITHER USED FOR BUSINESS PURPOSES NOR F OR NON BUSINESS PURPOSES BUT REMAINED IN BLOCK OF ASSETS THE PROVIS ION OF SECTION 38(2) IS NOT APPLICABLE. THE ABOVE SECTION HAS BE EN EXAMINED BY THE ITAT SPECIAL BENCH, CHANDIGARH IN THE CASE OF GULATI SAREE CENTREV.ASSISTANT COMMISSIONER OF INCOME-TAX[1999] 71 ITD 73 (CHD.) (SB) .THE FOLLOWING QUESTION WAS REFERRED F OR THE OPINION OF THE SPECIAL BENCH: WHETHER, AFTER THE INTRODUCTION OF THE CONCEPT OF BLOCK OF ASSETS AN INDIVIDUAL ITEM IN A BLOCK OF ASSETS LOSE S ITS IDENTITY AND THE DEPRECIATION HAS TO BE ALLOWED ON THE TOTAL BLOCK WITHOUT CONSIDERING WHETHER AN INDIVIDUAL ITE M COMPRISED IN THE BLOCK HAS BEEN USED FOR BUSINESS P URPOSES OR NOT, WHETHER FULLY OR PARTLY? 7.8.3 THE DIVISION BENCH HAPPENED TO REFER THE AFORESAID QUESTION TO THE ITAT SPECIAL BENCH, CHANDIGARH BE CAUSE THE ITA NO. 1165/M/06 M/S SWATI SYNTHETICS LTD . 17 LEARNED COUNSEL FOR THE ASSESSEE HAD PLACED RELIANC E ON THE DECISION OF THE JABALPUR BENCH OF THE TRIBUNAL IN T HE CASE OF PACKWELL PRINTERS V. ASSTT. CIT [1996] 59 ITD 340 F OR THE PROPOSITION THAT AFTER THE AMENDMENT IN SECTION 32 WITH EFFECT FROM 1-4-1988 AN INDIVIDUAL ASSET LOSES ITS IDENTITY AND FOR ALLOWING DEPRECIATION THE ENTIRE BLOCK HAS TO BE CONSIDERED. ON THE OTHER HAND, THE CASE OF THE REVENUE WAS THAT SUCH AN INTE RPRETATION WOULD NEGATE THE PROVISIONS OF SECTION 38(2) OF THE INCOME-TAX ACT, 1961 (FOR SHORT THE ACT). THE REVENUE HAD RELIED ON THE DECISION OF THE CHANDIGARH BENCH OF THE TRIBUNAL IN THE CASE OF SINGLA AGENCIES V. ASSTT. CIT [ 1997] 60 ITD 410, WHICH HA D TAKEN THE VIEW THAT AN ASSET DID NOT LOSE ITS IDENTITY AFTER INTRODUCTION OF THE CONCEPT OF BLOCK OF ASSETS AND THAT THE PROVISIONS OF SECTION 38(2) WERE STILL APPLICABLE. 7.8.4 THE ITAT SPECIAL BENCH, CHANDIGARH HEL D THAT EVEN AFTER INTRODUCTION OF THE CONCEPT OF BLOCK OF ASSETS, THE PROVISIONS OF SECTION 38(2) WOULD CONTINUE TO APPLY AND THE ASSES SING OFFICER IS EMPOWERED TO RESTRICT DEPRECIATION TO A FAIR PROPOR TIONATE PART THEREOF, HAVING REGARD TO THE USER OF THE BUILDING, MACHINERY, PLANT OR FURNITURE FOR THE PURPOSES OF BUSINESS OR PROFES SION. IN THAT CASE OF THE ASSESSEE, W.D.V. OF VEHICLES WAS SEPARATELY WORKED OUT AND DETAILS OF VEHICLES WERE ALSO GIVEN. THUS, IT WAS H ELD THAT THE PROVISIONS OF SECTION 38(2) HAD BEEN RIGHTLY INVOKE D BY THE COMMISSIONER (APPEALS) AND HE WAS RIGHT IN SUSTAINI NG THE DISALLOWANCE OUT OF DEPRECIATION AS MADE BY THE ASS ESSING OFFICER. 7.8.5 IN PRINCIPLE WE RESPECTFULLY AGREE WIT H THE FINDING OF THE ITAT SPECIAL BENCH CHANDIGARH THAT EVEN AFTER INTRO DUCTION OF THE CONCEPT OF BLOCK OF ASSETS THE INDIVIDUAL ASSETS IS IDENTIFIABLE AND UNDER THE CIRCUMSTANCES THAT CARS OWNED BY THE ASSE SSEE-FIRM WERE BEING USED FOR PERSONAL PURPOSES OF THE PARTNERS AL SO, DISALLOWANCE OF PART DEPRECIATION WAS JUSTIFIED. BUT THIS DECISI ON OF ITAT SPECIAL BENCH CHANDIGARH DOES NOT HELP TO THE REVENUE AS IN THE CASE UNDER CONSIDERATION ASSETS REMAINED IN BLOCK OF ASS ETS AND WERE NOT USED FOR NON BUSINESS PURPOSES LIKE PERSONAL US E ETC. ITA NO. 1165/M/06 M/S SWATI SYNTHETICS LTD . 18 7.9 DEPRECIATION AND CAPITAL GAIN ON TRANSFER OF ASSET . 7.9.1 SECTION 50 OF THE INCOME-TAX ACT PRESCRIBING THE MA NNER IN WHICH THE COST OF ACQUISITION IN THE CASE OF DEPREC IABLE ASSETS MAY BE COMPUTED FOR THE PURPOSES OF DETERMINING THE CAP ITAL GAINS HAS BEEN SUBSTITUTED BY NEW PROVISIONS BY THE AMENDING ACT. THE PARTICULARS OF THESE PROVISIONS, OVERRIDING SECTION 2(42A) OF THE INCOME-TAX ACT, ARE AS UNDER: (A) THE NEWLY SUBSTITUTED SECTION 50(1) PROVIDES T HAT IN A CASE WHERE ANY BLOCK OF ASSETS DOES NOT CEASE TO EXIST B UT THE FULL VALUE OF THE CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF THE TRANSFER OF THE DEPRECIABLE ASSETS BY THE ASSES SEE DURING THE PREVIOUS YEAR EXCEEDS THE AGGREGATE OF THE FOLL OWING AMOUNTS, NAMELY : (I) EXPENDITURE INCURRED WHOLLY OR EXCLUSIVELY IN CONNECTION WITH SUCH TRANSFER OR TRANSFERS ; (II) THE WRITTEN DOWN VALUE OF THE BLOCK OF ASSETS AT THE BEGINNING OF THE PREVIOUS YEAR ; AND (III) THE ACTUAL COST OF ANY ASSET FALLING WITHIN T HE BLOCK OF ASSETS ACQUIRED DURING THE PREVIOUS YEAR, SUCH EXCESS SHALL BE DEEMED TO BE SHORT-TERM CAPI TAL GAINS. (B) THE NEWLY SUBSTITUTED SECTION 50(2) OF THE INC OME-TAX ACT DEALS WITH THE CASES WHERE ANY BLOCK OF ASSETS CEASES TO EXIST FOR THE REASON THAT ALL THE ASSETS IN THAT BLOCK ARE TRANSF ERRED DURING THE PREVIOUS YEAR. IN SUCH A CASE, THE COST OF ACQU ISITION OF THE BLOCK OF ASSETS SHALL BE THE WRITTEN DOWN VALUE OF THE BLOCK AT THE BEGINNING OF THE PREVIOUS YEAR AS INCREASED BY THE ACTUAL COST OF ANY ASSET FALLING WITHIN THAT BLOCK ACQUIRE D BY THE ASSESSEE DURING THE PREVIOUS YEAR. THE INCOME FROM SUCH TRANSFER OR TRANSFERS SHALL BE DEEMED TO BE SHORT-T ERM CAPITAL GAINS. 7.9.2 THE APPLICABILITY OF PROVISION OF SECTION 5 0 OF THE ACT CAN BE EXPLAINED BY SIMPLE EXAMPLE WHICH IS AS UNDER:- I) AT THE COMMENCEMENT OF A PREVIOUS YEAR THE BLOCK OF ASSETS CONSISTS OF THREE ITEMS, X,Y AND Z, THEIR WRITTEN DOWN VALUE AT THE COMMENCEMENT OF THE PREVIOUS YEAR IS A S FOLLOWS: ITA NO. 1165/M/06 M/S SWATI SYNTHETICS LTD . 19 X: RS. 10,000 Y: RS. 9,000 Z: RS. 5,000 II) DURING THE PREVIOUS YEAR ASSETS X AND Y ARE SOLD FO R RS. 30,000 AND RS. 8,000 AND EXPENDITURE INCURRED IN CONNECTION WITH TRANSFER OF THESE ASSETS IS RS. 500 AND RS. 300 RESPECTIVELY. ASSETS D AND E ARE ACQUIRED FOR R S. 4,000 AND RS. 3,000 AND THEY FORM PART OF BLOCK OF ASSETS. III) THEN SHORT TERM CAPITAL GAINS UNDER CL. (1) OF SECT ION 50 SHALL BE COMPUTED AS FOLLOWS: FULL VALUE OF CONSIDERATION RECEIVED ON TRANSFER RS . 38,000 (RS. 30,000 + 8,000) (A) EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH TRANSFERS 800 (RS. 500 + 300) (B) WRITTEN DOWN VALUE OF THE BLOCK OF ASSETS AT THE BEGINNING OF THE YEAR 24000 (RS. 10,000 + 9000 + 5000) (C) ACTUAL COST OF THE ASSETS ACQUIRED DUR ING THE PREVIOUS YEAR 7,000 (RS. 4,000 + 3000) AGGREGATE OF (A), (B) AND (C) 31 ,800 (RS. 800 + 24,000 + 7000) EXCESS RS. 38,000 LESS 31,800 = RS. 6,200 TO BE T AXED AS SHORT- TERM CAPITAL GAINS UNDER CL. (1) OF SECTION 50. VI) IF IN THAT PREVIOUS YEAR THE ASSESSEE PURCHASE D TWO MORE ASSTS A AND B FORMING PART OF SAME BLOCK FOR RS7000/- AND RS 8000/- RESPECTIVELY. SHORT-TERM CAPITAL GAINS UNDER CL. ( 1) OF SECTION 50 CANNOT BE CALCULATED AS ASSETS WORTH MORE THAN RS. 6,200 WHICH PURCHASED IS FORMING PART OF BLOCK OF ASSETS. ON SU CH PURCHASE BEING MADE AGGREGATE OF (A), (B), (C) WOULD EXCEED RS. 38,000 AND HENCE FULL VALUE OF CONSIDERATION RECEIVED ON TRANS FER WOULD NOT EXCEED THE AGGREGATE OF (A), (B) AND (C) ABOVE AND HENCE THERE WOULD BE NO CHARGEABLE CAPITAL GAINS.IT IS TO BE NOTED TH AT THERE CANNOT BE A LOSS UNDER THE HEAD CAPITAL GAINS SO LONG AS TH E BLOCK OF ASSETS CONTINUES TO EXIST. ITA NO. 1165/M/06 M/S SWATI SYNTHETICS LTD . 20 V) THE ABOVE DISCUSSION CAN BE SUMMED UP AS UNDER:- IN THE CASE OF BLOCK ASSETS, DEPRECIATION U/S 32 C AN BE CLAIMED ON THE WRITTEN DOWN VALUE AS COMPUTED U/S 4 3(6) PROVIDED AS ON THE LAST DAY OF THE PREVIOUS YEAR THE FOLLOWI NG TWO REQUIREMENTS ARE TO BE FULFILLED: (1) THERE MUST BE AT LEAST ONE ASSET IN THE BLOCK; AND (2) THERE MUST BE SOME VALUE FOR THE BLOCK ON WHICH PRESCRIBED PERCENTAGE CAN BE APPLIED. WHEN ANY ONE OR BOTH THE ABOVE MENTIONED REQUIREMEN TS ARE NOT SATISFIED ON TRANSFER OF ANY ASSET FROM THE BLOCK, THE PROVISIONS OF SECTION 32 CEASE TO APPLY AND AUTOMATICALLY THE PRO VISIONS OF SECTION 50 BECOME APPLICABLE RESULTING IN SHORT-TER M CAPITAL GAINS/LOSS. 7.10 OTHER RELEVANT AMENDMENTS 7.10.1 THE EXISTING PROVISIONS OF SUB-SECTIONS (2) AND (2A) OF SECTION 41 OF THE INCOME-TAX ACT AND THE EX PLANATION THERE UNDER RELATING TO BALANCING CHARGE IN RESPECT OF DI SCARDED ASSETS HAVE BEEN OMITTED. THE EXISTING SUB-SECTIONS (1) AN D (2) OF SECTION 34 OF THE INCOME-TAX ACT PROVIDE THAT THE DEPRECIAT ION SHALL BE ALLOWED ONLY IF THE PRESCRIBED PARTICULARS FOR THE PURPOSES OF CLAUSES (I) AND (II) OF SECTION 32(1) OF THE INCOME -TAX ACT HAVE BEEN FURNISHED IN RESPECT OF THE DEPRECIABLE ASSETS. FUR THER, THAT THE AGGREGATE OF ALL DEDUCTIONS IN RESPECT OF DEPRECIAT ION SHALL NOT EXCEED THE ACTUAL COST TO THE ASSESSEE IN RESPECT O F SUCH ASSETS. BY THE AMENDING ACT, THESE SUB-SECTIONS HAVE BEEN DELE TED IN VIEW OF THE SWITCH OVER TO THE SYSTEM OF ALLOWING DEPRECIAT ION ON BLOCKS OF ASSETS. UNDER THE NEW SYSTEM, THE WRITTEN DOWN VALU E OF ANY BLOCK OF ASSETS MAY BE REDUCED TO NIL FOR ANY OF THE FOLL OWING REASONS: (A) THE MONEYS RECEIVABLE BY THE ASSESSEE IN REGARD TO THE ASSETS SOLD OR OTHERWISE TRANSFERRED DURING THE PRE VIOUS YEAR TOGETHER WITH THE AMOUNT OF SCRAP VALUE MAY EXCEED THE WRITTEN DOWN VALUE AT THE BEGINNING OF THE YEAR AS INCREASE D BY THE ACTUAL COST OF ANY NEW ASSET ACQUIRED, OR ITA NO. 1165/M/06 M/S SWATI SYNTHETICS LTD . 21 (B)ALL THE ASSETS IN THE RELEVANT BLOCK MAY BE TRANSFERRED DURING THE YEAR. 7.10.2 THE EXISTING SUB-SECTIONS (1) AND (2) OF SE CTION 34 OF THE INCOME-TAX ACT PROVIDE THAT THE DEPRECIATION SHALL BE ALLOWED ONLY IF THE PRESCRIBED PARTICULARS FOR THE PURPOSES OF CLAUSES (I) AND (II) OF SECTION 32(1) OF THE INCOME-TAX ACT HAVE BE EN FURNISHED IN RESPECT OF THE DEPRECIABLE ASSETS. FURTHER, THAT TH E AGGREGATE OF ALL DEDUCTIONS IN RESPECT OF DEPRECIATION SHALL NOT EXC EED THE ACTUAL COST TO THE ASSESSEE IN RESPECT OF SUCH ASSETS. BY THE AMENDING ACT, THESE SUB-SECTIONS HAVE BEEN DELETED IN VIEW O F THE SWITCHOVER TO THE SYSTEM OF ALLOWING DEPRECIATION ON BLOCKS OF ASSETS. 7.11 USED FOR THE PURPOSES OF THE BUSINESS OR PROFE SSION. 7.11.1 AS STATED ABOVE THAT IN THE CASE UNDE R CONSIDERATION THE CRUX OF THE MATTER/ISSUE CENTRALISES TO THE WOR D USED FOR THE PURPOSES OF THE BUSINESS OR PROFESSION. THEREFORE THAT REQUIRES DETAILED DISCUSSIONS. AS STATED ABOVE THAT ONE OF T HE INGREDIENTS FOR DEPRECIATION ALLOWANCE IS USED FOR THE PURPOSE OF BUSINESS. THE EXPRESSION 'USE OR USED' HAS SEVERAL TIMES RECEIVED INTERPRETATION NOT ONLY AT THE HANDS OF VARIOUS HIGH COURTS BUT BY THE SUPREME COURT , SOME OF THEM ARE AS UNDER:- A) HONBLE JURISDICTIONAL HIGH COURT EXAMINED THE WORD S USED IN THE CASE OF COMMISSIONER OF INCOME-TAX V. VISVANATH BHASKAR SATHE [1937] 5 ITR 21 (BOM.). THE FACTS OF THAT CASE WERE THAT THE ASSESSEE WAS THE OWNER OF A GINNING F ACTORY AND DURING THE FINANCIAL YEAR JOINED A POOL FORMED BY S EVERAL OWNERS OF SUCH FACTORIES. IN ACCORDANCE WITH THE AG REEMENT WITH THE POOL, ONLY SOME OF THE FACTORIES WERE ALLO WED TO WORK AND THE OTHERS REMAINED IDLE GETTING, OF COURSE, TH EIR SHARE IN THE PROFITS EARNED BY THE POOL. THE ASSESSEES FACT ORY REMAINED IDLE ACCORDINGLY BUT DULY RECEIVED ITS SHA RE IN THE PROFIT MADE UNDER THE ARRANGEMENT. FOR THE ASSESSME NT YEAR 1935-36 WHICH WAS UNDER DISPUTE, THE ASSESSEE SUBMI TTED HIS RETURN OF INCOME SHOWING THEREIN CERTAIN INCOME AFTER DEDUCTING AN AMOUNT ON ACCOUNT OF DEPRECIATION IN R ESPECT OF THE BUILDING, MACHINERY AND PLANT PERTAINING TO HIS GINNING FACTORY. THE ITO DISALLOWED THE ASSESSEES CLAIM FO R DEPRECIATION ON THE GROUND THAT AS THE FACTORY REMA INED IDLE DURING THE YEAR OF ACCOUNT, NO SUCH ALLOWANCE WAS ADMISSIBLE. ON REFERENCE HONBLE BOMBAY HIGH COURT HELD THAT THE WORD USED IN SECTION 10(2)(VI) OF 1922 A CT DENOTES ACTUAL USER, AND NOT MERELY BEING CAPABLE OF BEING USED. BUT ITA NO. 1165/M/06 M/S SWATI SYNTHETICS LTD . 22 THAT DOES NOT DISPOSE OF THE QUESTION WHETHER, WHEN MACHINERY IS KEPT READY FOR USE AT ANY MOMENT IN A PARTICULAR FACTORY UNDER AN EXPRESS CONTRACT FROM W HICH TAXABLE PROFITS ARE EARNED, THE MACHINERY CAN BE SA ID TO BE USED FOR THE PURPOSES OF THE BUSINESS WHICH EARNS T HE PROFITS, ALTHOUGH IT IS NOT ACTUALLY WORKED. THE BU SINESS FROM WHICH THE PROFITS WERE DERIVED WAS THAT OF GINNING FACTORIES, AND THE CONTRIBUTION OF THE ASSESSEE TO THAT BUSINE SS WAS THE OBLIGATION TO KEEP HIS MACHINERY READY FOR ACTUAL U SE AT ANY MOMENT. IT WAS FURTHER HELD THAT THE WORD USED IN SECTION 10(2)(VI) OF 1922 ACT MAY BE GIVEN A WIDER MEANING AND EMBRACES PASSIVE AS WELL AS ACTIVE USER. MACHINERY WHICH IS KEPT IDLE MAY WELL DEPRECIATE, PARTICULARLY DURING THE MONSOON SEASON. THE ULTIMATE TEST IS, WHETHER, WITH OUT THE PARTICULAR USER OF THE MACHINERY RELIED UPON THE PR OFITS SOUGHT TO BE TAXED COULD HAVE BEEN MADE; AND IN THE CASE, THE PROFITS OF THE ASSESSEE DURING THE YEAR UNDER A SSESSMENT COULD NOT HAVE BEEN EARNED EXCEPT BY HIS MAINTAININ G HIS FACTORY IN GOOD WORKING ORDER, AND THAT INVOLVES TH E USER OF THE FACTORY AND THE MACHINERY. B) THE ASSESSEE HAD BEEN USING TRUCKS FOR THE PURPOSE OF HIS BUSINESS DURING THE RELEVANT ASSESSMENT YEARS AS WE LL AS EARLIER AND LATER YEARS. HOWEVER, DURING THE RELEVA NT ASSESSMENT YEARS, SOME OF THOSE TRUCKS WERE UNDER R EPAIRS THROUGHOUT THE YEAR. THE ASSESSEE'S CLAIM FOR DEPRE CIATION ON TRUCKS WHICH WERE UNDER REPAIRS WAS DISALLOWED. ON REFERENCE: HONBLE BOMBAY HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME-TAX V.G.N. AGRAWAL 1994] 75 TAXMAN 30 (BOM.) (217 ITR 250) HELD THAT THE ANSWER TO THE QUESTION WAS SELF-EVIDENT. THE VEHICLES CONTINUED T O BE IN USE FOR BUSINESS OF THE ASSESSEE EVEN THOUGH THE SAME W ERE UNDER REPAIRS. THUS, THE ASSESSEE WAS ENTITLED TO DEPRECIATION ON THE WRITTEN DOWN VALUE OF THE TRUCK S WHICH WERE UNDER REPAIRS THROUGHOUT THE RELEVANT ACCOUNTI NG YEARS BUT WERE USED FOR THE PURPOSE OF THE BUSINESS EARLI ER AND LATER. C) HONBLE BOMBAY HIGH COURT IN THE CASE OF WHITTLE A NDERSON LTD.V.COMMISSIONER OF INCOME-TAX[1971] 79 ITR 613 ( BOM.) HELD THAT ALTHOUGH TWO OUT OF THE FOUR PRESSES WHIC H WERE DIRECTLY IN THE POOLING ARRANGEMENT WERE TO REMAIN IDLE WHILE THE TWO PRESSES WORKED, IT IS CLEAR THAT THE OWNERS OF THOSE PRESSES WHICH WERE IDLE HAD TO KEEP THEM READY FOR USE AT ANY TIME AND THE CONTINGENCY FOR THEIR USE COULD AL SO, UPON THE TERMS OF THE AGREEMENT, ARISE AT ANY TIME AND H AVING REGARD TO THE DEFINITION OF THE WORD 'USED' AS INDI CATED IN THE AUTHORITIES IT WAS CLEAR THAT EVEN THESE PRESSES WH ICH REMAINED UNDER FORCED IDLENESS WERE IN USE DURING T HE ENTIRE PERIOD OF THE YEAR. D) THE ISSUE REGARDING USE WAS COME BEFORE HONBLE A LLAHABAD HIGH COURT IN THE CASE OF NIRANJAN LAL RAM CHANDRAV.COMMISSIONER OF INCOME-TAX [1963] 49 ITR 177 (ALL.). THE FACTS OF THAT CASE WERE THAT THE ASSESS EE FIRM WAS CARRYING ON THE BUSINESS OF PLYING MOTOR TRUCKS AND LORRIES ITA NO. 1165/M/06 M/S SWATI SYNTHETICS LTD . 23 ON HIRE. ON FIRST DAY OF ACCOUNTING YEAR RELEVANT T O THE ASSESSMENT YEAR 1947-48, IT SOLD TWO TRUCKS. THE DI FFERENCE BETWEEN THE ORIGINAL COST AND THE WRITTEN DOWN VALU ES OF THE TWO TRUCKS WERE NOT KNOWN, BUT THEY WERE ADMITTEDLY GREATER THAN THE PROFITS EARNED BY THE ASSESSEE ON SAID SAL E. THE ASSESSEE HAD MADE A PROFIT FROM ITS BUSINESS OF HIR ING OUT TRUCKS. THE ITO ASSESSED IT ON THE WHOLE OF THIS AM OUNT, APPLYING THE PROVISION OF SECTION 10(2)(VII) OF 192 2 ACT READ WITH THE SECOND PROVISO THERETO. HE REJECTED THE AS SESSEES CONTENTION THAT THE SECOND PROVISO WAS INAPPLICABLE BECAUSE THE TRUCKS WERE SOLD ON THE VERY FIRST DAY OF THE P REVIOUS YEAR AND, THEREFORE, COULD NOT BE SAID TO HAVE BEEN USED DURING THE PREVIOUS YEAR FOR THE PURPOSES OF THE BUSINESS WITHIN THE MEANING OF SECTION 10(2)(VI), (V) AND (VI). THE TRI BUNAL HELD THAT THE MERE FACT THAT THE TRUCKS WERE SOLD ON THE FIRST DAY DID NOT NECESSARILY MEAN THAT THEY WERE NOT KEPT AV AILABLE FOR USE ON THAT DAY AND THAT USED WITHIN THE MEANING OF SECTION 10(2)(IV), (V) AND (VI) INCLUDES PASSIVE US E ALSO. ON REFERENCE HONBLE ALLAHABAD HIGH COURT HELD THAT AN ARTICLE WHICH WAS IN USE AT A PARTICULAR TIME DOES NOT REQU IRE THAT IT WAS ACTIVELY EMPLOYED DURING THE TIME IN PRODUCING THE RESULT FOR WHICH IT WAS MEANT. ONCE IT IS ACCEPTED THAT AN ARTICLE CAN BE SAID TO BE IN USE IN THE INTERVAL BETWEEN IT S TWO ACTIVE USERS, THE PROBLEM CAN BE SOLVED WITHOUT ANY DIFFIC ULTY. THE FINDING THAT AN ARTICLE WAS IN USE IN THE INTERVAL IS NOT BASED UPON ITS BEING PUT TO ACTIVE USE AT THE END OF THE INTERVAL, BUT UPON ITS AVAILABILITY FOR ACTIVE USE WHENEVER R EQUIRED DURING THE INTERVAL. WHETHER IT WAS IN USE DURING T HE INTERVAL DOES NOT DEPEND UPON WHAT HAPPENS TO IT AT THE END OF THE INTERVAL. MERELY BECAUSE IT IS SOLD WHILE IT IS AWA ITING A CALL FOR ACTIVE USER AND THEREUPON ITS BEING PUT IN ACTI VE USE BECOMES IMPOSSIBLE, IT CANNOT BE SAID THAT IT CEASE D TO BE IN USE SINCE THE LAST ACTIVE USER ; THE DETERMINATION OF THE QUESTION WHETHER IT WAS IN USE DURING THE INTERVAL OR NOT CANNOT REMAIN IN SUSPENSION TILL IT IS PUT IN ACTIV E USE (AND THEN HOLD, WITH RETROSPECTIVE EFFECT THAT IT HAD BE EN IN USE THROUGHOUT THE INTERVAL), OR TILL ITS BEING PUT IN ACTIVE USE BECOMES IMPOSSIBLE ON ACCOUNT OF ITS BEING SOLD OR LOST OR DAMAGED IN AN ACCIDENT (AND THEN HOLD THAT IT HAD N OT BEEN IN USE SINCE THE LAST ACTIVE USER). THE COURT HELD THAT ARTICLE WAS CONTINUE TO BE IN USE AFTER THE LAST ACTIVE US ER, EVEN IF IT IS SOLD OR IS LOST, PROVIDED IT WAS KEPT IN A FIT C ONDITION AND WAS AVAILABLE FOR ACTIVE USE. THE COURT HELD THAT T HE TRUCKS IN THE INSTANT CASE WERE ADMITTEDLY IN USE DURING T HE ACCOUNTING PERIOD ENDING ON 31-12-1945, AND WERE IN RUNNING ORDER ON 1-1-1946, AND CAPABLE OF BEING PUT TO ACTIVE USE. IF THERE WAS NO EVIDENCE THAT THEY WERE DRIVEN FOR HIRE ON 1-1-1946, THERE WAS ALSO NO EVIDENCE THAT T HEY WERE PUT OUT OF USE AT THE BEGINNING OF THAT DAY. IF THE Y WERE IN USE UP TO THE MIDNIGHT OF 31-12-1945, NOTHING HAPPE NED IN ORDER TO PUT THEM OUT OF USE AT THE FIRST MOMENT OF 1-1-1946, OR AT ANY SUBSEQUENT DATE, BUT PRIOR TO THEIR SALE. THEY COULD NOT BE USED AFTER THE SALE, AND IT MIGHT BE SAID TH AT THE SALE PUT THEM OUT OF USE, BUT THIS HAPPENED DURING THE D AY OF 1- ITA NO. 1165/M/06 M/S SWATI SYNTHETICS LTD . 24 1-1946, AND THE EFFECT OF THE SALE DID NOT RELATE B ACK TO THE FIRST MOMENT OF 1-1-1946. IF THEY WERE IN USE FOR A NY LENGTH OF TIME ON 1-1-1946, I.E., DURING A FEW HOURS, IT W AS ENOUGH, THE PERIOD OF USER BEING OF NO CONSEQUENCE.. THEY W ERE AVAILABLE FOR BEING DRIVEN ON HIRE, AND, THEREFORE, WERE IN USE JUST BEFORE THEY WERE SOLD. WHEN THEY HAD ADMITTEDL Y BEEN IN USE UP TO A FEW HOURS BEFORE THEIR SALE AND THEY WE RE NOT PUT OUT OF USE, THE SALE MUST BE HELD TO BE SALE OF PLA NT USED FOR THE PURPOSES OF THE ASSESSEE'S BUSINESS. E) THE HONBLE SUPREME COURT IN THE CASE OF LIQUIDATO RS OF PURSA LIMITED V. COMMISSIONER OF INCOME-TAX [1954] 25 ITR 265 (SC) HELD THAT THE WORDS 'USED FOR THE PURPOSES OF THE BUSINESS' OBVIOUSLY MEAN USED FOR THE PURPOSE OF EN ABLING THE OWNER TO CARRY ON THE BUSINESS AND EARN PROFITS IN THE BUSINESS. IN OTHER WORDS, THE MACHINERY OR PLANT MU ST BE USED FOR THE PURPOSE OF THAT BUSINESS WHICH IS ACTU ALLY CARRIED ON AND THE PROFITS OF WHICH ARE ASSESSABLE UNDER THE ACT. IT IS FURTHER HELD THAT THE WORD 'USED' HAS B EEN READ IN SOME OF THE POOL CASES IN A WIDE SENSE SO AS TO INC LUDE A PASSIVE AS WELL AS ACTIVE USER. 7.12 TO EXAMINE THE ISSUE UNDER CONSIDERATION IT IS ALSO NECESSARY TO CONSIDER THE PRINCIPLE OF COMMERCIAL E XPEDIENCY. THAT WHAT THE INCOME-TAX ACT PURPORT TO TAX IS BUSINESS PROFITS, AND BUSINESS PROFITS ARE THE TRUE PROFITS OF A BUSINESS AS ASCERTAINED ACCORDING TO COMMERCIAL PRINCIPLES. IT IS THE DUTY OF EVERYONE WHO HAS ANYTHING TO DO WITH TAXING BUSINESS-PEOPLE TO U NDERSTAND WHAT THE PRINCIPLES OF COMMERCIAL EXPEDIENCY ARE. UNLESS ONE UNDERSTANDS THESE PRINCIPLES IT IS DIFFICULT TO MAK E A PROPER ASSESSMENT ON A BUSINESS OR ON A BUSINESSMAN. 7.12.1 THE BLOCK CONCEPT OF DEPRECATION WAS INTR ODUCED BY THE TAXATION LAWS (AMENDMENT AND MISCELLANEOUS PROVISIO NS) ACT, 1986 WITH EFFECT FROM 1-4-1988 .THE BOARD ISSUED A CIRCULAR (CIRCULAR NO. 469 DATED 23RD SEPTEMBER, 1986 REPORT ED IN 162 ITR STATUTES PAGE 21). THE PURPOSE / OBJECT OF THE SCH EME OF DEPRECIATION ON BLOCK OF ASSETS WHICH HAS BEEN CLAR IFIED BY THE FINANCE MINISTER IN HIS BUDGET SPEECH WHICH IS REPR ODUCED FROM THE SAID CIRCULAR AS UNDER:- (III) NEW PROVISIONS FOR ALLOWING DEPRECIATION IN RESPECT OF BLOCKS OF ASSETS ITA NO. 1165/M/06 M/S SWATI SYNTHETICS LTD . 25 6.1 IN HIS BUDGET SPEECH FOR THE YEAR 1986-87, THE FINANCE MINISTER HAD ANNOUNCED AS UNDER : 96. AS PROMISED IN THE LONG TERM FISCAL POLICY STA TEMENT, I PROPOSE TO INTRODUCE A SYSTEM OF ALLOWING DEPRECIAT ION IN RESPECT OF BLOCKS OF ASSETS INSTEAD OF THE PRESENT SYSTEM O F DEPRECIATION ON INDIVIDUAL ASSETS. SIMULTANEOUSLY, I PROPOSE TO RATIONALISE THE RATE STRUCTURE BY REDUCING THE NUMBER OF RATES AS A LSO BY PROVIDING FOR DEPRECIATION AT HIGHER RATES SO AS TO ENSURE THAT MORE THAN 80 PER CENT OF THE COST OF THE PLANT AND MACHINERY IS WRITTEN OFF IN A PERIOD OF 4 YEARS OR LESS. THIS WI LL RENDER REPLACEMENT EASIER AND HELP MODERNIZATION. APART FR OM THOSE ITEMS WHICH ARE ELIGIBLE FOR 100 PER CENT DEPRECIAT ION IN THE INITIAL YEAR ITSELF, THERE ARE AT PRESENT DIFFERENT RATES F OR PLANT AND MACHINERY. I PROPOSE TO HAVE ONLY TWO RATES OF DEPR ECIATION AT 33 1 /3 PER CENT AND 50 PER CENT. PLANT AND MACHINERY US ED AS ANTI-POLLUTION DEVICES AND THOSE USING INDIGENOUS K NOW-HOW ARE PROPOSED TO BE PLACED IN A BLOCK CARRYING THE HIGHE R RATE OF DEPRECIATION OF 50 PER CENT. BUILDINGS MEANT FOR LO W-PAID EMPLOYEES OF INDUSTRIAL UNDERTAKINGS WILL BE ENTITL ED TO DEPRECIATION AT 20 PER CENT AS AGAINST THE GENERAL RATE OF 5 PER CENT FOR RESIDENTIAL BUILDINGS AND 10 PER CENT FOR NON-RESIDENTIAL BUILDINGS. 7.12.2 THIS NEW SCHEME OF DEPRECIATION ON BLOCK O F ASSETS IS BASED ON REPORT OF ECONOMIC ADMINISTRATION REFORMS COMMISSION AS STATED IN THE SAID CIRCULAR READS AS UNDER:- 6.3 AS MENTIONED BY THE ECONOMIC ADMINISTRATION RE FORMS COMMISSION (REPORT NO. 12, PARA 20), THE EXISTING S YSTEM IN THIS REGARD REQUIRES THE CALCULATION OF DEPRECIATIO N IN RESPECT OF EACH CAPITAL ASSET SEPARATELY AND NOT IN RESPECT OF BLOCK OF ASSETS. THIS REQUIRES ELABORATE BOOK-KEEPING AND TH E PROCESS OF CHECKING BY THE ASSESSING OFFICER IS TIME CONSUM ING. THE GREATER DIFFERENTIATION IN RATES, ACCORDING TO THE DATE OF PURCHASE, THE TYPE OF ASSET, THE INTENSITY OF USE, ETC., THE MORE DISAGGREGATED HAS TO BE THE RECORD-KEEPING. MOREOVE R, THE PRACTICE OF GRANTING THE TERMINAL ALLOWANCE AS PER SECTION 32(1)(III) OR TAXING THE BALANCING CHARGE AS PER SE CTION 41(2) OF THE INCOME-TAX ACT NECESSITATE THE KEEPING OF RECOR DS OF DEPRECIATION ALREADY AVAILED OF BY EACH ASSET ELIGI BLE FOR DEPRECIATION. IN ORDER TO SIMPLIFY THE EXISTING CUM BERSOME PROVISIONS, THE AMENDING ACT HAS INTRODUCED A SYSTE M OF ALLOWING DEPRECIATION ON BLOCK OF ASSETS. THIS WILL MEAN THE CALCULATION OF LUMP SUM AMOUNT OF DEPRECIATION FOR THE ENTIRE BLOCK OF DEPRECIABLE ASSETS IN EACH OF THE FOUR CLA SSES OF ASSETS, NAMELY, BUILDINGS, MACHINERY, PLANT AND FUR NITURE 7.13 FROM ABOVE DISCUSSIONS WE NOTICED THAT THE CONCEPT OF ALLOWING DEPRECIATION ON BLOCK OF ASSETS HAS BEEN I NTRODUCED IN THE STATUTES WITH CERTAIN OBJECTS. THE CALCULATION OF D EPRECIATION IN ITA NO. 1165/M/06 M/S SWATI SYNTHETICS LTD . 26 RESPECT OF EACH CAPITAL ASSET SEPARATELY REQUIRES E LABORATE BOOK KEEPING AND PROCESS OF CHECKING BY THE AO IS TIME C ONSUMING. THE PRACTICE OF GRANTING TERMINAL ALLOWANCE FOR TAXING THE BALANCING CHARGE UNDER THE INCOME TAX NECESSITATE THE KEEPING OF RECORDS AND DEPRECIATION ALREADY AVAILED BY EACH ASSET ELIGIBLE FOR DEPRECIATION NECESSITATED SIMPLY THE SYSTEM OF ALLOWING DEPRECIA TION OF BLOCK OF ASSETS HAVE BEEN INTRODUCED BY THE TAXATION LAWS (A MENDMENT AND MISCELLANEOUS PROVISIONS) ACT, 1986., WITH EFFECT F ROM 01.04.1988 TO GIVE EFFECT TO THIS NEW SYSTEM REGARDING DEPRECI ATION BALANCING CHARGE AND CAPITAL GAIN RELEVANT PROVISIONS WERE AL SO AMENDED ACCORDINGLY. NO DOUBT, THE EXPRESSION USED IN S. 32 IS USED FOR THE PURPOSES OF THE BUSINESSES. HOWEVER, THIS EXPRESSIO N HAS TO BE READ IN COMMERCIAL SENSE AND IT IS TO BE INTERPRETE D ON THE PRINCIPLE OF INTERPRETATION OF HARMONIOUS CONSTRUCT IONS WITH THE EXPRESSION OF THE WORD USED IN SECTION 32(1), THE WORDS ACQUIRED DURING THE PREVIOUS YEAR IN SECTION 43(6), AN ASSE T NOT EXCLUSIVELY USED FOR THE PURPOSES OF THE BUSINESS OR PROFESSION BUT USED OTHER THAN BUSINESS PURPOSES AS PROVIDED IN SECTION 38(2) OF THE ACT AND THE PROVISIONS RELATED TO TAXABILITY OF CAP ITAL GAIN ON TRANSFER OF ASSET FROM BLOCK AND CEASES TO EXIST OF BLOCK AS PROVIDED IN SECTION 50 OF THE ACT. SECTION 32(1)(III) LAYS D OWN THE DETAILS AND REQUIREMENT WITH RESPECT TO CLAIM OF DEPRECIATION I NTER ALIA OF DISCARDED MACHINERY, OBVIOUSLY, WHEN A THING IS DIS CARDED IT IS NOT USED. THUS USE AND DISCARDING ARE NOT IN THE SA ME FIELD AND CANNOT STAND TOGETHER. HOWEVER, IF WE ADOPT A HARMO NIOUS READING OF THE EXPRESSIONS USED FOR THE PURPOSES OF THE BU SINESS AND DISCARDED THEN IT WOULD SHOW THAT USED FOR THE P URPOSE OF BUSINESS ONLY MEANS THAT THE ASSESSEE HAS USED THE MACHINERY FOR THE PURPOSES OF THE BUSINESS IN EARLIER YEARS. THIS TYPE OF INTERPRETATION IS SUPPORTED BY THE JUDGMENT OF HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF COMMISSION ER OF INCOME- TAX V. VISVANATH BHASKAR SATHE [1937] 5 ITR 21 (B OM) WHERE IN THE COURT EXAMINED THE WORDS USED AND HELD THAT THE WORD USED IN SECTION 10(2)(VI) OF 1922 ACT DENOTES ACT UAL USER, AND NOT MERELY BEING CAPABLE OF BEING USED. BUT THAT DOES N OT DISPOSE OF THE QUESTION WHETHER, WHEN MACHINERY IS KEPT READY FOR USE AT ANY ITA NO. 1165/M/06 M/S SWATI SYNTHETICS LTD . 27 MOMENT IN A PARTICULAR FACTORY UNDER AN EXPRESS CON TRACT FROM WHICH TAXABLE PROFITS ARE EARNED, THE MACHINERY CAN BE SAID TO BE USED FOR THE PURPOSES OF THE BUSINESS WHICH EARNS T HE PROFITS, ALTHOUGH IT IS NOT ACTUALLY WORKED. THE BUSINESS FR OM WHICH THE PROFITS WERE DERIVED WAS THAT OF GINNING FACTORIES, AND THE CONTRIBUTION OF THE ASSESSEE TO THAT BUSINESS WAS T HE OBLIGATION TO KEEP HIS MACHINERY READY FOR ACTUAL USE AT ANY MOME NT. IT WAS FURTHER HELD THAT THE WORD USED IN SECTION 10(2)( VI) OF 1922 ACT MAY BE GIVEN A WIDER MEANING AND EMBRACES PASSIVE A S WELL AS ACTIVE USER. MACHINERY WHICH IS KEPT IDLE MAY WELL DEPRECIATE, PARTICULARLY DURING THE MONSOON SEASON. THE ULTIMAT E TEST IS, WHETHER, WITHOUT THE PARTICULAR USER OF THE MACHINE RY RELIED UPON THE PROFITS SOUGHT TO BE TAXED COULD HAVE BEEN MADE ; AND IN THE CASE, THE PROFITS OF THE ASSESSEE DURING THE YEAR U NDER ASSESSMENT COULD NOT HAVE BEEN EARNED EXCEPT BY HIS MAINTAININ G HIS FACTORY IN GOOD WORKING ORDER, AND THAT INVOLVES THE USER OF T HE FACTORY AND THE MACHINERY. RECENTLY AFTER INTRODUCING THE BLOCK CONCEPT OF DEPRECIATION, HONBLE JURISDICTIONAL HIGH COURT DIS MISSED THE APPEAL OF REVENUE VIDE THEIR JUDGMENT DATED 28.7.20 09 FOR WANT OF SUBSTANTIAL QUESTION OF LAW APPEAL FILED BY THE REV ENUE AGAINST THE ORDER OF THE ITAT MUMBAI IN THE CASE OF G.R SHIPPIN G LTD ITA NO 822/MUM/ 05 ORDER DATED 17.7.2008. THE ITAT HELD TH AT DEPRECIATION ON (SHIP) BARGE WHICH INCLUDED IN BLOC K OF ASSET THEREFORE DEPRECATION IS ALLOWABLE EVEN THOUGH SAID BARGE WAS NOT USED FOR THE PURPOSE OF BUSINESS DURING THE FINANCI AL YEAR. THE HONBLE JURISDICTIONAL HIGH COURT IN THE SAID CASE OF G.R. SHIPPLING LTD., AGAINST THE REVENUE APPEAL, IN INCOME TAX AP PEAL NO. 598 OF 2009, VIDE ORDER DATED 28 TH JULY, 2009, HELD AS UNDER:- 1. HEARD LEARNED COUNSEL FOR THE PARTIES. 2. THE QUESTION SOUGHT TO BE RAISED IN THIS APPEAL IS BASED ON THE GROUND OF NON-USER OF THE BARGE IN THE SUBJECT A.Y. THOUGH THEY WERE USED IN THE PREVIOUS A.Y. ACCORDING TO RE VENUE, DEPRECIATION WOULD NOT BE AVAILABLE UNDER SECTION 3 2 OF THE INCOME TAX ACT. THE QUESTION SOUGHT TO BE CANVASSED IS SQUARELY COVERED BY TWO JUDGMENTS OF THIS COURT ONE IN THE CASE OF WHITTLE ANDERSON LTD. VS. CIT 79 ITR 613 AN D ANOTHER IN THE CASE OF CIT VS. G.N. AGRAWAL (INDIVIDUAL) 21 7 ITR 250. ITA NO. 1165/M/06 M/S SWATI SYNTHETICS LTD . 28 IN THIS VIEW OF THE MATTER, APPEAL STANDS DISMISSED FOR WANT OF SUBSTANTIAL QUESTION OF LAW. 7.14 IN CONCEPT OF DEPRECATION ON BLOCK ASSETS ONE DOUBT COMES TO THE MIND THAT HOW DEPRECATION CAN BE ALLOWED ON ASSETS WHICH WERE NOT USED FOR THE PURPOSE OF BUSINESS. THE REPL Y TO THIS DOUBT IS AVAILABLE IN THE OBJECT OF THE SCHEME AND RESPEC TIVE CONSEQUENCE AMENDMENTS IN THE ACT. THE LEGISLATURE WAS AWARE AB OUT THIS SITUATION THEREFORE VARIOUS CORRESPONDING AMENDMENT S WERE MADE IN RESPECTIVE PROVISIONS OF THE ACT. IF ANY DEPRECI ATION HAS BEEN CLAIMED ON AN ASSET OF BLOCK OF ASSETS WHICH WAS NO T USED, THAN THE PROFIT /INCOME FOR THAT YEAR WILL BE REDUCED BU T THIS ASPECT OF THE MATTER HAS BEEN TAKEN CARE BY THE AMENDED SECTI ON 50 OF THE ACT, WHEN ASSET IS TRANSFERRED/SOLD AND BLOCK CEASE S THE CALCULATION OF SHORT TERM CAPITAL GAIN WILL BE MORE AS IN THOSE CASES WDV WILL BE LESS. 7.15 IN THE LIGHT OF ABOVE DISCUSSIONS THE COND ITION/REQUIREMENT OF SECTION OF WORD USED FOR THE PURPOSE OF BUSINES S AS PROVIDED IN SECTION 32 OF (1) OF THE ACT FOR THE CONCEPT OF DEP RECATION ON BLOCK OF ASSETS CAN BE SUMMARIZED, THAT USE OF INDIVIDUAL ASSET FOR THE PURPOSE OF BUSINESS CAN BE EXAMINED ONLY IN THE FIR ST YEAR WHEN THE ASSET IS PURCHASED. IN SUBSEQUENT YEARS US E OF BLOCK OF ASSETS IS TO BE EXAMINED. EXISTENCE OF INDIVIDUA L ASSET IN BLOCK OF ASSET ITSELF AMOUNTS TO USE FOR THE PURPOS E OF BUSINESS. THIS VIEW IS FULLY SUPPORTED BY VARIOUS PROVISIONS OF THE ACT WHICH WERE AMENDED CONSEQUENCE TO THE SCHEME OF DEPRECIAT ION ON BLOCK OF ASSET INCLUDING TO PROVISO TO SECTION 32 OF THE ACT OF WHICH DETAILED DISCUSSION IS MADE IN ABOVE PARA OF THIS O RDER. THE SAID PROVISO TO SECTION 32 REQUIRES THAT WHERE AN ASSE T IS ACQUIRED BY THE ASSESSEE DURING THE PREVIOUS YEAR AND IS PUT TO USE FOR THE PURPOSES OF BUSINESS OR PROFESSION FOR A PERIOD OF LESS THAN ONE HUNDRED AND EIGHTY DAYS IN THAT PREVIOUS YEAR, THE DEDUCTION UNDER THIS SUB-SECTION IN RESPECT OF SUCH ASSET SHA LL BE RESTRICTED TO FIFTY PER CENT OF THE AMOUNT CALCULATED AT THE P ERCENTAGE PRESCRIBED FOR AN ASSET UNDER CLAUSE (I) OR CLAUSE (II) OR CLAUSE (IIA)], AS THE CASE MAY BE. WHEN AN ASSET PURCHASED IS SATISFIED THE ITA NO. 1165/M/06 M/S SWATI SYNTHETICS LTD . 29 ABOVE CONDITION IN THE YEAR OF PURCHASE THAT ASSET WILL BE INCLUDED IN THE RESPECTIVE BLOCK OF ASSET. DEPRECATION FOR T HAT YEAR WILL BE CALCULATED ON WRITTEN DOWN VALUE IN ACCORDANCE WITH SECTION 43(6) OF THE ACT BY THE INCREASE OPENING WDV BY THE ACTUA L COST OF ANY ASSET FALLING WITHIN THAT BLOCK, ACQUIRED DURING TH E PREVIOUS YEAR. ONCE AN ASSET IS INCLUDED IN THE BLOCK OF ASSETS IT S REMAINED IN BLOCK FOR ITS ENTIRE LIFE. THE END OF ASSET I.E. TO GO OUT FROM BLOCK IS ONLY IN ACCORDANCE WITH THE PROVISIONS OF THE ACT. THERE ARE FOLLOWING THREE SITUATIONS PROVIDED IN THE STATUTES WHEN AN INDIVIDUAL ASSET OF THE BLOCK GOES OUT OF BLOCK:- 1) AN ASSET IS SOLD OR DISCARDED OR DEMOLISHED OR DESTROYED DURING THAT PREVIOUS YEAR AS PROVIDED IN SECTIONS 4 3(6)(I)(B) AND 32(1)(III) OF THE ACT . 2) AN ASSET NOT EXCLUSIVELY USED FOR THE PURPOSES O F THE BUSINESS OR PROFESSION BUT USED OTHER THEN BUSINE SS PURPOSES AS PROVIDED IN SECTION 38(2) OF THE ACT. 3) WHERE ANY BLOCK OF ASSETS DOES NOT CEASE TO E XIST BUT THE FULL VALUE OF THE CONSIDERATION RECEIVED OR ACCRUIN G AS A RESULT OF THE TRANSFER OF THE DEPRECIABLE ASSETS BY THE ASSES SEE DURING THE PREVIOUS YEAR EXCEEDS THE AGGREGATE OF THE AMOUNTS STATED IN SECTION 50 OF THE ACT AND WHERE ANY BLOCK OF ASSETS CEASES TO EXIST FOR THE REASON THAT ALL THE ASSETS IN THAT BL OCK ARE TRANSFERRED DURING THE PREVIOUS YEAR. 7.16 IN THE CASE UNDER CONSIDERATION THE ADMITTE D FACTS ARE THAT THE DIVISION OF SURAT HAD BEEN CLOSED BUT THE BLOCK OF ASSETS OF THE CLOSED UNIT, ( THE DIVISION OF SURAT) ALONG WITH OTHER ASSETS OF THE BLOCK WERE USED FOR THE PURPOSE OF BUSINESS IN EARL IER YEARS. THE YEAR UNDER CONSIDERATION IS NOT THE FIRST YEAR OF T HE ASSETS ACQUIRED. THE ASSETS OF CLOSED UNIT STILL REMAINED EXIST/PART OF THE BLOCK OF ASSETS. THE ASSETS DID NOT FALL UNDER ANY OF THE ABOVE EXCEPTIONAL THREE CONDITIONS. THE SAID BLOCK OF ASS ETS WAS USED FOR THE PURPOSE OF BUSINESS DURING THE YEAR. UNDER THE CIRCUMSTANCES THE ASSETS OF THE SAID CLOSED UNIT AMOUNTS TO USE F OR THE PURPOSE OF BUSINESS IN THE YEAR UNDER CONSIDERATION , WE ARE, THEREFORE, OF THE CONSIDERED VIEW THAT THE ASSESSEE IS ENTITLED FOR D EPRECATION. WE ACCORDINGLY ALLOW THE CLAIM OF THE ASSESSEE. ITA NO. 1165/M/06 M/S SWATI SYNTHETICS LTD . 30 7.17 IN THE RESULT, THE APPEAL OF THE ASSESSEE IS A LLOWED. ORDER PRONOUNCED ON THE 17 TH DAY OF DECEMBER, 2009. SD/- SD/- (ASHA VIJAYARAGHAVAN) (A.L. GEHLO T) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 17 TH DECEMBER, 2009 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A) CONCERNED. 4) THE CIT CONCERNED. 5) THE DEPARTMENTAL REPRESENTATIVE, I BENCH, I. T.A.T., MUMBAI. BY ORDER //TRUE COPY// ASST. REGISTRAR, IT.A.T., MUMBAI. KV