In the present case A.O. disallowed the depreciation of Rs.2532656/- on fixed assets of ‘Jorhar Unit’ of Pan Parag India Ltd due to non running of unit since A.Y.2008-09 which is itself admitted by the assessee.
On appeal by Assessee, first appellate authority deleted the disallowance of depreciation on the basis that the assets were put to use in earlier years and depreciation was also allowed in earlier years.
Aggrieved by the decision, revenue filed the appeal before Tribunal.
Held that Section 38(2) empowers the Assessing Authority to disallow fairly proportionate part of deductions under sub-clause (ii) of clause (a) and clause (c) of section 30, clause (i) and (ii) of section 31 and clause (ii) of sub-section (1) of section 32, where any building, machinery, plant or furniture is not exclusively used for the purpose of business or profession.
Tribunal held that the thrust of section 38(2) is on user for Business purpose. ‘If an Identifiable item of fixed asset out of block of assets is not exclusively used for business purpose, proportionate disallowance of depreciation is justified.
It cannot be interpreted that if an identifiable item of fixed assets out of block of assets is not used for business purpose at all, full depreciation is allowable but if some part of the same assets is used for personal purpose, then proportionate disallowance can be made.
Taking the above ground it was held that it is undisputed fact that the ‘Jorhar Unit’ of the assessee did not function at all in the present year and its assets although part of block of assets are identifiable and therefore as per provision of section 38(2) of the Act, depreciation is not allowable because assets of this unit were not used for business purposes in the present year. Appeal of Revenue is allowed.
Personal Comment- For claiming depreciation following conditions must be satisfied.
If any of the above conditions is not satisfied, depreciation shall not be allowed.