Breakdown and Technical Snags of Machineries during Trial runs cannot be a reason for denying Depreciation: Bombay HC grants relief to L & T [Read Judgment]

The Bombay High Court, while granting relief to Larsen And Turbo, nearly more than a decade of facing disputes in its Clinker/Cement Factory in Gujarat, held that breakdown and technical snags of machineries during trial runs cannot be a reason for denying depreciation to assesse under Section 32 of the Income Tax Act, 1961.

The assesse, in the instant case, was deprived of its benefits of depreciation of its machineries because of the breakdown and technical snags faced by the facility during its trial run which, eventually delayed their production of marketable quality.

The Court was of the opinion that, once plant commences operation and even if product is substantial and not marketable, the business can be said to have been set up.

Justice A.S. Oka and Justice A.K. Menon while disposing off the case in favor of the assesse found no substantial question of law that required to be aroused to their consideration and were quoted, “We have no hesitation in holding that the Order of the Tribunal cannot be faulted inasmuch as the jurisdictional High Court has already held that once plant commences operation and even if product is substantial and not marketable, the business can said to have been set up. Mere breakdown of machinery or technical snags that may have developed after the trial run which had interrupted the continuation of further production for a period of time cannot be held ground to deprive the assessee of the benefit of depreciation claimed.”