Delhi HC allows Depreciation Claim of Rs. 4 Cr by Sony India Pvt Ltd [Read Judgment]

CA / CMA - Sony India - Taxscan

The division bench of the Delhi High Court allowed depreciation of Rs. 4,42,22,475/- to the Sony India Pvt Ltd. Earlier, the AO had disallowed the same by relying upon the Delhi High Court decision in Allied Electronics and Magnetics Ltd. v. CIT.

The appellants challenged the order of the Appellate Tribunal denying their claim for depreciation under Section 32 of the Income Tax Act, 1961, in respect of the balance written down value relating to Daru Hera unit, forming part of the block of assets.

Appellants are engaged in the assembling and distribution of colour televisions, audio products and high-end electronic goods, including DVDs and handy cams. It inter alia imported goods from its associated enterprises (AEs) and also rendered advisory services and software development services to such AEs. For the year 2005-06, the AO disallowed the depreciation towards the assets of its manufacturing activity in Daru Hera plant which was sold and transferred. It was found that these assets were part of a block of assets. The AO observed that the assessee was neither owner of the plant and machinery nor used it for the purpose of business.Both the CIT(A) and the ITAT confirmed the view expressed in the assessment order.

Before the High Court, the assessee submitted that in view of amendment brought in section 43 and 50 of the Act, wherever an assessee maintains several capital assets which form a block, the composite nature of the asset block and its tax treatment cannot be dependent upon whether the whole exists or parts thereof are sold-off or transferred. The assessee relied upon the decision in CIT v. Oswal Agro Mills Ltd. They further claimed that they are entitled to depreciation in respect of the assets, which were part of the Daru Hera unit, even if the assets had not been put to use during the assessment year 2005-2006 and had been sold prior to the end of the accounting year

The bench observed that in Oswaland Ansal Properties, the courts took a view that the Parliament had deleted the provision for terminal depreciation in respect of each asset that was previously allowed under Section 32(1)(c) and the taxation of balancing charge under Section 41(2) in the year when the sale was concluded.

In view of the above decision, the bench said that the reliance placed upon Allied Electronics (supra) cannot be applied in the instant case since the judgment did not take into account the changes brought about through the amendment and appears to have been on an appreciation of Maharashtra Minerals Corporation Ltd. v. CIT 1995 (216) ITR 575. “That decision was in the context of law prevailing in 1972-73 – obviously before the amendments were made to the Act prior to the introduction of the concept of block assets.”

Read the full text of the Judgment below.

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