Full Judgment
2. In both these appeals the only dispute is regarding the eligibility of depreciation at 100 per cent on scaffolding material. First we shall take up for consideration the facts in the asst. yr. 1993-94. The assessee is a company and it is engaged in the business of civil engineering and construction work for industrial units. In the claim for depreciation, the assessee included a sum of Rs. 34,82,091. This was nothing but the cost of scaffolding materials, which were purchased during the previous year. The assessee claimed 100 per cent depreciation on these scaffolding materials on the ground that each item of the material did not exceed Rs. 5,000. The AO called for the details with regard to purchase of these scaffolding materials and he noticed that the scaffolding materials of the value of Rs. 4,19,440 purchased under Bill No. 18 dt. 23rd March, 1993 from M/s High Reach Construction Equipment (P) Ltd., have been made five days before the close of accounting year. To verify whether these scaffolding materials had been used at the site, the AO examined details of transportation of these scaffolding materials to the site office at Distt. Khargaon, MP.On such examination, the AO noticed the following ; (a) The AO noticed that out of the scaffolding materials purchased on 26th March, 1993, materials worth Rs. 2,82,740 reached only the Delhi site and they were not dispatched to the site at Khargaon, MP. In such circumstances, the AO concluded that these materials could not have been used for the purpose of business and consequently, he disallowed the claim for depreciation at 100 per cent in respect of these items.
(b) The AO also noticed that the scaffolding material worth Rs. 1,36,700 were dispatched from Delhi Office to site office, were not put to use. In this regard the AO made a reference to the fact that only on 30th March, 1993 these materials were dispatched to the site office at Khargaon, MP, He expressed the opinion that the site was 1000 km. from Delhi and, therefore, it could not have reached the site office on or before 31st March, 1993. The claim for depreciation in respect of these materials were not disallowed (allowed) by the AO. The total disallowance of depreciation made by the AO was thus, at a sum of Rs. 4,19,400.
3. Aggrieved by this disallowance, the assessee preferred appeal before the CIT(A). It appears that nobody attended before the CIT(A) and the CIT(A) confirmed the order of AO making the disallowance of depreciation. Against this order, the assessee has preferred the present appeal before this Tribunal.
4. As far as the facts in asst. yr. 1993-94 are concerned, they are as follows : In this assessment year, the assessee had claimed depreciation at 100 per cent of scaffolding material worth Rs. 22,72,378 which were purchased during the previous year relevant to asst. yr. 1994-95. In this year also, the AO called for the details with regard to the date" of purchase of the scaffolding materials and their use for the purpose of business of the assessee. On examination of such details, the AO noticed that the entire scaffolding materials were purchased from companies in Delhi, namely, High Reach Overseas (P) Ltd. and High Reach Construction Equipment (P) Ltd. and also from one M/s Goel Trading Company. The AO noticed that certain scaffolding materials were purchased only on the last clay of the financial year, i.e., 31st March, 1994. The AO also noticed that some materials were received only after 1st April, 1994. The AO thereafter made reference to different invoice numbers and the corresponding Goods Inward Note (GNI). The details of which were as follows : 1. Goods worth Rs. 1,55,739 though purchased under Invoice No 30/23rd March, 1994 had been received by the assessee only on 12th April, 1994 under goods received GRN No. 4092.
2. Goods worth Rs. 1,75,480 purchased under Invoice No. 31/25th March, 1994, actually reached at the site only on 2nd April, 1994 and 11th April, 1994.
3. Goods worth at Rs. 1,31,722 purchased under Invoice No. 32/25th March, 1994 were actually received only on 21st April, 1994 by the assessee.
4. Goods at the value of Rs. 67,185 purchased under Invoice No. 33 dt. 28th March, 1994 received by the assessee only on 12th April, 1994 and 13th April, 1994.
5. Goods at the value of Rs. 45,903 purchased under the Invoice No. 36/31st March, 1994 were received by the assessee only on 31st March, 1994.
6. Goods worth Rs. 40,125 purchased under Invoice No. 35 dt. 30th March, 1994 reached the assessee only on 12th April, 1994.
7. Goods valued at Rs. 12,600 purchased under Invoice No. 1008 dt.
31st March, 1994 would have reached the assessee only after the end of the previous year since no details of goods received notes were available.
5. Thus a total value of Rs. 5,94,818 representing the scaffolding materials not used for the purpose of the business of the assessee, was disallowed by the AO. The AO further noticed that goods of the value of Rs. 1,61,418 and Rs. 2,02,866 purchased from Goel Trading Company were purchased under Invoice No. 30th March, 1994 and 31st March, 1994, respectively. The goods received Note in respect of both the invoices were dt. 31st March, 1994. The time of delivery of these goods was recorded as 4.00 P.M. Since these materials reached the assessee only on 31st March, 1994 at 4.00 P.M., claim for depreciation was disallowed by the AO on the basis that it was highly improbable that the assessee could have used these materials for the purpose of its business.
Consequently, claim for depreciation of Rs. 3,64,284 was disallowed by the AO. Thus the total disallowance on depreciation was worked out by the AO at Rs. 9,59,102. Aggrieved by the order of the AO, the assessee preferred appeal before the CIT(A).
6. The CIT(A) held that the dates on which the goods were received as found by the CIT(A) was not in dispute and, therefore, he held that these items of materials could not have been put in use by the assessee. In respect of the material received by the assessee on 31st March, 1994 at 4.00 P.M. valued at Rs. 3,64,284, the CIT(A) was of the view that the findings of the AO that these goods could not have been used by the assessee was just and proper and did not call any interference. Consequently, the disallowance made by the AO came to be confirmed by the CIT(A).
7. Aggrieved by the order of the CIT(A), the assessee has preferred the aforesaid appeal before this Tribunal. We have heard the rival submissions. For the asst. yr. 1993-94, the assessee has filed an application seeking to raise the additional ground of appeal. In the additional ground, the assessee wants to contend that the scaffolding materials' expenditure is not a capital expenditure and, therefore, it has to be allowed as revenue expenditure under Section 37(1) of the Act. This prayer for adjudication of the additional ground is raised only if the claim for depreciation is found to be not admissible.
Considering the fact that this is only a legal issue, we are of the view that the same can be admitted for adjudication. We will consider this additional ground at the appropriate time.
8. As far as merits of the disallowance made by the Revenue authorities are concerned, the learned counsel relied on the decisions in the case of CIT v. Refrigeration & Allied Industries Ltd. (2001) 247 ITR 12 (Del) and in the case of CIT v. Geo Tech Construction Corporation (2000) 244 ITR 452 (Ker). In the aforesaid decision, it has been held by the Hon'ble Court that the word "used for the purpose of business" used in Section 32 for grant of depreciation includes passive user of asset in business also and that if an asset is kept ready for use, then it can be said to be used in business. Further reliance was also placed on the decision of the Hon'ble Supreme Court in the case of State of Haryana v. Dalmia Dadri Cements Ltd. 2004 (178) ELT 13 (SC), wherein the Hon'ble Supreme Court has held that the expression "used" will also include things which are "ready for use". Pointing out that all the invoices were within the end of the previous year, the learned counsel submitted that it has to be considered that the assets were ready for use and, therefore, depreciation as claimed by the assessee has to be allowed.
9. Learned Departmental Representative for the Revenue relied on the decision of the Hon'ble Bombay High Court in the case of Dineshkumar Gulabchand Agrawal v. CIT and Anr. (2004) 267 ITR 768 (Bom) wherein the Hon'ble Bombay High Court has held that the word used in Section 32 denotes actual use. He relied on the orders of the Revenue authorities.
10. We have considered the rival submissions, As far as asst. yr.
1993-94 is concerned, there is no dispute that the scaffolding materials reached the assessee's head office on or before 31st March, 1993. The scaffolding material valued, were dispatched to the site office from the main office before 31st March, 1993. Considering the ratio laid down by the Hon'ble Delhi High Court in the case of Refrigeration & Allied Industries Ltd. (supra), it can be said that the passive user of these materials had commenced as soon as the articles were dispatched to the site. As far as the depreciation on materials worth Rs. 2,82,700 are concerned, the same were lying in the main office and not dispatched to the site office. Even this would be a case of passive user. Consequently, the entire claim for depreciation for the asst. yr. 1993-94 is directed to be allowed and the disallowance made by the AO is directed to be deleted. Additional ground of appeal raised by the assessee does not require any consideration in view of the above.
11. As far as the asst. yr. 1994-95 is concerned, it is not in dispute that in respect of materials worth Rs. 5,94,818, there was delivery to the assessee only after 31st March, 1993, i.e., after the end of the previous year. In such circumstances, even the theory of passive user cannot sought to be put forth by the assessee. The action of the Revenue authorities in this regard is, therefore, upheld. As far as the depreciation on materials worth Rs. 3,64,284 is concerned, the materials reached the assessee at 4.00 P.M. on 31st March, 1994, and this was enough to come to the conclusion that the materials were ready for use. Consequently on the theory of passive user, depreciation on materials worth Rs. 3,64,284 is directed to the allowed and the appeal of the assessee for asst. yr. 1994-95 is partly allowed, while the appeal for the year 1993-94 is allowed.