Depreciation on Block of Assets Not Deniable Due to Non-Use of Certain Units During the Relevant Assessment Year

The Madras High Court held that depreciation allowable on a block of assets cannot be denied merely because certain individual units forming part of that block were not operational during the relevant assessment year, so long as the block as a whole was used for the purposes of business.

In the present case, the assessee was assessed for Assessment Year 2003-04 and had claimed depreciation aggregating to ₹11.46 crore. The Assessing Officer disallowed 60% of the claim amounting to ₹6.87 crore in respect of three individual units on the ground that those units were not in operation during the relevant previous year.

The Commissioner of Income Tax (Appeals) allowed the assessee’s appeal, holding that once the assets formed part of a block of assets, depreciation could not be reduced on the basis of non-use of individual units. The Income Tax Appellate Tribunal dismissed the Revenue’s appeal, following its own decision in the assessee’s case for AY 2002-03 and relying upon settled judicial principles.

Before the High Court, the Revenue contended that depreciation was not allowable on assets which were not put to use. The Court noted that the three units had admittedly not been operated for several years and were eventually sold in 2005. However, the Court emphasized that the concept of “block of assets”, introduced in the Income-tax Act with effect from 01.04.1988, mandates that depreciation is to be computed with reference to the block as a whole and not with reference to individual assets or units.

The Court relied upon CBDT Circular No. 469 dated 23.09.1986, which clarifies the legislative intent behind the block of assets concept, namely that once assets form part of a block, they cannot be segregated for the purpose of computing depreciation, even in the absence of actual user of specific assets during the year. The Tribunal’s reliance on the decision of the Delhi High Court in CIT v. Oswal Agro Mills Ltd. was also approved, wherein it was held that depreciation cannot be denied on individual assets forming part of a block merely because such assets were not used during the relevant year.

The High Court further observed that adjustments to depreciation are contemplated only when there is sale, discard, demolition, or destruction of assets forming part of the block, and not on account of non-operation of certain units.

Accordingly, the Court held that no substantial question of law arose for consideration and dismissed the Revenue’s appeal.

Result: Decision in favour of the assessee; Revenue appeal dismissed.
Case: CIT v. Kothari Sugars and Chemicals Ltd.
Date of Judgment: 11.12.2025 (Mad.)

LINK TO DOWNLOAD THE ORDER
https://mytaxexpert.co.in/uploads/1767582850_CITv.KothariSugarsandChemicalsLtd.pdf