B.S. Saluja, J.M. - (1.) THE following question has been referred for the opinion of the Special Bench : "Whether, after the introduction of the concept of block of assets an individual item in a block of assets loses its identity and the depreciation has to be allowed on the total block without considering whether an individual item comprised in the block has been used for business purposes or not, whether fully or partly ?"
(2.) The Division Bench happened to refer the aforesaid question to the Special Bench because the learned counsel for the assessee had placed reliance on the decision of the Jabalpur Bench of the Tribunal in the case of Packwell Printers vs. Asstt. CIT (1996) 59 ITD 340 (Jab) for the proposition that after the amendment in s. 32 w.e.f. 1st April, 1988 an individual asset loses its identity and for allowing depreciation the entire block has to be considered. On the other hand, the case of the Revenue was that such an interpretation would negate the provisions of s. 38(2) of the IT Act, 1961 (for short the Act). The Revenue had relied on the decision of the Chandigarh Bench of the Tribunal in the case of Singla Agencies vs. Asstt. CIT (1997) 60 ITD 410 (Chd), which had taken the view that an asset did not lose its identity after introduction of the concept of block of assets and that the provisions of s. 38(2) were still applicable. We have heard Shri Brij Mohan Khanna, the learned counsel for the assessee and Shri Yog Raj Saini, representative for the Revenue, at length for two days on 8th July, 1999, and 9th July, 1999.
(3.) GROUND Nos. 1 and 2 raised by the assessee are as follows : 1. That the learned CIT(A) has failed to appreciate the amended provisions governing the allowance of depreciation and has thereby erred in upholding the disallowance of 1/4th depreciation on car. 2. That depreciation is permissible on block of assets and any particular item loses its identity by merging into the block. There is no separate w.d.v. for the assets. Even the w.d.v. varies with the purchase or sale of an asset." 4.1. The brief facts relating to the issue are that the AO observed that the assessee has itself disallowed 1/4th of total vehicle repair and maintenance on account of personal and non-business use at Rs. 15,089. The AO consequently disallowed 1/4th of total depreciation claimed by the assessee on the vehicles under the provisions of s. 38(2). The disallowance was made at Rs. 9,940. 4.2. On first appeal, learned counsel submitted that the AO was not justified in making the disallowance from depreciation in view of the introduction of the system of block of assets where depreciation is allowed on the block and not an individual item as such. Learned CIT(A) considered the submissions but did not find any force in them. He referred to the provisions of s. 38(2), which are reproduced hereunder for the sake of convenience : "38(2) where any building, machinery, plant or furniture is not exclusively used for the purposes of the business or profession, the deduction under sub-cl. (ii) of cl. (a) and cl. (c) of s. 30, cls. (i) and (ii) of s. 31 and cl. (ii) of sub-s. (1) of s. 32 shall be restricted to a fair proportionate part thereof which the AO may determine, having regard to the user of such building, machinery, plant or furniture for the purposes of the business or profession." Learned CIT(A) held that in view of the said provisions and in view of the fact that the assessee itself had disallowed expenditure to the extent 1/4th the action of AO was justified. Learned CIT(A) also referred to the decision of Hon'ble Patna High Court in the case of CIT vs. K. L. Bhasin & Co. (1986) 158 ITR 623 (Pat) which observed that proportionate depreciation on motor car belonging to the firm and used by the partners for personal purposes could be disallowed.;