Facts of the Case:
In this case, the revenue challenged the decision of the Income Tax Appellate Tribunal (ITAT), which allowed the assessee’s claim for depreciation for the assessment year (AY) 2009-10. M/s Cairs Computer Aided Information & Services Pvt. Ltd. (the respondent) provides online lottery services on behalf of the Nagaland Government and appointed distributors and sub-distributors for this purpose. The dispute was over whether the assessee’s assets, used in its business, could be depreciated for the AY 2009-10, particularly in light of the fact that these assets were claimed to have been used by a sub-distributor.

Issues Involved:

  • Whether depreciation can be allowed on assets that were used for the business in earlier years, even though they were not purchased in the assessment year in question.
  • Whether the assets, being part of the existing block of assets, qualify for depreciation despite their usage being confirmed by a sub-distributor.

Petitioner’s Arguments (Revenue):
The revenue argued that the assessee’s claim for depreciation on assets used by a sub-distributor was not valid. The petitioner pointed out that the assessee was unable to demonstrate that the assets were owned by them in the relevant year.

Respondent’s Arguments (Assessee):
The assessee argued that the assets were part of the block of assets for earlier years (AY 2006-07 and 2007-08), and depreciation had been allowed on these assets in those years. Additionally, the assessee had demonstrated that the assets were used in their business of online lottery, including confirmation from a sub-distributor.

Court Order/Findings:
The Delhi High Court upheld the ITAT’s decision and dismissed the revenue’s appeal. The Court noted that the assets in question were purchased in earlier years (AY 2006-07 and 2007-08), and depreciation was allowed in those years. The Court held that there was no merit in reopening the assessment for AY 2009-10, especially since the sub-distributor confirmed the assets' use. The Court emphasized that these assets were already part of the block of assets and, therefore, eligible for depreciation.

Important Clarification:
The Court clarified that once assets are part of a block, any subsequent assessment about ownership or usage in later years becomes irrelevant. Depreciation should continue to be allowed on such assets, provided they are used for the business purposes.

Sections Involved:

  • Section 143(3): Assessment under this section was completed for AY 2006-07 and 2007-08, with depreciation allowed for the assets.
  • Section 133(6): Information was sought from a sub-distributor, confirming that the machinery on site was provided by the assessee.

Link to download the order: https://delhihighcourt.nic.in/app/case_number_pdf/2015:DHC:3650-DB/RKG22042015ITA2732015.pdf 

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