Sambhav Energy Ltd. v. ACIT – [2023]
The company being an assessee is in the business of producing and selling electricity. Assessee claimed depreciation on the company assets when filing the income tax return. The Assessing Officer (AO) became aware during the assessment process that the assessee had not engaged in any commercial activity during the pertinent assessment year.
In response, the assessee stated that it had ceased operations since the production had become unprofitable due to the sale price being below the cost of production. Because the assessee had no intention of engaging in the commercial activity, the AO rejected the depreciation claim and increased the assessee’s income.
Following an appeal, the CIT(A) upheld the AO’s amendments, and the case was then brought before the Jodhpur Tribunal.
The Tribunal determined that the assessee had not totally ceased operations as the tax authorities had assumed. It was not proven that the energy generation business was totally abandoned, notwithstanding the AO’s claim that the assessee did not begin business activities in the following years either.
In this instance, the assessee kept the assets available for use and solely anticipated a good market environment. When the market situation improves, the assessed party may bring its firm back to life. Additionally, the commercial space was being adequately maintained and producing additional forms of cash. As a result, the AO’s additions were removed.
