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Income Tax Appellate Tribunal, DELHI
Before: SH. R.K.PANDA & SH. ANUBHAV SHARMA
The appeal has been filed by the assessee against order dated 31.05.2018 in appeal no. 119/16-17 passed by the Commissioner of Income Tax (Appeals)- 34, New Delhi (hereinafter referred to as the Ld. First Appellate Authority or in ./2018 Efaces Switchgear India Pvt. Ltd. short Ld. FAA) in appeal before it against order dated 29.02.2016 passed u/s 143(3) of the Income Tax Act (hereinafter referred to as ‘the Act’) by ACIT, Circle 8(1), New Delhi (hereinafter referred to as the ld. Assessing officer or in short ‘Ld. AO’).
The assessee has raised following ground of appeal :-
“The learned CIT(A) erred on facts and in law in disallowing expenses on account of additional depreciation of Rs. 6,11,277.”
The facts in brief are that during the relevant AY appellant has claimed additional depreciation of Rs. 6,11,277/- on addition of new plant and machinery of Rs. 61,12,773/- as under :- Particular Addition more Addition less than Additional than 180 days 180 days depreciation Tools Nil 61,12,773 6,11,277 Total Nil 61,12,773 6,11,277 The appellant has claimed additional depreciation on new plant & machinery purchased and installed during the year as per the provisions of section 32(iia) of the Income-tax Act. The appellant had submitted that it is complying with all the provisions of section 32(iia) and therefore, is entitled to additional depreciation. 3.1 However, the Ld. AO at page 5 of the assessment order has held as under : " The intention of the section is to give incentive to the new entrepreneurs to set up new manufacturing establishments. The language of the section 'In the case of any new machinery or plant which has been acquired and installed after the 31st day of march, 2005" intends set up of new plant and not moulds and dies addition / renovation or repair to the old plant. Further, the assessee has made addition of tools which cannot be treated as installation of plant and machinery". ./2018 Efaces Switchgear India Pvt. Ltd. 3.2 The assessee went in appeal before CIT(A) raising grounds that certain amendments were made regarding additional depreciation by Finance Act, 2005. Kind attention is invited to para 3.6 of the explanatory notes on the provisions of the Finance Act, 2005- Circular No. 3/2006 dated 27.02.2006 which states as under:
"in order to encourage investment the Finance Act, 2005 has amended section 32 to increase the rate of additional depreciation to twenty per cent on new machinery and plant other than ships and aircraft, acquired and installed after the 31st day of March, 2005 and dispensed with the condition of additional depreciation to be allowed to a new industrial undertaking and the condition of expansion in installed capacity". It claimed that circular makes it is clear that additional depreciation is to be allowed on new plant and machinery acquired and installed after 31st day of March, 2005. There is no requirement that additional depreciation is to be allowed to a new industrial undertaking or there should be expansion of installed capacity.
3.2.1 It was submitted that the Ld. AO has not disputed the fact that plant & machinery were new. Hence, the appellant fulfils the condition laid down u/s 32 (1) (iia).
3.2.2 As with regard to the findings of the Ld. AO that tools have not been used it was submitted that the tools are ready to be used and does not require installation before being used.
Ld. FAA dismissed the appeal with observtion that “I have considered the submissions of the appellant's AR. In case of any new machinery or plant (excluding ships and aircraft) acquired and installed after March 31, 2005 by an assessee who is engaged in the business of manufacture or production of any article or thing - additional depreciation under Income Tax Act of 20% of ./2018 Efaces Switchgear India Pvt. Ltd. actual cost shall be allowed. Further, from A.Y. 2013-14 the same is also allowed to assessee engaged in the business of generation or generation and distribution of power, where the depreciation is provided on WDV method as per Appendix I. Further, from assessment year 2017-18 the same is also allowed to the assessee engaged in the business of transmission of power. Further, where the asset is used for less than 180 days then 50% depreciation i.e, 1/2 of 20% (i.e.10%) is available (Balance 50% of Additional Depreciation can be claimed in next year) Further, no such additional deduction will be allowed in respect of machinery or plant— 1. Used by any other person in India or outside India before its installation. 2. Installed in any office premises or any residential accommodation, 3. including a guest house. 4. Any office appliances or road transport vehicles.
The whole of actual cost of which is allowed as a deduction in computing income for tax purposes in any one previous year. In view of the provisions of section 32(iia) as well as the explanatory notes on the provisions of the Finance Act, 2005- Circular No. 3/2006 dated 27.02.2006, it is evident that additional depreciation is to be allowed only on new plant and machinery acquired and installed after 31st day of March, 2005. There is no requirement that additional depreciation is to be allowed to a new industrial undertaking or there should be expansion of installed capacity, as interpreted by AO. Therefore, the findings of AO to that extent are incorrect. Similarly, AO has also interpreted that tools have not been installed. This interpretation of AO is also incorrect since in order to use the tools, it is not necessary to install them. The tools are ready to use and does not require any specific installation before being used. The appellant has claimed additional depreciation on addition of tools under the head "fixed assets" and therefore placed under the block "plant and machinery". Such tools of fixed assets, acquired during the year, amounting to ./2018 Efaces Switchgear India Pvt. Ltd. Rs. 61,12,773/-, has been treated by the appellant as new plant and machinery, on which additional depreciation has been claimed. However, I am unable to accept the contention of the appellant's AR. The acquisition of new tools, can, by no stretch of imagination be held as equivalent to acquisition of new plant and machinery. The tools are acquired so as to enhance the life of an existing plant and machinery. Whenever a new plant and machinery is acquired, any tools which are integral and inseparable part of such new plant and machinery are certainly eligible for additional depreciation. However, acquisition of tools for an existing plant and machinery do not qualify for additional depreciation. Accordingly, the claim of additional depreciation made by the appellant is held as an incorrect claim and accordingly the disallowance of additional depreciation, made by the AO is upheld.” 5. Heard and perused the record. 5.1 On behalf of the assessee it was submitted that since tools, dies, jigs etc. are used by the appellant for its business of manufacturing switchgear products, the same are plant & machinery. Without these equipments it is not possible for appellant to manufacture switchgear products. Hence, the same are in the nature of ‘Plant & Machinery. It was submitted that in the assessment order also tools, dies, jigs etc. have been treated as Plant & Machinery and 15% depreciation on the same has been allowed. However, the same have not been treated as Plant & Machinery only for the purpose of additional depreciation. Therefore, the stand taken in the assessment order is contradictory in itself, in-as-much-as, as on the one hand the new plant & machinery and tools, dies, jigs etc. have been considered as ‘Plant & Machinery’ and normal depreciation @ 15% has been allowed on the other hand the same have not been considered as eligible for additional depreciation. In support of the contention reliance was placed on the decision of Hon’ble Supreme Court in the case of Scientific Engineering House (P) Ltd. v. CIT, (1986) 157 ITR and further in Niko Resources Ltd. v. ./2018 Efaces Switchgear India Pvt. Ltd. Assistant Commissioner of Income-tax [2017] 88 taxmann.com 691 (Gujarat) and Bajaj Tempo Ltd. vs. Commissioner of Income Tax , 62 Taxman 480 (SC). 5.2 It was also submitted that in the appellant’s own case for the assessment year 2014-15 and 2015-16 and 2016-17 the additional depreciation claimed has been allowed By CIT(A). 5.3 The ld. DR submitted that the ld. Tax Authorities below have passed reasoned orders with which he stands by. 6 Appreciating the matter on record and contentions of counsel it can be observed that Hon’ble Supreme Court of India in Scientific Engineering House (P) Ltd. case has relied the following functional test as laid by House of Lords in IRC v. Barclay, Curie & Co. Ltd. [1970] 76 ITR 62 :
“..In order to decide whether a particular subject is an ‘apparatus’ it seems obvious that an enquiry has to be made as to what operation it performs. The functional test is, therefore, essential at any rate as a preliminary…” “In other words, the test would be : Does the article fulfil the function of a plant in the assessee’s trading activity? Is it a tool of his trade with which he carries on his business? If the answer is in the affirmative it will be a plant.”
The bench is of considered opinion that since tools, dies, jigs etc. are used by the appellant for its business of manufacturing switchgear products it is evident that moulds, dies and tools are not independent of the plant and machinery, but are parts of the machinery. Once they are worn out, the machines cannot turn out the product to the business specifications and this has to be obtained only on a replacement of the tools or the dies and moulds. ./2018 Efaces Switchgear India Pvt. Ltd.
Further also, in asessee’s own case in the subsequent years, the revenue has allowed the claim of additional depreciation on these tools etc. and thus the ground raised
in the appeal is allowed.