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Income Tax Appellate Tribunal, “A” Bench, Mumbai
THE INCOME TAX APPELLATE TRIBUNAL “A” Bench, Mumbai Shri Shamim Yahya (AM) & Shri Amarjit Singh (JM)
I.T.A. No. 4815/Mum/2018 (Assessment Year 2014-15)
Nuclear Power Corporation of CIT(LTU) Vs. India Limited 29TH Floor 8th Floor, South Wing Centre No. 1 Vikram Sarabhai Bhavan World Trade Anushakti Nagar Centre, Cuffe Mumbai-400 094. Parade Mumbai-400 005. PAN : AAACN3154F (Appellant) (Respondent)
Assessee by Shri K. Gopal Department by Shri Rajeev Harit Date of Hearing 03.06.2021 Date of Pronouncement 01.09.2021
O R D E R Per Shamim Yahya (AM) :-
This appeal by the assessee is directed against the order of learned CIT(LTU) under section 263 dated 21.6.2018 for A.Y. 2014-15.
Grounds of appeal read as under :- “The appellant appeals against the impugned order dated 21.06.2018 passed by the Commissioner of Income Tax (LTD), Mumbai ('the CIT) under section 263 of the Income Tax Act, 1961 ('the Act'), on the following amongst the other grounds each of which are independent of and without prejudice to, one another: 1. The learned CIT failed to appreciate that order passed by the AO cannot be considered as erroneous, as the AO had considered a view which is not unsustainable in law and can at the most be, one of the two possible views, in relation to deduction under section 32AC of the Act. 2. The learned CIT erred in disallowing deduction under section 32AC without appreciating the fact that the said deduction is beneficial provision and accordingly, where two views are possible, the view beneficial to the taxpayer should be adopted. 3. The learned CIT erred in disallowing deduction under section 32AC of the Act without appreciating the fact that for the purpose of section 32AC the
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significant date is the date of installation. If installation falls after 31 March 2013 but before 31st March 2015, the appellant would be entitled to the deduction under section 32AC. 4. The learned CIT erred in not considering the detailed submission made by the appellant vide its letter dated 6 March 2018 and in directing the AO to disallow deduction under section 32AC of the Act in respect of new assets acquired and installed during the FY 2013-14 with invoice date before 1st April 2013. 5. The learned CIT erred in directing the AO to initiate penalty under section 271(l)(c) of the Act mechanically, without giving any opportunity to the appellant to make any submission. The act of the CIT in giving such direction to initiate penalty is ultra-vires and bad in law, in excess of the powers conferred under the Act. Relief Sought:
Your appellant prays that the order of the learned CIT under section 263, setting aside the assessment under section 143(3) be held to be invalid and be annulled.”
Brief facts for the case are as under : In this case Ld.CIT noted that return of income was electronically filed on 30.09.2014 declaring total income at Rs.20,98,42,97,210/- under normal provisions and at Rs. 22,99,20,34,912/- u/s. 115JB of the Act. That subsequently the case was selected for scrutiny and assessment order u/s. 143(3) was passed on 30.11.2016 determining total income of Rs. 22,87,29,76,000/- under normal provision of the Act and book profit of Rs. 30,23,26,34,000/- u/s. 115JB of the Act. That the Ld.CIT held that, it is seen from computation of total income of the assessee-company that during the year under consideration, the assessee has claimed deduction u/s 32AC of the Act of Rs.18,56,46,466/-. That the assessee-company vide its letter dated 16.09.2016 submitted the explanation on calculation of Investment Allowance u/s 32AC which is as under:- "The assessee company has invested Rs. 123,76,43,109/- on new plant and machinery in accordance with section 32 AC and therefore is entitled to claim allowance u/s 32AC at the rate of 15% of the investment made in the said new assets purchased. Therefore, Assessee has claimed Rs. being 15% of 123,76,43,109/- i.e. 18,56,46,466/-. The details of assets which are eligible for investment allowance u/s 32A C have already been provided in the earlier submission dated 07.07.2016."
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On perusal of its earlier submission dated 07.07.2016, Ld.CIT found that the assessee has submitted only statement of computation of depreciation under section 32(1) of the Act in which claimed amount of addition to plant and machinery is reflected. However, Ld.CIT opined that there is no evidence on record that the plant and machinery were acquired/purchased and capitalized during F.Y. 2013-14.
He noted that during the course of assessment proceedings for A. Y 2015-16, it was seen that the assessee company has claimed deduction of Rs.1631, 32.69,641/- u/s 32AC of the Act on the Plant & Machineries capitalized. That on further perusal of the documents furnished by the assessee, it was seen that the assessee company has capitalized the "Capital Work in progress(CWIP)”carried forward from earlier assessment years and claimed the deduction on the same u/s 32AC of the Act and therefore the claim of the assessee was disallowed
Therefore, he noted that as per section 32AC of the Act, the deduction under this section can be claimed by an assessee, 'where the assesses being a company, engaged in the business of manufacture and production of any article or thing, acquires and installs new assets being plant & machinery after 31 day of March 2013 but before the 1st day of April 2015.’ That in the case of assessee, the evidence of acquisition and installation of new assets being plant & machinery is not submitted by the assessee. That as the assessee company had failed to prove the acquisition and installation of machinery and its capitalization during F.Y.2013-14, the claim of the assessee is not acceptable. That omission treat as income has resulted in under assessment of income of Rs. 18,56,46,466/- and short Levy of tax of Rs. Rs.6,31,01,234/-.Hence, he held that the prima facie, he is satisfaction that the order passed by the A.O. is erroneous in so far as it is prejudicial to the interest of revenue. A notice u/s. 263 dated 13.02.2018 was issued to the assessee.
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Assessee gave following response, which was reproduced by learned CIT as under :-
“During the course of assessment proceeding, the Asstt. Commissioner of Income Tax, (LTU)-2, “Mumbai ('the ACIT) had called for various details which were duly submitted by the Company. The ACIT on 7thJuly 2016 had specifically requested for the details of deduction under section 32AC claimed by the Company.
The Company, vide letter dated 16th September, 2016 submitted the calculation of deduction under section 32AC. It was also submitted that the details of additions to assets which are eligible for deduction under section 32AChave been provided in earlier submission dated 20th July, 2016.
Deduction of Rs. 16,31,32,69,641 under section 32AC
• The Company has to submit that deduction under section 32AC of the Act has been introduced to provide additional incentive to the manufacturing sector. As per Part I of the Memorandum explaining the provision to the Finance Bill 2013 explaining the insertion of the said section, the same was introduced as a measure to promote social-economic growth and thereby, encourage substantial investments in plant and machinery by manufacturing company. Thus, from the reading of the said memorandum, it is clear that the deduction is made available to manufacturing companies that invests more than 100 crores, in new plant and machinery within the specified period of 2 years.
• The Company has to submit that construction of a nuclear power plant generally takes 7 to 10 years. Any large capital intensive project normally takes at least 3 to 4 years to get installed.
Section 32AC, an incentive provision to be interpreted in favor of the assessee
• In addition to the above, the Company submits that section 32AC being an incentive provision should be liberally interpreted, in favour of the assessee. As the said section gives incentive to manufacturing sector, to take a view that acquisition of new assets would be on the date where parts of the nuclear power plant are purchased would be a very harsh stand. The Company in this connection relies on the Supreme Court in case of Bajaj Tempo Ltd. (196 ITR 188), wherein it has been held that provision in a taxing statue granting incentives for promoting growth and development should be construed liberally, and since as provision for promoting economic growth has to be interpreted liberally, the restriction on it too has to be construed so as to advance the objective of the provision and not to frustrate it. While interpreting the various provisions, the Court must not adopt a hyper technical approach and to apply cut-and-dry formula. A pragmatic approach should be adopted so that the object of the introduction/insertion of a particular provision could be achieved.
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• The object of provisions of taxing statute being to promote the setting of the new units and to increase the production of goods such provision has to be interpreted liberally so that the object can be achieved, as held by Supreme Court in the case of Commissioner Trade Tax vs. DSM Group of Industries, reported in 2005 UPTC page 121. Similar views have been expressed in the following Supreme Court decisions:
• Kamlapat v. CIT (73 ITR 702) (SC); • CIT v. Strawboard Manufacturing Co. Ltd. (177 ITR 431)(SC) at page 434, and • CIT v. South Arcot District Co-operative Marketing Society Ltd. (176 ITR 117) (SC) at page 119. The Company has to also submit that section 32AC is a beneficial provision and accordingly, where two views possible on reading of the said section, the view beneficial to the taxpayer should be adopted. As acquisition and installation of nuclear power plant has been completed between 1 April 2013 to 31 March 2015 and the Company is entitled to claim deduction under section 32AC of Rs. 18,56,46,466 as claimed in the tax return.
No specified period for acquisition of new assets
• Without prejudice to the above that the date on which the nuclear power plant was operational should be considered as 'date of acquisition' of new assets, the Company has to further submit that there is no specified time period vis-a-vis acquisition of the new asset. That reading of section 32AC goes with the intention of the legislature that deduction is only available to the manufacturing sector with substantial investment of Rs. 100 crores. Rs. 100 crores of investment in new plant and machinery that too in a manufacturing sector cannot be expected to be completed within the period of 2 years. Accordingly, reading of the section along with intention behind its introduction suggests that the machinery installed within specified period of new assets is enough for an assessee to be eligible for deduction, no matter the date of its purchase.
• It may be noted that deduction under section 32AC is also linked to installation of new assets. Mere purchase of the new assets does not entitle the assessee to claim deduction under section 32AC. Accordingly, the intention of the legislature here is that there is no specified period vis-a-vis purchase of new assets. Once installation is within the specified period, the assessee is entitled to deduction under section 32AC of the Act.
• The assessee has referred to the case of Janta Sugar Industries v. CIT (295 ITR 448), CIT v. Surama Tubes P. Ltd. (201 ITR 124).
• In view of the above, it is submitted that even for the purpose of section 32AC the significant date is the date of installation. If installation falls after 31 March 2013 but before 31st March 2015, the assessee would be entitled to get deduction, no matter the date of purchase or acquisition.
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• The Company submits that it should be allowed deduction on entire new assets installed during the year under consideration, irrespective of their date of purchase.
Without prejudice to the above, out of total addition to new assets of Rs. 1,23,76,43,109 , on which deduction of Rs. 18,56,46,466 under section 32AC of the Act has been claimed, the Company hereby provides details of new assets which was purchased before 1st April 2013 and those purchased after 1st April 2013:
Units Total addition on New assets New assets with which investment with invoice invoice date after allowance under date before 1st 1st April 2013 section 32AC has April 2013 been claimed TMS/TAPS 3,32,14,322 25,55,261 3,06,59,061
RAPS 7,77,42,3724 70,91,45,478 6,82,78,246
KAPS 1,61,75,734 2,06,620 1,59,69,114
MAPS 21,74,56,216 - 21,74,56,216 NAPS 10,20,77,248 6,77,20,136 3,43,57,112
KAIGA 9,12,95,865 1,05,63,890 8,07,31,975
Total 1,23,76,43,109 79,01,91,385 44,74,51,724
Accordingly, even where the contention of the Company that it is entitled to deduction under section 32AC of the Act of entire amount is not accepted, it would still be eligible to claim deduction of Rs. 6,71,17,758, being 15% of Rs. 44,74,51,724 assets where invoice date falls after 1st April 2013.”
However, learned CIT was not satisfied. He held as under : “I have carefully considered the issue and find that As per section 32AC of the Act, the deduction under this section can be claimed by an assessee, “where the assessee being a company, engaged in the business of manufacture and production of any article or thing, acquires and installs new assets being plant & machinery after 31 day of March 2013 but before the 1st day of April 2015”.
As the assessee company had failed to prove the acquisition and installation of machinery and its capitalization during F.Y.2013-141 the claim of the assessee is not acceptable. However, the assessee would be eligible to claim deduction where invoice date falls after 1st April 2013.
The AO is directed to give effect to the above mentioned order and issue demand notice. He is also required to initiate penalty u/s. 271(1)(c) for furnishing inaccurate particulars of income by the assessee.”
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Against the above order assessee is in appeal before us.
We have heard both the parties and perused the records. Learned Counsel of the assessee made following submissions :
The Ld. Counsel of the assessee reiterated the submissions as noted by the Ld.CIT. He submitted that AO has duly examining the issue by reference to various materials attached in the paper book submitted before us. Hence, he submitted to the AO has duly examining the issue. Hence, Ld.CIT cannot have any jurisdiction of provisions u/s 263 of the I.T.Act. He further submitted the provisions of section 32AC to be liberally constructed as otherwise, it would be highly prejudicial to the assessee. That a Nuclear plant take several years in construction. The term used in section 32AC is “acquired and installed and this should be construed as the commencement of the utilization of the machinery. That thereafter, assessee should be eligible for depreciation. He further submitted additional evidences regarding the installation of the machinery.
Per contra, Ld. DR supported the order of the Ld.CIT. He made submissions as under:-
2.1 Assessee has not placed on record any material/document to demonstrate that the AO has enquired about deduction claimed by the assessee u/s 32AC as per computation of income placed on record by the Assessee on Page 2 of the Paper Book ("APB" for short).
2.2 Details submitted on APB from Page 20 to Page 75 are details of addition to fixed assets, as per Annexure V(A) Clause 18, which were put to use during the financial year 2013-14 or commissioned during the year.
2.3 Whether the asset is put to use during the year is of no consequence for the purpose of deduction u/s 32AC where only condition required to be fulfilled is acquisition and installation of new asset after 31.03.13 but before 01.04.2015. No details have been submitted for "Calculation of Investment Allowance u/s 32AC".
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2.4 Details submitted by the assessee before the AO are as per Index on Pages 15 & 16 and Pages IS & 19 of the APB. * At APB Page 16 of the Paper Book, assessee is stated to have placed on record, "Calculation of Investment Allowance u/s 32AC". The details of addition to assets are stated to be provided vide letter dated 07.07.2016.
* The above letter dated 07.07.2016 submitted at APB Page 76 shows that that assessee has submitted certain details of Moveable & Immovable Assets as per Schedule 11 of Audited Financials. The details so submitted have not been placed on record before the Hon'ble ITAT. * As per APB Page 19, deduction for addition to plant / machinery exceeding 100 crores u/s 32AC was claimed. However, the Remarks column is left blank against the claim.
2.4 On APB Page 20 onwards the assessee has submitted the details of Additional Depreciation claimed during the year
* As per Annexure V-(A) APB Page 21, addition to fixed assets is Rs.2,04,97,76,035/-whereas the deduction was claimed u/s 32AC on Rs.1,23,76,43,109/- invested in new Plant & Machinery
• There is no correlation / reconciliation between the amounts of addition to fixed assets and the amount invested in new Plant & Machinery
• There is no correlation / reconciliation between the Additional Depreciation claimed during the year and the Deduction claimed u/s 32 AC of the Act
• Additional Depreciation computed on various pages are as under: P-23 4,521 P-24 39,35,121 P-28 40,331 P-29 2,92,79,201 Total 3,32,18,843 * The Deduction claimed u/s 32 AC is Rs. 18,56,46,466 * Thereafter even the details of Additional Depreciation have not been given. • For Kudan Kulam Project APB P-53 to P-72, even the Plant & Machinery eligible for deduction have not been identified.
2.5 The deduction u/s 32AC cannot be allowed on the basis of details of additional depreciation submitted before the AO. ASSESSEE PLEA (I) • Depreciation allowed by the AO • Not disturbed in revisionary proceedings
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• "Acquired and Installed" employed in 32AC and 32(l)(iia) are same. • Section 32AC deploys similar language as Section 32(l)(iia) • Reliance placed on PCIT Vs. IDMC393 ITR 441 (Gujarat) 3.1 It may be submitted in this regard that a decision has to be understood in the context in which it is delivered. There is a basic difference between depreciation provision and investment provision.
3.2 Depreciation is allowed when the asset is "used for the purpose of business and profession", which is not a condition precedent for claiming deduction u/s 32AC. Section 32AC provides for an incentive in the form of investment allowance and deduction is allowed u/s 32AC if a company invests in plant a machinery in a previous year as provided u/s 32AC. It is for this reason that the section is placed after 32A & 32AB.
3.3 Therefore, no adverse can be drawn on this account that CIT has allowed depreciation to the assessee as the condition for eligibility u/s32(l)(iia) and section 32ACare entirely different.
3.4 The difference can further be appreciated by comparing the Provisions of Section 32AC with the Provisions of Section 32A.
3.5 A plain reading of the Provisions of Section 32A. would show that 'acquisition", 'installation" and 'put to use' are three different / independent events or prerequisites for claiming deduction u/s 32A • For claiming deduction u/s 32A, the 'acquisition' of Plant & Machinery is not a prerequisite, though it may be a prerequisite for claiming deduction u/s 32A on Ship & Aircraft, • For Plant & Machinery, the assessee is allowed deduction u/s 32A either in the previous year when it is installed or in the previous year when it is first "put to use" in the immediately succeeding Pr. Yr. [the latter clause i.e. first "put to use" also applies to Ship & Aircraft]
3.6 The phrase used in section 32A is "the machinery and plant was installed", whereas the phrase used in section 32AC is "acquires and installs new asset" which shows that "acquisition" during the relevant year is an important prerequisite for claiming deduction u/s 3 2 AC
3.7 It is apparent that the conditions "acquires and installs new asset" are not required to be fulfilled cumulatively for the purpose of section 32A. However, the conditions "acquires and installs new asset" are required to be fulfilled cumulatively for the purpose of section 32AC.
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3.8 This above difference may also be appreciated by comparing clause (a) & clause (b) of Section 32AC(1).
3.9 For claiming deduction u/s 32AC for AY 2014-15 , the relevant period for new assets acquired and installed as per Clause (a) is after 31.03.2013 but before 01.04.2014, and the corresponding period for claiming deduction u/s 32AC for AY 2015-16 as per Clause (b) is after 31.03.2013 but before 01.04.2015. 3.10 The fact that the relevant period mentioned in clause (a) as well as clause fb), is after 31.03.2013 clearly shows intent of legislature. It is the intended to provide for deduction u/s 32AC in AY 2015-16 on new asset acquired after 31.03.2013 but before 01.04.14 which could not be installed before 01.04.2014 but subsequently installed before 01.04.2015. Had it been the case that the acquisition during the year is not relevant, as contended by assessee, the date mentioned in clause (b) would not have been after 31.03.2013, it would have been after 31.03.2014.
3.11 If the interpretation given by the assessee is accepted it will lead to an anomaly and any asset acquired and installed after 31.03.2013 but before 01.04.14, though eligible for deduction for AY 2014-15 as per clause (a) would also be eligible for deduction for AY 2015-16 in view of clause (b), which is not as per the scheme of the Act.
3.12 Moreover, if such a plea is accepted, it would defeat the purpose of enactment meant for encouraging investment in the relevant previous year, as any plant and machinery acquired even 10 to 15 years earlier and installed after 01.03.2013 would become eligible for deduction u/s 32AC.
3.13 Section 32AC provides for an incentive in the form of investment allowance and deduction u/s 32AC is allowed if a company invests in plant a machinery in a previous year as provided u/s 32AC. It can be corroborated from clause 11 of the Finance (No.2) Bill, 2014. [Page 3 & 4 of Department's Paper-Book ("DPB" for short)] ASSESSEE PLEA (II) * Installation of Plant & Machinery not in dispute
4.1 It may be submitted in this regard that the CIT in Para 4.2 has clearly observed that "the evidence of acquisition and installation of new assets being plant & machinery is not submitted by the assessee."
4.2 The assessee has filed additional evidence before the Hon'ble Tribunal, in support of assembly, erection and commissioning of LR -11350 Liebherr Crawler Crane at RAPP-7 & 8 Site by M/s Liebherr.
* On page APB Page 88, it is stated that first load was tested on March, 2013
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* The "Report of Examination of Lifting Machines" on APB Page 91 clearly states that the crane was tested on 07.03.2013 at the site as RAPP-7 & 8 Site and no defect was found. * At APB Page 94 it is clearly stated that the crane has been tested and accepted on 07.03.2013. It clearly shows that the crane was installed during FY 2012-13 i.e. in the earlier financial year.
4.3 The report submitted on APB Page 103 is self serving report and contrary to facts on record. In this report the transportation and assembly of LR -11350 Liebherr Crawler Crane at RAPP-7&8Site, an independent project, has been clubbed with dismantling of 650 T crane at RAPS-5 & 6 Site, another independent project executed by another independent party i.e. M/s Gangotri Engineering Co. (Page 99) at a different site.
4.4 It clearly emerges from the above that there is no evidence on record to prove that the acquisition and installation of new assets took place during FY 2013-14.
ASSESSEE PLEA (III)
* Incentive provision should be interpreted liberally
6.1 It may be submitted in this regard that an exception or an Exempting provision in taxing statue should be construed strictly and it is not open to the court to ignore the conditions prescribed in the industrial policy and exemption notification.
Reliance is placed on the judgment of Hon'ble Apex Court in State of Jharkhand v. Ambay Cements [2005] 1 SCC 368 (Para 24) as highlighted in Ace Multi Axes Systems Ltd. 400 ITR 141 (SC) [Para 20, Pg 10-11 DPB] CASE LAWS RELIED ON BY THE ASSESSEE DISTINGUISHABLE:
Assesee's Reliance Distinguished in
Bajaj Tempo Ltd, 196 ITR 188 (SC) Ace Multi Axes Systems Ltd. 400 ITR 141 (SC) Pg 7-12 DPB
CIT Vs. Strawboard Manufacturing Tata Sons Ltd. Co. Ltd 177 ITR 431 (SC) P.434 104ITD45(Mum)TM Pg 13-17 DPB
CIT Vs. Arcot Distt. Co-op. Mkt. 274 ITR 102 (Bom) Herald Soc. Ltd 176 ITR 117 (SC) P. 119 Publication (P) Ltd. Pg 20-22 DPB
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Juggilal Kamlapat Vs. CIT 73 ITR Favours Revenue Pg 23-25 702 (SC) DPB
We have carefully considered the submissions and perused the records. Before proceeding further, it will be gainful to refer to the provision of section 32AC under which the depreciation is claimed here.
32AC. (1) Where an assessee, being a company, engaged in the business of manufacture or production of any article or thing, acquires and installs new asset after the 31st day of March, 2013 but before the 1st day of April, 2015 and the aggregate amount of actual cost of such new assets exceeds one hundred crore rupees, then, there shall be allowed a deduction,— (a) for the assessment year commencing on the 1st day of April, 2014, of a sum equal to fifteen per cent of the actual cost of new assets acquired and installed after the 31st day of March, 2013 but before the 1st day of April, 2014, if the aggregate amount of actual cost of such new assets exceeds one hundred crore rupees; and (b) for the assessment year commencing on the 1st day of April, 2015, of a sum equal to fifteen per cent of the actual cost of new assets acquired and installed after the 31st day of March, 2013 but before the 1st day of April, 2015, as reduced by the amount of deduction allowed, if any, under clause (a). (1A) Where an assessee, being a company, engaged in the business of manufacture or production of any article or thing, acquires and installs new assets and the amount of actual cost of such new assets acquired during any previous year exceeds twenty-five crore rupees and such assets are installed on or before the 31st day of March, 2017, then, there shall be allowed a deduction of a sum equal to fifteen per cent of the actual cost of such new assets for the assessment year relevant to that previous year: Provided that where the installation of the new assets are in a year other than the year of acquisition, the deduction under this sub-section shall be allowed in the year in which the new assets are installed: Provided further that no deduction under this sub-section shall be allowed for the assessment year commencing on the 1st day of April, 2015 to the assessee, which is eligible to claim deduction under sub-section (1) for the said assessment year. (1B) No deduction under sub-section (1A) shall be allowed for any assessment year commencing on or after the 1st day of April, 2018. (2) If any new asset acquired and installed by the assessee is sold or otherwise transferred, except in connection with the amalgamation or demerger, within a period of five years from the date of its installation, the amount of deduction allowed under sub-section (1) or sub-section (1A) in respect of such new asset shall be deemed to be the income of the assessee chargeable under the head "Profits and gains of business or profession" of the previous year in which such
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new asset is sold or otherwise transferred, in addition to taxability of gains, arising on account of transfer of such new asset. (3) Where the new asset is sold or otherwise transferred in connection with the amalgamation or demerger within a period of five years from the date of its installation, the provisions of sub- section (2) shall apply to the amalgamated company or the resulting company, as the case may be, as they would have applied to the amalgamating company or the demerged company. (4) For the purposes of this section, "new asset" means any new plant or machinery (other than ship or aircraft) but does not include— (i) any plant or machinery which before its installation by the assessee was used either within or outside India by any other person; (ii) any plant or machinery installed in any office premises or any residential accommodation, including accommodation in the nature of a guest house; (iii) any office appliances including computers or computer software; (iv) any vehicle; or (v) any plant or machinery, the whole of the actual cost of which is allowed as deduction (whether by way of depreciation or otherwise) in computing the income chargeable under the head "Profits and gains of business or profession" of any previous year.
Notes to clause to amend section 32AC read as under:-
Clause 14 of the Bill seeks to amend section 32AC of the Income-tax Act relating to investment in new plant or machinery.
Sub-section (1A) of the aforesaid section, inter alia, allows a deduction of a sum equal to fifteen per cent, of the actual cost of new machinery or plant (other than ship or aircrafts), acquired and installed by an assessee being a company engaged in the business of manufacture or production of any article or thing during any financial year, exceeds twenty-five crore rupees, if the acquisition and installation is made during the same financial year.
It is proposed to amend the said sub-section so as to provide that the deduction under the said sub-section shall be allowed if the assets are installed on or before the 31st March, 2017.
It is further proposed to insert a new proviso in the said subsection so as to provide that where the installation of the new assets are in a year other than the year of acquisition, the deduction under the said sub-section shall be allowed in the year in which such new assets are installed.
These amendments will take effect retrospectively from 1st April, 2016 and will, accordingly, apply in relation to the assessment year 2016-2017 and subsequent years.
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A reading of the above provision shows that in clause(i) thereof, the word used for criteria for depreciation is “ acquires and installs new assets after 31/03/2013 but before the 01/04/2015”.
Sub section(1A) of the above section inserted by Finance Act 2014 w.e.f. 01/04/2015 uses the word acquires and installs new assets and the amount of actual cost of such new assets. Thereafter by Finance Act, 2016 w.e.f. 1/04/2016 it has been inserted “acquired during any previous year exceeds twenty-five crore rupees and such assets are installed on or before the 31st day of March, 2017”.
The first proviso to the section inserted Finance Act, 2001 w.e.f. 01/04/2016 mentions that provided that where the installation of the new assets are in a year other than the year of acquisition, the deduction under this sub-section shall be allowed in the year in which the new assets are installed.
Notes to clauses in the introduction clarifies that it is meant to remove hardships. In our considered opinion, since amendment is meant to remove a hardship, the same needs to be given retrospective effect. This proposition is based upon the Haydens rules or mischief rules. According to this rule, while interpreting statutes, first the problem or mischief that the statute was designed to remedy should be identified and then a construction that suppresses the problem and advances the remedy should be adopted. This proposition is also duly supported by Hon’ble Supreme Court decision in the case of Alom Extrusions 319 ITR 306 and the case of Calcutta Exports Company 404 ITR 694 that when an amendment is made to clarify or remove the hardship, the same is to be treated as clarificatory amendment and it applies retrospectively.
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In this view of the matter, in our considered opinion, there certainly can be view on this issue that the assessee is eligible for allowance for depreciation on assets which have been acquired earlier, but were installed during the present assessment year.
Further, we note that the assessee has provided the details of computation of depreciation including that u.s 32AC to the AO. The grievance of the Ld.CIT, which is echoed by CIT-DR before us is that the AO has not obtained the details of assets acquired earlier, which has been installed during the year. As in the Ld.CIT’s view the assets acquired prior to the financial year are not eligible for depreciation u.s 32AC.
Our aforesaid adjudication and examination of the provisions of section 32AC, the amendment thereto and the application of mischief rule amply demonstrate that the, view, that assets acquired earlier but installed during the year are eligible for depreciation under this section cannot be said to be a legally unsustainable view.
Now, we refer to the provisions of section 263 of the Act, which read as under:- 263. (1) The [Principal Chief Commissioner or Chief Commissioner or Principal Commissioner] or Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment.
While examining the aforesaid provisions of the Act Hon’ble Supreme Court in the case of Malabar Industries vs CIT (supra) has expounded that when the AO has taken a possible view and the Ld.CIT is not in agreement with the same, it would not
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give rise to the jurisdiction under section 263 of the Act. We may refer to the said decision as under:- The phrase prejudicial to the interests of the revenue has to be read in conjunction with un erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of Assessing Officer cannot be treated as prejudicial to the interests of the revenue, for example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue unless the view taken by the Income-tax Officer is unsustainable in law
In the present case as deliberated by us hereinabove there certainly can be a legally sustainable view that assessee is eligible for allowance of depreciation on assets, which have been acquired earlier, but were installed during the present assessment year.
Furthermore, we note that Ld.CIT is not correct in observing that the installation and capitalization is not evident. We find that the installation and capitalization was clearly evident from the financials of the assessee company. Hence, the AO took the view that the assessee is eligible for the depreciation on all these assets, which have been duly capitalized during the financial ear. It can be said that AO has taken a possible view and if the Ld.CIT is not in agreement there with and takes a contrary view, the same would not give raise to the section 263 jurisdiction with the Ld.CIT.
We are also aware that assessee has filed an additional evidences regarding installation of the machinery. Though, we have already pointed out hereinabove, that once the assets is capitalized in the financials of the company, the same can be said to have taken place only after installation of the company of the assessee. In any case, since assessee’s counsel has given the additional evidences before us, we direct the same should be examined by the AO. AO should grant depreciation to the assessee
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after examination thereof. We set aside the direction of the Ld.CIT that assessee is eligible to claim deduction only where invoice date falls after 01/04/2013. As regards, the arguments of CIT-DR, we are of the considered opinion that our aforesaid adjudication sufficiently takes care of the same.
In the result, this appeal by the assessee stands allowed for statistical purpose.
Pronounced in the open court on 01.09.2021
Sd/- Sd/- (AMARJIT SINGH) (SHAMIM YAHYA) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated : 01/09/2021 Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. The CIT(A) 4. CIT 5. DR, ITAT, Mumbai 6. Guard File. BY ORDER, //True Copy// (Assistant Registrar) PS ITAT, Mumbai & Thirumalesh