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Income Tax Appellate Tribunal, “C” BENCH : BANGALORE
Before: SHRI N.V. VASUDEVAN & SHRI B R BASKARAN
O R D E R
Per N.V. Vasudevan, Vice President
This is an appeal by the assessee against the order dated 2.2.2016 of CIT (LTU), Bangalore, passed under section 263 of the Income Tax Act, 1961 (‘hereinafter called ‘the Act’).
The assessee is a company engaged in the design and manufacture of computer software. For the assessment year 2009-10, the assessee filed its return of income on 309-2009 declaring an income of Rs 82,96,19,519/-. The case was selected for scrutiny and the assessment was concluded u/s IT(TP)A No. 731/Bang/2016 Page 2 of 7 143(3) read with sec 144C on 22-4-2013 determining the total income at Rs. 284,39,22,040/-.
On perusal of the assessment records, the CIT in exercise of his powers under section 263 of the Act, was of the view that the Assessment Order passed by he AO was erroneous and prejudicial to the interest of the revenue for the reason that the Assessee had claimed additional depreciation on plant and machinery under sec 32(1)(iia) amounting to Rs 1,95,32,382/-. According to the CIT, on verification of assessment records, the assets on which the additional depreciation was claimed was in the nature of 'office Equipments’ which are not eligible for any additional depreciation. According to the CIT, the Assessing Officer had allowed this incorrect claim during the assessment which needed to be withdrawn. Accordingly, the CIT issued a show cause notice dated 1.1.2016.
In reply ot the show cause notice dated 1.1.2016, the assessee submitted that the depreciation claimed for the AY 2009-10 included additional depreciation Uis 32(1)(iia) amounting Rs 1,95,32,382/- on plant and machinery and Rs 2,26,35,752/- on computers and software and also furnished a list of items of new assets on which additional depreciation was claimed by the Assessee.
On perusal of the list of new assets added during the year, the CIT was of the view that the new assets included many of the office equipments used for general purpose like UPS, TV, Blackberry, sofa - for ladies resting lounge, storage boxes, air conditioner, water treatment plant-rdc, electrical work-rdc etc. under the category of Plant and machinery. Under the category of computer and computer software on which additional depreciation is claimed, there are items listed as laptops, monitors, desktops, etc on which 60% depreciation is already claimed. The items under the category Computer and computer software
IT(TP)A No. 731/Bang/2016 Page 3 of 7 become eligible for additional depreciation if the same are used for the purpose of manufacturing activity. The CIT was of the view that there is no details of the purpose for which the same are used while the additional depreciation is claimed on the whole of the new assets added during the year except on used items purchased. The assessee has mentioned in the note below the depreciation schedule that Rs 3,01,30,138/- is the second hand assets out of total assets of Rs 33,46,87,781/-. The CIT was of the view that the Assessing Officer failed to verify the genuineness of the claim as the deduction is over and above the normal depreciation allowed with specific intention by the legislature. According to the CIT the AO by not verifying the claim and without establishing that the new assets are plant and machinery used for manufacturing activity and not general purpose assets used for office purpose, has erred in allowing the claim in total. Hence the CIT was of the view that the assets which are in the nature of office equipments categorised under Plant and machinery and computer and computer software do not qualify for claiming additional depreciation. Accordingly, the claim of additional depreciation U/sec 32(1)(iia) was set aside by the CIT to the file of the Assessing Officer for due verification of the eligibility of the assets for claiming additional depreciation.
Aggrieved by the aforesaid order of the CIT, the assessee has filed the present appeal before the Tribunal. At the time of hearing, the learned Counsel for the assessee pointed out that pursuant to the impugned order, the AO has passed an order dated 29.8.206 u/s.143(3) of the Act read with Sec.263 of the Act, giving effect to the impugned order in which the AO allowed additional depreciation on computers including computer software and therefore the grievance projected by the Assessee in this appeal in Ground No.7 to 10 were not pressed. The learned counsel submitted that he would press for adjudication only ground Nos.5 and 6 which reads as follows:
IT(TP)A No. 731/Bang/2016 Page 4 of 7
5. The Ld CIT has erred in law and on facts in not appreciating the fact that the assets on which additional depreciation was claimed by the Appellant were in the nature of 'plant and machinery'. Further, the same has been verified and thereafter stated in the tax audit report.
6. The Ld CIT has erred in law and on facts in not appreciating the Appellant's submission that:
- the Honourable High Court of Punjab and Haryana in the case of CIT Vs Punjab Wireless System Limited (296 ITR 489), in the context of Investment Allowance under section 32A of the Act, held that if appliances are capable of being installed and used in any place where people work or gather, and desire to communicate, such items cannot be construed as office appliances - the only requirement for claiming deduction under section 32(1)(iia) of the Act is that the assessee should be engaged in the business of manufacture or production of any article or thing and the section does not require that the assets to be directly used in the process of manufacture.
As far as the aforesaid grounds of appeal are concerned, the submission of the learned counsel for the Assessee was the findings of the CIT in the impugned order that Plant and Machinery on which additional depreciation was claimed ought to be used for the purpose of manufacturing activity is a condition for allowing depreciation, is not correct and if to this effect if the impugned order is modified, then that would be sufficient relief to the Assessee. In this regard, the learned Counsel for the assessee submitted that such a condition is not the requirement for claim of additional depreciation. In this regard, the learned Counsel for the assessee drew our attention to the decision of the ITAT, Bangalore Bench, in assessee’s own case for Assessment Year 2008-09 on an identical issue. The said decision has been reported in (2020) 115 taxmann.com 154 (Bangalore-Trib). The Tribunal examined
IT(TP)A No. 731/Bang/2016 Page 5 of 7 the question whether for claiming additional depreciation, the asset in question should be used for manufacturing activity or is it enough if the assessee carries on manufacturing activity. On the above question, the Tribunal held as follows: “18. We have heard the submissions of the learned counsel for the Assessee and the learned DR. The provisions of Sec.32(1)(iia) of the Act based on which the additional depreciation was claimed by the Assessee reads thus: “Sec.32 Depreciation. (1)In respect of depreciation of— (i) buildings, machinery, plant or furniture, being tangible assets; (ii) know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after the 1st day of April, 1998, owned, wholly or partly, by the assessee and used for the purposes of the business or profession, the following deductions shall be allowed— (i) in the case of assets of an undertaking engaged in generation or generation and distribution of power, such percentage on the actual cost thereof to the assessee as may be prescribed; (ii) in the case of any block of assets, such percentage on the written down value thereof as may be prescribed: “(iia) in the case of any new machinery or plant (other than ships and aircraft), which has been acquired and installed after the 31st day of March, 2005, by an assessee engaged in the business of manufacture or production of any article or thing, a further sum equal to twenty per cent. of the actual cost of such machinery or plant shall be allowed as deduction under clause (ii):”
A bare reading of the aforesaid provisions shows that the new machinery or plant should be used by an assessee engaged in the business of manufacture or production of any article or thing and the new machinery or plant need not be used in manufacture or IT(TP)A No. 731/Bang/2016 Page 6 of 7 production of any article or thing. The learned counsel has before us relied on the decision of the Hon’ble Madras High Court High Court in the case of CIT Vs. VTM Ltd.319 ITR 336 (Madras) wherein the assessee-company was engaged in the business of manufacture of textile goods. During the relevant assessment year, it had set up a wind mill for generation of power and claimed additional depreciation thereon under section 32(1)( iia). The Assessing Officer disallowed the claim on the ground that the assessee was engaged only in the manufacture of textile goods and the setting up of a wind mill had absolutely no connection with the manufacture of textile goods. However, the Commissioner (Appeals) as well as the Tribunal allowed the assessee’s claim of additional depreciation. On appeal to the High Court, the Hon’ble High Court held that for application of section 32(1)(iia ) what is required to be satisfied in order to claim the additional depreciation is that a new machinery or plant, which has been set up, should have been acquired and installed after 31-3-2002 by an assessee, who was already engaged in the business of manufacture or production of any article or thing. The said provision does not state that the setting up of a new machinery or plant, which was acquired and installed after 31-3-2002 should have any operational connectivity to the article or thing that was already being manufactured by the assessee. Therefore, the contention that the setting up of a windmill had nothing to do with the manufacture of textile goods was totally not germane to the specific provision contained in section 32(1)(iia ). In the light of the aforesaid decision, we are of the view that one of the basis on which the revenue authorities disallowed the claim of the Assessee for disallowance of additional depreciation cannot be sustained.”
The limited request of the learned Counsel for the assessee was that the observations in the impugned order of the CIT should be modified and in the set aside proceedings, the additional claim should not be disallowed on the ground that the assets in question were not used in the manufacturing activities carried on by the assessee and therefore the additional depreciation will not be allowed. Learned DR relied on the order of CIT.
IT(TP)A No. 731/Bang/2016 Page 7 of 7
We have carefully examined the rival submissions and we find that this Tribunal in assessee’s own case has taken the view that to claim additional depreciation, the assessee should be engaged in manufacturing activity and that it is not necessary that the assets on which additional depreciation is claimed should be used in the manufacturing activity. Therefore, we modify the directions contained in the impugned order of the CIT whereby he has directed the AO to examine the purpose for which the assets on which additional depreciation is claimed is used in the manufacturing activity as not the requirement of the law. With this modification of the impugned order, we partly allow the appeal of the assessee.
In the result, the appeal of the assessee is partly allowed.