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Income Tax Appellate Tribunal, “A” BENCH, PUNE
Before: SHRI D. KARUNAKARA RAO, AM & SHRI VIKAS AWASTHY, JM
आदेश / ORDER
PER VIKAS AWASTHY, JM :
These two appeals by the Revenue are directed against the order of Commissioner of Income Tax (Appeals)-3, Pune for the assessment years 2007-08 and 2010-11. Both the impugned orders are of even date i.e. 29-03-2016.
2 ITA Nos.1253 & 1254/PUN/2016, A.Ys. 2007-08 & 2010-11
Since, the issues involved in both the appeals are identical and are arising from same set of facts, both the appeals are taken up together for adjudication and are being disposed of vide this common order.
The Revenue in ITA No. 1253/PUN/2016 has assailed the findings of Commissioner of Income Tax (Appeals) in allowing additional depreciation on various machinery and electrical equipments and installations by raising following grounds : “1. The Order of the Ld. CIT(A) is contrary to law and to the facts and circumstances of the case. 2. The Ld. CIT(A) erred in allowing the additional depreciation on electrical equipment and installation, Packing Machine, Pre Operative expenses, lamination Machinery, Printing machinery, Slitting Machinery and expenses of Insurance charges on machinery and labour charges for electrical installation, though above items of plant and machinery were not producing any article or things. 3. The Ld. CIT(A) erred in not appreciating that the conditions laid down for claiming additional depreciation under section32(1)(iia) of Income Tax Act are not fulfilled by the assessee. 4. The appellant craves leave to add, amend, alter or delete any of the above grounds of appeal during the course of appellate proceedings.”
Shri Nikhil Pathak appearing on behalf of the assessee submitted that the assessee is engaged in the business of agro-food industry, producing wheat products, flour and pulses. During the period relevant to assessment year under appeal the assessee has installed machinery for manufacturing Besan and splitting of Channa. The assessee installed various machinery and electrical equipments for manufacturing/ processing of Besan and Channa Dal. The assessee claimed additional depreciation under the provisions of section 32(1)(iia) of the Income Tax
3 ITA Nos.1253 & 1254/PUN/2016, A.Ys. 2007-08 & 2010-11
Act, 1961 (hereinafter referred to as “the Act”) on machinery installed for carrying out manufacturing and other ancillary process. However, in assessment proceedings for assessment years 2007-08 to 2010-11 the Assessing Officer disallowed assessee’s claim of additional depreciation on selective machineries/electrical equipment installed by the assessee.
Aggrieved by the assessment order for the respective assessment years the assessee carried the matter in appeal before the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals) reversed the findings of Assessing Officer and allowed assessee’s claim of additional depreciation on all the machines, electrical equipment and installation, etc. Against the findings of Assessing Officer, the Revenue is in appeal before the Tribunal.
3.1 The ld. AR contended that the Assessing Officer has not disputed that the machines were installed and were put to use in the period relevant to the assessment year under appeal. It is also not disputed by the Assessing Officer that the assessee is engaged in manufacturing of Dal, Maida, Besan etc. The Assessing Officer has allowed normal rate of depreciation on all machines/equipments installed. However, the Assessing Officer bifurcated the machinery used for manufacturing and packing of Channa Dal, Besan, Maida etc. for the purpose of allowing additional depreciation. The ld. AR asserted that the requirement of section 32(1)(iia) for additional depreciation is that the assessee should be engaged in manufacturing activity. This fact has not been disputed by the Assessing Officer. The ld. AR pointed that the Revenue is in appeal for assessment years 2007-08 and 2010-11only as in the intervening
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assessment years. The Department could not file appeal on account of low tax effect.
On the other hand Shri Rajesh Gawli representing the Department vehemently supported the findings of Assessing Officer and prayed for setting aside the impugned order and restoring the findings of Assessing Officer.
We have heard the submissions made by representatives of rival sides and have perused the orders of authorities below. The solitary issue raised by the Revenue in appeal is against allowing additional depreciation u/s. 32(1)(iia) of the Act on following items : Sr. No. Description 1 Electrical Equipment and installation 2 Electrical Equipment and installation 3 Pre – operative Expenses 4 Dal Packing machinery 5 Printing Machinery 6 Slitting Machinery 7 Lamination Machinery 8 Insurance charges – Machinery 9 Erection and Fabrication 10 Pre-operative Expenses 11 Electrical Equipment and installation 12 Machinery-Packing 13 Pre-operative expenses 14 Electrical Equipment & Installation 15 Pre-operative Expenses 16 Labour Charges-Electrical Installation
It is an undisputed fact that the assessee is engaged in manufacturing process. It is also undisputed fact that the assessee has
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put to use aforementioned machineries/equipments etc. during the period relevant to the assessment year under appeal. Before proceeding further it would be apt to refer the provisions of section 32(1)(iia) of the Act whereby additional depreciation is allowed. The relevant extract of section 32(1)(iia) as was applicable in the assessment years under appeal is reproduced here-in-below : “32. (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—]
xxxxxxxxxx xxxxxxxxxx
(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 fifteen per cent of the actual cost of such machinery or plant shall be allowed as deduction under clause (ii) :
Provided that no deduction shall be allowed in respect of— (A) any machinery or plant which, before its installation by the assessee, was used either within or outside India by any other person; or
(B) any machinery or plant installed in any office premises or any residential accommodation, including accommodation in the nature of a guest house; or
(C) any office appliances or road transport vehicles; or (D) any machinery or plant, the whole of the actual cost of which is allowed as a 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 one previous year:]”
6 ITA Nos.1253 & 1254/PUN/2016, A.Ys. 2007-08 & 2010-11
A bare perusal of section 32(1)(iia) would show that for claiming additional depreciation the conditions which are primarily required to be satisfied by the assessee are : i. The assessee should be engaged in manufacture or production of any article or thing. ii. Machinery should have been installed and acquired after 31st day of March, 2005. iii. The machinery or plant before its installation should not have been used either within or outside India. iv. No deduction should have been claimed on the machinery or plant installed in the previous year.
In the present case, the assessee has not raised any objection with regard to any of the conditions set out in provisions of section 32(1)(iia) of the Act for allowing assessee’s claim of additional depreciation. The Assessing Officer has merely divided the items/equipments in his own wisdom for disallowing assessee’s claim of additional depreciation. It is a well settled law that pre-operative expenses, erection and fabrication expenses etc. are to be capitalized and are subsumed in the cost of asset. The Hon’ble Supreme Court of India in the case of Challapalli Sugars Ltd. Vs. Commissioner of Income Tax reported as 98 ITR 167 has held that the cost of fixed assets include all expenditure necessary to bring such asset into existence and to put them in working condition. Thus, exclusion of erection and fabrication expenditure, pre-operative expenses, labour charges for installation etc. by Assessing Officer is wrong. Further, the exclusion of packaging machinery, printing machinery, slitting machinery
7 ITA Nos.1253 & 1254/PUN/2016, A.Ys. 2007-08 & 2010-11
etc. for the purpose of additional depreciation on the ground that they are not used in manufacturing of Dal, Maida and Besan is also without any merit. All these equipments / machinery are necessary for bring the final product into marketable condition.
The Commissioner of Income Tax (Appeals) has reversed the findings of Assessing Officer by concluding as under : “4.2. ……… The Assessing Officer’s logic that packaging machinery or printing machinery is not engaged in the manufacture of dal, maida, besan and hence, ineligible for depreciation does not appear reasonable. Therefore, on the basis of the facts, it is quite certain that the Assessing Officer has erred in limiting depreciation on enhanced rate only to certain machinery and not to others. The Assessing Officer, is therefore, directed to allow depreciation as claimed.”
We do not find any infirmity in the well reasoned findings of First Appellate Authority. Accordingly, the same are upheld and the appeal of Revenue is dismissed.
ITA No. 1254/PUN/2016 (A.Y. 2010-11)
The Revenue in ITA No. 1254/PUN/2016 has assailed the findings of Commissioner of Income Tax (Appeals) by raising identical grounds as were raised in assessment year 2007-08.
Both the sides are unanimous in stating that the solitary issue raised in assessment year 2010-11 is identical to assessment year 2007- 08. Additional depreciation has been disallowed by the Assessing Officer for the similar reasons. Since, the facts in the assessment year 2010-11 are similar to assessment year 2007-08, the findings given by us while
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deciding the appeal of Revenue in assessment year 2007-08 would mutatis mutandis apply to assessment year 2010-11. Accordingly, the appeal of Revenue is dismissed for the similar reasons.
In the result, both the appeals by Revenue are dismissed.
Order pronounced on Friday, the 12th day of October, 2018.
Sd/- Sd/- (डी. करुणाकरा राव/D. Karunakara Rao) (ववकास अवस्थी / Vikas Awasthy) ऱेखा सदस्य / ACCOUNTANT MEMBER न्याययक सदस्य / JUDICIAL MEMBER ऩुणे / Pune; ददनाांक / Dated : 12th October, 2018 RK आदेश की प्रयिलऱवऩ अग्रेवषि / Copy of the Order forwarded to : अऩीऱाथी / The Appellant. 1. प्रत्यथी / The Respondent. 2. आयकर आयुक्त (अऩीऱ) / The CIT(A)-3, Pune 3. 4. The Pr. C.I.T. -2, Pune ववभागीय प्रयतयनधध, आयकर अऩीऱीय अधधकरण, “ए” बेंच, 5. ऩुणे / DR, ITAT, “A” Bench, Pune. गाडड फ़ाइऱ / Guard File. 6. //सत्यावऩत प्रयत // True Copy// आदेशानुसार / BY ORDER,
यनजी सधचव / Private Secretary, आयकर अऩीऱीय अधधकरण, ऩुणे / ITAT, Pune