INDUSTRIAL INCUBATOR vs. DY.COMMNR.OF I.T.

The following questions of law were framed by this Court while admitting both the appeals on 13th May, 2005:

The appeal itself arises out of an order dated 30th April, 2004 of the Income Tax Appellate Tribunal (ITAT) dismissing the Appellant-Assesee’s appeal for the Assessment Years (AYs) 1994-95 and 1995-96. The said appeals before the ITAT bearing Nos.168 and 169/CTK/2001 were in turn directed against the common order dated 3rd January, 2001 of the Commissioner of Income Tax (Appeals) for the same AYs.

The background facts are that the Assessee is in the business of prawn cultivation. The returns filed by the Assessee for the aforementioned AYs were picked up for scrutiny by the Assessing Officer (AO). In the return for the AYs 1994-95, the Assessee had carried forward deficit to the extent of Rs.2,94,970. In the course of the assessment proceedings for the AY 1995-96 it was noticed that the Assessee had claimed depreciation on certain plant and machinery at 100% of their cost and had also claimed depreciation

The AO stated that he had reason to believe that assessable income for the AY 1994-95 had escaped assessment and accordingly issued a notice under Section 148 of the Income Tax Act (IT Act) to the Assessee. In response to the notice, the Assessee filed its return of income claiming depreciation in the sum of Rs.19,92,359/- and computing the net loss at Rs.2,94,790. Pursuant to the notice issued under Section 142(1) of the IT Act, the books of accounts and other documents were produced.

In the assessment order dated 17th March, 1998 for the AY 1994-95 under Section 143(3) read with Section 148 of the IT Act, the AO inter alia held that the claim for 100% on aerators, marine water pumps and motors was not justified.

The Assessee during the assessment proceedings disclosed that the name of the supply of the aerators, and the notice issued to the suppliers by the AO. The said supplier in its reply was unable to clarify whether the Aerators were “technically fit to be treated water pollution control equipments” as defined under the IT Rules, 1962”. A reference was also made by the AO to the Central Pollution Control Board (CPCB) whether the above technical devices used in the form of Aerators used by the Aqua-Culture farms could be considered as water pollution control equipments. The CPCB inter alia pointed out that Aerators used for any

It was on this basis that the AO disallowed the claim of 100% depreciation and reduced it to 25% of the cost. As regards the claim for depreciation for marine pumps and motors, it was noted by the AO that the IT Rules themselves do not mention these equipments to be eligible for 100% depreciation. Consequently depreciation was allowed @ 25%.

The AO then examined the claim of depreciation @ 25% on the cost of the approach road, pond reservoirs etc. The Assessee was unable to explain the basis for such claim. The AO held that these could not be considered to be plant and machinery and accordingly, the rate of depreciation was limited to 10%.

The CIT (A) and the ITAT have concurred with the views of the AO.

Even before this Court, the Assessee was unable to explain the basis for claiming depreciation on ponds and reservoirs. Mr.

The above decision has been perused. There the question of law considered by the Supreme Court of India reads as under:

In the context of the above question, the Supreme Court agreed with the Kerala High Court and answered the question in the affirmative i.e. in favour of the Assessee. However, the above decision was in the limited context of a ‘natural pond’ specially designed for rearing prawns and whether that could be treated as ‘plant’ within the meaning Section 32 of the IT Act. In the present case, however, no evidence was led by the Assessee and no material was placed before the AO to indicate that it was using a specially designed ‘natural pond’ for rearing prawns. Therefore, the Court is not persuaded that on the basis of the above decision, the conclusion reached on factual basis by the AO and CIT(A) concurrently and latter affirmed by the ITAT is erroneous.

Even before this Court, learned counsel for the Assessee was unable to demonstrate why the depreciation on the equipments in question should be allowed @ 100% and in respect of ‘approach

Consequently, question II framed by this Court by order dated 13th May, 2005 is answered in the affirmative i.e. in favour of the Revenue and against the Assessee. In other words, it is held that the ITAT was right in restricting the claim for depreciation on the equipments in question @ 25% as against 100% as claimed by the Assessee.

Question III is again answered in favour of the Revenue and against the Assessee by holding that the claim for depreciation @25% on approach road, drainage, bore wells and reservoirs etc. is not admissible and that the ITAT has rightly limited it to 10%.

The appeals are accordingly dismissed, but in the circumstances, with no order as to costs.