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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SHRI SHAMIM YAHYA, AM & SHRI AMARJIT SINGH, JM
Per Shamim Yahya, A. M.: This appeal by the assessee is directed against the order by the Commissioner of Income Tax (Appeals) dated 28.12.2015 and pertains to the assessment year 2012-
The grounds of appeal read as under:
On the facts and the circumstances of the case, the learned Commissioner of Income Tax (Appeals) erred in confirming disallowance of 2 M/s. RBBR Infrastructure Private Limited additional depreciation under Section 32(1)(iia) of the Act of Rs.1,11,10,266/- made by the Income-tax Officer, on the ground that the assessee has started production in the succeeding year, but assets were purchased in the previous year and the assessee was not engaged in the business of manufacturing profits when new machinery and plant were acquired.
Brief facts of the case are as under:
The assessee is engaged in the business of manufacturer of RCC pipes, air
avive chambers, cable trench & ready mix concrete. During the course of assessment
proceedings, the Assessing Officer observed that from the perusal of the tax audit
report, he came to the notice that the assessee has claimed depreciation @ 15% i.e.
Rs.1,26,65,451/- and additional depreciation @ 20% i.e. Rs.34,94,657/- on plant and machinery pertaining to f.y. 2010-11. Since the assessee had purchased the aforesaid
fixed assets in f.y. 2010-11 and not in the financial year under consideration i.e. F.Y.
2011-12, the Assessing Officer disallowed 35% of cost of assets towards deprecation
and additional depreciation under the head plant and machinery i.e. Rs.1,94,42,965/-
and added the same to the total income of the assessee.
Before the ld. Commissioner of Income Tax (Appeals), the assessee appealed
against the disallowance both of depreciation as well as additional depreciation.
With regard to the additional depreciation, the assessee submitted before the ld.
Commissioner of Income Tax (Appeals) as under:
ADDITIONAL DEPRECIATION:
01 Additional Depreciation is allowed when new plant and machinery has been acquired and installed after 3ist day of March, 2005. 4.02 Sec.32(i)(iia) of the Income-tax Act reads as under:
3 M/s. RBBR Infrastructure Private Limited [(iia) in the case of any new machinery or plant (other than ships and aircraft), which has been acquired and installed after the 31*' day of March, 2005, by an assessee engaged in the business of manufacture or production of any article or thing [or in the business of generation or generation and distribution of power], 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).
03 The assessee has acquired plant and machinery between July , 2009 and March, 2011, As such on all the plant and machinery additional depreciation has to be allowed when the plant and machinery are first put to use.
04 In the present case, the plant and machinery were put to use with effect from 1st July, 2011. As such, additional depreciation on all the plant and machinery put into use on 1st July, 2011 should be allowed.
05 The Income-tax Officer has disallowed additional depreciation of Rs.1,14,42,964/- [20% on Rs.5,55,51,329) solely on the ground that the assessee has purchased the aforesaid fixed assets in F.Y.2010-11 and not during the current F.Y. namely 2011-12, therefore on such plant and machinery, additional depreciation should not be allowed.
06 It is the contention of the assessee that the plant and machinery though purchased in F,Y,2010-11 was put into use for the first time in F.Y.2011-12, the additional depreciation must be allowed in Assessment Year 2012-13. 4.07 It is the contention of the assessee that the additional depreciation on plant and machinery amounting to Rs,1,14,42,964 be allowed in full during Assessment
Considering the submissions of the assessee, the ld. Commissioner of Income Tax (Appeals) deleted the addition with regard to the disallowance of depreciation.
However, he retained the disallowance with respect to claim of additional depreciation. The order of the ld. Commissioner of Income Tax (Appeals) read as under:
I have carefully considered the facts of the case and the submissions made by the Ld. AR. It is seen from the details that the assessee has claimed depreciation @15 per cent on plant and machinery and further additional depreciation of 20 per cent on the : same plant and machinery. The plant and machinery were purchased in F.Y.2010-11 relevant to A.Y.2011-12 relevant to A.Y.2012-13. Since they were not purchased in the relevant previous year 2011-12, the AO has not allowed the depreciation. However, it is seen from the details that the factory of the appellant near Bangalore was under construction
4 M/s. RBBR Infrastructure Private Limited and the expenditure had been shown as capital work-in-progress. The company started the plant from 1st July, 2011 and all the capital purchased upto 31.03.2011 and shown as capital work-in-progress were transferred to respective assets during the year ending 31.03.2012. The production started in the previous year 2011-12 and the assessee has shown sale proceeds from operation amounting to Rs.2.09 crores Therefore, actual production started in previous year 2011-12 and the business of the assessee was carried on during the year. As the assets are owned by the assessee, it is eligible for depreciation @15 per cent of the plant and machinery. The conditions of section 32(1) are satisfied and hence AO is directed to allow depreciation @ 15 per cent on the plant and machinery.
1 However, the claim for additional depreciation @ 20 per cent cannot be allowed because as per clause (iia) of section 32(1), additional depreciation @ 20 per cent will be allowable to an assessee engaged in the business of manufacture or production of any article or thing. In this case, the assessee has started production in the subject assessment year. It was not already engaged in the business while the new assets were purchased. All the assets were purchased in the previous year when the factory was under construction. The assessee was not engaged in any business of manufacture or production when the new machinery and plant were acquired. Therefore, the assessee is eligible only for the initial depreciation and not the additional depreciation. Accordingly, additional depreciation of Rs. 1,11,10,266/- is, disallowed and the AO is directed to allow the normal depreciation of Rs.83,32,699/-.
Against the above order, the assessee is in appeal before us.
We have heard both the counsel and perused the records. The ld. Counsel of the assessee submitted that the assessee is duly entitled to the claim of additional
depreciation. He submitted that the assessee has duly complied with the provisions of section 32(iia) with regard to the claim of additional depreciation. He submitted that in accordance with the said provision of law the assessee has acquired and installed
new machinery after the specified date prescribed in the Act and the assessee is engaged in the manufacture of production of any article or thing. He submitted that on the same facts, depreciation was allowed, but the ld. Commissioner of Income Tax
5 M/s. RBBR Infrastructure Private Limited (Appeals) has not properly understood the issue and retained the disallowance of additional depreciation on the erroneous premise that the assets were purchased in the previous year prior to the current assessment year. He submitted that the ld.
Commissioner of Income Tax (Appeals) has himself given a finding that during the previous year preceding the previous year in this assessment, these new machineries
were acquired and were capital work-in-progress. The plant started manufacturing
from 01.07.2011 relevant to the current assessment year. Hence, the ld. Counsel of the assessee pleaded that the assessee is very much entitled both to the depreciation as well as additional depreciation.
Per contra, the ld. Departmental Representative relied upon the orders of the authorities below.
We have carefully considered the submissions and perused the records. Before
proceeding further we may gainfully refer to the provision of section 32(1)(iia) of the Act and the same reads as under:
Depreciation.
(1) In respect of depreciation of— (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 or in the business of generation, transmission or distribution of power, 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) : Provided that where an assessee, sets up an undertaking or enterprise for manufacture or production of any article or thing, on or after the 1st day of April, 2015 in any backward area notified by the Central
6 M/s. RBBR Infrastructure Private Limited Government in this behalf, in the State of Andhra Pradesh or in the State of Bihar or in the State of Telangana or in the State of West Bengal, and acquires and installs any new machinery or plant (other than ships and aircraft) for the purposes of the said undertaking or enterprise during the period beginning on the 1st day of April, 2015 and ending before the 1st day of April, 2020 in the said backward area, then, the provisions of clause (iia) shall have effect, as if for the words "twenty per cent", the words "thirty-five per cent" had been substituted: Provided further 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;
A reading of the above indicates that the assessee is entitled to additional 11. depreciation in case of new machinery or plant which are acquired and installed after
2005 by the assessee engaged in the business of manufacture or production of any article or thing. In the present case, the assessee has acquired the plant and machinery in the year prior to the previous year relevant to current assessment year. In that year, the said plant and machinery was under capital work-in-progress. The plant
has started from 01.07.2011 and all the capital assets purchased by 31.3.2011 and shown as capital work-in-progress were transferred to respective assets on 31.03.2012. In such circumstances, the ld. Commissioner of Income Tax (Appeals)
has himself given a clear finding that the plant and machinery purchased in the 7 M/s. RBBR Infrastructure Private Limited financial year 2010-11 which is subsequent to the date specified for the allowance of the additional depreciation in the Act, i.e., 31.03.2005. We do not find any reason why the assessee should be denied additional depreciation. Hence, we agree with the submission of the ld. Counsel of the assessee that the ld. Commissioner of Income Tax (Appeals) has erred in understanding the facts. The ld. Commissioner of Income Tax (Appeals) has held that since the machinery were acquired and purchased in the financial year 2010-11 where they were capital work-in-progress and the financial year 2011-12 was the year in which the company and the machinery started functioning, the assessee is not eligible for the claim of depreciation. This is clearly a wrong appreciation of facts as well as law. We find that it is clear that the machineries in dispute were acquired after the date specified in the Act and their use was commenced from the current assessment year. Hence, the claim of additional depreciation is fully justified. Hence, we set aside the order of the ld. Commissioner of Income Tax (Appeals) and hold that the assessee is eligible for additional depreciation under Rule 32(1)(iia) of the Act.
In the result, this appeal by the assessee stands allowed. Order pronounced in the open court on 20.03.2018 (Amarjit Singh) (Shamim Yahya) "या"यक सद"य / Judicial Member लेखा सद"य / Accountant Member मुंबई Mumbai; "दनांक Dated : 20.03.2018 व."न.स./Roshani, Sr. PS
8 M/s. RBBR Infrastructure Private Limited
आदेश क" ""त"ल"प अ"े"षत/Copy of the Order forwarded to : अपीलाथ" / The Appellant
""यथ" / The Respondent 2. आयकर आयु"त(अपील) / The CIT(A) 3. आयकर आयु"त / CIT - concerned
"वभागीय ""त"न"ध, आयकर अपील"य अ"धकरण, मुंबई / DR, ITAT, Mumbai 5. गाड" फाईल / Guard File 6. आदेशानुसार/ BY ORDER,
उप/सहायक पंजीकार (Dy./Asstt.