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Income Tax Appellate Tribunal, G Bench, Mumbai
Before: Shri C.N. Prasad & Shri A.L. Saini
Per C.N. Prasad, JM
These two appeals are filed by the Revenue against separate orders of CIT(A)-14, Mumbai dated 23.06.2016 for assessment years 2009-10 and 2011-12 arising out of assessment orders passed under Section 143(3) r.w.s. 147 of the Income Tax Act, 1961 (hereinafter “the Act”) and section 143(3) of the Act respectively.
The only grievance in both these appeals of the Revenue is that the CIT(A) erred in law in allowing additional depreciation under Section 32(1)(iia) of the Act on new machinery and plant which has been acquired and installed in the first year of installation.
The brief facts of the case for A.Y. 2009-10 are that the assessment was reopened by the AO for the reason that the assessee has made excess claim of additional depreciation during the current assessment year. In the reasons recorded for reopening of assessment the AO observed that the benefit of additional depreciation is available to the assessee only in the 2 & 5402/Mum/2016 M/s. TCPL Packaging Ltd. year in which the machinery is installed and put to use and if it is less than 180 days then as per second proviso to section 32(1) depreciation shall be restricted to 50%. The assessee company can claim additional depreciation only in the year of installation and put to use the plant and machinery. The assessee cannot claim balance 50% of additional depreciation in the subsequent assessment year. Therefore, it was observed by the AO that since the assessee was allowed excess additional depreciation to the extent of 50% during the current assessment year there is escapement of income. The assessee contended before the AO that the additional depreciation on plant and machinery acquired and installed after 30th September of the previous year is eligible for 50% during the previous year in which the plant and machinery was installed and the remaining 50% of additional depreciation is allowable in the subsequent assessment year. The assessee, in support of its contention, relied on the decision of the Delhi Tribunal in the case of DCIT vs. Cosmo Films Ltd. (139 ITD628) and the decision of the Mumbai Tribunal in the case of MITC Rolling Mills P. Ltd. vs. ACIT (ITA No. 2789/Mum/2012 dated 13.05.2013). However, the AO relying on the decision of the Chennai Bench of the Tribunal in the case of CRI Pumps Pvt. Ltd. vs. ACIT 34 taxmann.com 123 and the decision of the Delhi Tribunal in the case of M/s. International Cars and Motors Ltd. vs. ITO held that the assessee is entitled for additional depreciation only in the year of installation and put to use of the machinery and the balance 50% of additional depreciation is not allowable in the subsequent assessment year.
On appeal the learned CIT(A), following the decision of the Hon'ble Jurisdictional High Court in the case of MITC Rolling Mills P. Ltd. (supra), the decisions of the Delhi Bench of the Tribunal in the case of Cosmo Films Ltd. (supra) and ACIT vs. SIL Investment Ltd. (54 SOT 54) directed the AO to allow 50% of additional depreciation during the current assessment year which was not allowed in the preceding assessment year because the plant and machinery was put to use for less than 180 days.
3 & 5402/Mum/2016 M/s. TCPL Packaging Ltd. 5. Before us the learned counsel for the assessee submitted that the issue in appeal has been decided in favour of the assessee by the Hon'ble Madras High Court in the case of CIT vs. Shri T.P. Textiles (P.) Ltd. 394 ITR 483) and the Mumbai Coordinate Bench in the case of Rashtriya Chemicals and Fertilizers ltd. vs. CIT in ITA No. 5160/Mum/2014 dated 29.06.2016. the learned counsel for the assessee also supported the orders of the CIT(A).
The learned D.R., on the other hand, vehemently supported the order of the Assessing Officer.
7. We have heard the rival submissions and perused the orders of the authorities below and the decisions relied upon. The AO while completing the assessment disallowed 50% of additional depreciation which was claimed by the assessee during the current assessment year on the plant and machinery which was installed in the preceding assessment year and was put to use after 30th September whereby it has been used for less than 180days. According to the AO the additional depreciation is allowable only in the year of installation and put to use the machinery and since the assessee installed the machinery after 30th September and was put to use for less than 180 days the assessee is entitled only for 50% of additional depreciation in the year of installation and the assessee is not entitled for the remaining 50% of additional depreciation in the subsequent assessment year. The learned CIT(A), following the decision of the Coordinate Bench, held that the assessee is entitled for 50% additional depreciation in the subsequent assessment year which was not allowed in the preceding assessment year due to the assessee company used the assets for less than 180 days and also the decision of the Delhi Tribunal in the case of Cosmo Films Ltd. (supra) and SIL Investment Ltd. (supra). The question of whether the assessee is entitled for balance 50% of additional depreciation in the subsequent assessment year has been decided by the Hon'ble Madras High Court in the case of Shri T.P. Textiles (P.) Ltd. (supra). The Hon'ble High Court has held that the plain language of Section 32(1)(iia) read along with the relevant proviso will lead to the 4 & 5402/Mum/2016 M/s. TCPL Packaging Ltd. conclusion that there is no limitation placed on the assessee claiming 10% of additional depreciation in the succeeding assessment year. While holding so the Hon'ble High Court observed as under: -
7.4. In order to appreciate the issue at hand, relevant provisions of Section 32 of the Act, to the extent applicable in the A.Y. in issue, would be required to be noticed : "Section 32 (1) In respect of depreciation of - (i) buildings, machinery, plant or furniture, being tangible assets; (ii) know-how, patents, copyrights, trademarks, 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: Provided .... (a) & (b).... Provided further that where an asset referred to in clause (i) or clause (ii) or clause (iia), as the case may be, is acquired by the assessee during the previous year and is put to use for the purposes of business or profession for a period of less than one hundred and eighty days in that previous year, the deduction under this sub- section in respect of such asset shall be restricted to fifty per cent of the amount calculated at the percentage prescribed for an asset under clause (i) or clause (ii) 1`or clause (iia), as the case may be: Provided also & Explanation 1 to Explanation 5 (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 Marcy, 2005, by an assessee engaged in the business of manufacture or production of any article or thing or 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). Provided ......" (Emphasis is ours) 8. Pertinently, the Karnataka High Court, in a decision rendered in the case of CIT V. Rittal India (P.) Ltd., [2016] 66 taxmann.com 4 5 & 5402/Mum/2016 M/s. TCPL Packaging Ltd. (Karnataka), has interpreted the aforesaid provision, in particular, the proviso incorporated therein. The Karnatake High Court, in the said case, has come to the conclusion that additional depreciation granted under clause (iia) of Section 32(1) of the Act is for the purpose of affording benefits to the Assessees and, to encourage industrialization, either by setting up a new industrial unit, or, by expanding a new industrial unit, by purchasing and installing a new machinery, or, plant, and putting the same to use for the purposes of business. 8.1. The Court, went on to say, that while, the proviso appearing in Section 32(1) restricts the claim of depreciation to 50% of the amount calculated at the percentage prescribed for an asset referred to in clause (iia), nowhere does it restrict allowance of the balance 50% of the additional depreciation, which in percentage terms, would be 10% in the succeeding A.Y. 8.2. The relevant observations made by the Division Bench of the Karnataka High Court in the case of CIT V. Rittal India (P.) Ltd., as contained in paragraphs 7, 8 and 9 of the said judgment, for the sake of convenience are extracted hereafter : ".....
Clause (iia) of Section 32(1) of the Act, as it now stands, was substituted by the Finance Act, 2005, applicable with effect from 01.04.2006. Prior to that, a proviso to the said Clause was there, which provided for the benefit to be given only to a new industrial undertaking, or only where a new industrial undertaking begins to manufacture or produce during any year previous to the relevant assessment year.
8. The aforesaid two conditions, i.e., the undertaking acquiring new plant and machinery should be a new industrial undertaking, or that it should be claimed in one year, have been down away by substituting clause (iia) with effect from 01.04.2006. The grant of additional depreciation, under the aforesaid provision, is for the benefit of the assessee and with the purpose of encouraging industrialization, by either setting up a new industrial unit or by expanding the existing unit by purchase of new plant and machinery, and putting it to use for the purpose of business. The proviso to Clause (ii) of the said Section makes it clear that only 50% of the 20% would be allowable, if the new plant and machinery so acquired is put to use for less than 180 days in a financial year. However, if nowhere restricts that the balance 10% would not be allowed to be claimed by the assessee in the next assessment year.
The language used in Clause (iia) of the said Section clearly provides that "a further sum equal to 20% of the actual cost of such machinery or plant shall be allowed as deduction under Clause (ii)". The word "shall" used in the said Clause is very significant. The benefit which is to be granted is 20% additional depreciation. By virtue of the proviso referred to above, only 10% can be claimed in one year, if plant and machinery is put to use for less than 180 days in 6 & 5402/Mum/2016 M/s. TCPL Packaging Ltd. the said financial year. This would necessarily mean that the balance 10% additional deduction can be availed in the subsequent assessment year, otherwise the very purpose of insertion of Clause (iia) would be defeated because it provides for 20% deduction which shall be allowed....."
9. We are in respectful agreement with the view taken by the Division Bench of the Karnataka High Court, passed in CIT V. Rittal India (P.) Ltd.
10. According to us, these are provisions included by the Legislature in the Statute to give a fillip to new industries as also to existing industries, which seek to expand its sway, by investing in and making use of new plant and machinery. 10.1. The plain language of Section 32(1)(iia) read along with the relevant proviso would have us come to the conclusion that, there is no limitation in the assessee claiming the balance 10% of additional depreciation in the succeeding assessment year. 10.2. As a matter of fact, with effect from 01.04.2016, the ambiguity, if any, in this regard, in the mind of the Assessing Officer, stands removed by virtue of the Legislature, incorporating in the Statute, the necessary clarificatory amendment. 10.3. The amendment brought in the relevant proviso obtaining in Section 32, reads as follows: “.... 32. (1) ...... Provided also that where an asset referred to in clause (iia) or the first proviso to clause (iia), as the case may be, is acquired by the assessee during the previous year and is put to use for the purposes of business for a period of less than one hundred and eighty days in that previous year, and the deduction under this sub-section in respect of such asset is restricted to fifty per cent of the amount calculated at the percentage prescribed for an asset under clause (iia)for that previous year, then, the deduction for the balance fifty per cent of the amount calculated at the percentage prescribed for such asset under clause (iia) shall be allowed under this sub-section in the immediately succeeding previous year in respect of such asset: .......” (Emphasis is ours) 11. We may only indicate that during the course of the arguments, our attention was drawn to the "Memorandum Explaining the provisions in Financial Bill, 2015", whereby, the aforementioned amendment was brought about. 11.1. The relevant part of the Memorandum is extracted hereafter: "..... To remove the discrimination in the matter of allowing additional depreciation on plant or machinery used for less than 180 days and used for 180 days or more, it is proposed to provide that the balance 50% of the additional depreciation on new plant or machinery acquired and used for less than 180 days which has not been 7 & 5402/Mum/2016 M/s. TCPL Packaging Ltd. allowed in the year of acquisition and installation of such plant and machinery, shall be allowed in the immediately succeeding previous year. This amendment will take effect from 1st April, 2016 and will, accordingly, apply in relation to the assessment year 2016-17 and subsequent assessment years." 11.2. A perusal of the extract of the Memorandum relied upon would show that the legislature recognised the fact that the manner in which the Revenue chose to interpret the provision, as it stood prior to its amendment would lead to discrimination, in respect of plant and machinery, which was used for less than 180 days, as against that, which was used for 180 days or more. 11.3. In our opinion, as indicated above, the amendment is clarificatory in nature and not prospective, as is sought to be contended by the Revenue. The Memorandum cannot be read in the manner, in which, the Revenue has sought to read it, which is, that the amendment brought in would apply only prospectively. 11.4. We are, clearly, of the view that the Memorandum, which is sought to be relied upon by the Revenue, only clarifies as to how the unamended provision had to be read all along. 11.5. In any event, in so far as the Court is concerned, it has to go by the plain language of the unamended provision, and then, come to a conclusion in the matter. As alluded to above, our view, is that, upon a plain reading of the unamended provision, it could not be said that the Assessee could not claim balance depreciation in the A.Y., which follows the A.Y., in which, the machinery had been bought and used, albeit, for less than 180 days.”
As can be seen from the above decision the Hon'ble Madras High Court, following the decision of the Hon'ble Karnataka High Court in the case of CIT vs. Rittal India (P) Ltd. (380 ITR 423) and also considering the amendment brought in by way of proviso to section 32(1) wherein it has been specifically stated that 50% of additional depreciation which was not allowed in the preceding assessment year shall be allowed in the subsequent assessment year, concluded that the assessee is entitled for additional 50% depreciation in the assessment year which follows the assessment year in which the machinery had been bought and put to use for less than 180 days. We also found that the Coordinate Bench in the case of Rashtriya Chemicals and Fertilizers Ltd. (supra) has taken similar view following the decision of the the Hon'ble Karnataka High Court in the case of CIT vs. Rittal India (P) Ltd. (380 ITR 423). Respectfully following the
9. The issue in appeal for A.Y. 2011-12 being identical the decision rendered by us for A.Y. 2009-10 would apply mutatis mutandis to the appeal for A.Y. 2011-12.
In the result, the appeals filed by the Revenue are dismissed.