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Income Tax Appellate Tribunal, DELHI BENCH ‘D’ : NEW DELHI
Before: SHRI N.K. SAINI & SHRI KULDIP SINGH
(PAN : AAACL3540K) (APPELLANT) (RESPONDENT) ASSESSEE BY : Shri S.K. Chadha, CA REVENUE BY : Shri Shravan Gotru, Senior DR Date of Hearing : 11.07.2016 Date of Order : 13.07.2016
O R D E R
PER KULDIP SINGH, JUDICIAL MEMBER :
The Appellant, M/s. Luna Chemical Industries Pvt. Ltd. (hereinafter referred to as ‘the assessee’) by filing the present appeal sought to set aside the impugned order dated 14.03.2013 passed by the Commissioner of Income-tax (Appeals)-VIII, New Delhi qua the assessment year 2006-07 on the grounds inter alia that :- “1. The learned ACIT has erred in reopening the assessment by issuing notice u/s 148 of the IT Act and the same being confirmed by the Learned First Appellate
Authority which is totally unjustified and against the provisions of law. 2. The Learned CIT (A) has erred in confirming the addition of Rs.14048261/- by disallowing the claim of additional depreciation which is totally arbitrary, unjustified and against the provisions of law. 3. The Learned CIT (A) has erred in dismissing the appeal which is arbitrary, unjustified, against the facts of the case as well as against the provisions of law.”
Briefly stated the facts of this case are : assessee is into the business of manufacturing of fertilizers, chemicals and paints.
After completion of assessment under section 143 (3) of the Income-tax Act, 1961 (for short ‘the Act’) on 21.11.2008 with income of Rs.33,16,280/-, assessment was reopened u/s 148 on the ground that from the scrutiny of assessment record, it is noticed that assessee has claimed additional depreciation of Rs.1,50,84,010/- on addition of Rs.15,08,40,102/- on plant and machinery. Since the assessee has not purchased any plant and machinery during the year under assessment, additional depreciation of Rs.1,40,48,261/- claimed on opening work-in- progress and transferred from pre-operative expenses has escaped assessment within the meaning of section 147/148 of the Act. AO came to the conclusion that additional depreciation is allowable on new machinery purchased and installed during the year under consideration only whereas in the present case, machinery was purchased before beginning of the financial year and it was only transferred from pre-operative expenses to the schedule of assets and shown as addition in plant and machinery which does not qualify for claim of additional depreciation under the Act and consequently, disallowed additional depreciation amounting to Rs.1,40,48,261/- and made an addition thereof to the income of the assessee.
Assessee carried the matter before the ld. CIT (A) who has affirmed the assessment order passed u/s 147/143 (3) of the Act.
Feeling aggrieved, the assessee has come up before the Tribunal by way of filing the present appeal.
We have heard the ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case.
Ld. AR for the assessee challenging the impugned order contended inter alia that the assessee company being a manufacturing unit acquired machinery on 15.12.2005 i.e. after the financial year 2004-05 under the head “capital work-in-progress” and erection was completed on 15.12.2005 and as such is entitled for additional depreciation under provisions contained u/s 32(1)(ii) of the Act; that the production in the case of assessee started only after 15.12.2015 and relied upon the order passed by the ITAT, Mumbai in case cited as JCIT vs. Lotus Energy (India) Ltd. [2016] 68 taxmann.com 364 (Mumbai – Trib.). However, on the other hand, ld. DR relied upon the order passed by the AO/CIT(A).
In the backdrop of the aforesaid facts and circumstances of the case and contentions raised by the parties, the sole question arises for determination in this case is :
“as to whether assessee is entitled for additional depreciation (plant and machinery) not purchased during the year under assessment, claimed under the head “capital work-in-progress”, transferred from pre-operative expenses?” 7. To adjudicate the controversy, provisions contained u/s 32 (iia) of the Act are reproduced for facility of reference as under :-
“Section 32 ….
(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 34[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) : ………. 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;”
Undisputedly, as per annexure of addition in plant and machinery, the assessee has shown Rs.14,04,82,610/- as “opening work-in-progress and transferred from pre-operative expenses”; that the assessee has not purchased any plant and machinery during the year under consideration; that the erection of plant and machinery in the assessee’s unit got completed on 15.12.2005 and production also started w.e.f. 15.12.2005.
Identical issue as to disallowing additional depreciation to the assessee on the plant and machinery by the AO has been dealt with by the coordinate Bench in case cited as JCIT vs. Lotus Energy (India) Ltd. (supra) and the question framed has been answered in favour of the assessee.
Bare perusal of the provisions contained u/s 32(1)(ii) of the Act goes to prove that this is a beneficial legislation to extend incentive to the new manufacturing units, which should be constructed liberally. Legislation has used words “acquired and installed” in the provisions contained u/s 32(1)(iia), after first day of March 2005.
Undisputedly, the assessee has purchased plant and machinery prior to as well as after 31.03.2005 and completed the installation / erection on or before 15.12.2005. Production also started in assessee’s unit on or after 15.12.2005. So, when the opening work was in progress at the time of completion of assessment of the assessee u/s 143(3), on completion of erection and installation of the machinery, the assessee company is certainly entitled for claiming additional depreciation shown as transferred from pre-operative expenses. Moreover when integrated unit was completed after installation of the plant and machinery on 15.12.2005 which fact has not been disputed by the revenue, additional depreciation cannot be disallowed on the ground that the machinery was purchased before the beginning of the financial year.
Even otherwise, the capital work-in-progress under the head “plant and machinery” constitutes the purchases of various components, assembled, fabricated, installed to formulate the complete unit. In other words, expenses under the head “work-in- progress” constitute the amount of expenses for the acquisition of various components and material to convert the same into plant and machinery (complete unit). When undisputedly the assessee has not claimed normal depreciation or additional depreciation on the expenses incurred under the head “capital work-in-progress” in the earlier assessment years as the installation and erection of machinery was under progress, the findings returned by the lower authorities that no new machinery was purchased and installed during the financial year under consideration are not tenable in the eyes of law. So, when the assessee has not claimed any such deduction during the AY 2005-06 on acquisition and installation of the plant and machinery on the ground that the process of acquisition and installation was under progress the assessee is entitled for additional depreciation under the amended provisions contained u/s 32 (iia) of the Act.
So, in the given circumstances, the AO has assumed jurisdiction to reopen the assessment u/s 147/148 of the Act by mis interpreting the relevant provisions and disallow the additional depreciation on the ground that no material has been purchased by the assessee during the relevant financial year, which is not sustainable in the eyes of law. CIT (A) has also erred in perpetuating the misinterpretation of law made by the AO. In other words, it is a case of non-application of mind by the AO.
In view of what has been discussed above and following the order passed by the coordinate Bench, which is not controverted by the revenue, we are of the considered view that the CIT (A) has erred in confirming the addition of Rs.1,40,48,261/- by disallowing the claim of additional depreciation, hence the impugned order is not sustainable in the eyes of law. Consequently, present appeal is hereby allowed. Order pronounced in open court on this 13th day of July, 2016.