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Income Tax Appellate Tribunal, MUMBAI BENCHES “H”, MUMBAI
Before: SHRI D.T. GARASIA & SHRI
Date of hearing : 01/02/2017 Date of order : 15/02/2017
O R D E R PER ASHWANI TANEJA, AM:
This appeal has been filed by the assessee against the order of Ld. Commissioner of Income Tax (Appeals)-4, Mumbai (hereinafter called as Ld. CIT (A) in short) dated 23.11.2012 and passed against the order of the Assessing Officer (AO) u/s 143 (3) r.w.s. 147 of the Income Tax Act, 1961 dated 15.11.2011 for AY 2006-07 on the following grounds:
1:0 Re.: Validity of re-assessment proceedings:- 1:1 “The Commissioner of Income Tax (Appeals) has erred in upholding the re-opening of the Appellant’s assessment u/s. 148 of the Income-Tax Act, 1961. 1:2 The Appellant submits that considering the facts and circumstances of its case and the law prevailing on the subject, the re-opening of assessment u/s. 148 was in excess of jurisdiction and the Commissioner of Income-Tax (Appeals) ought to have held as such.
1:3 The Appellate submits that the proceedings u/s 148 of the Act were not in accordance with law and consequently ought to be struck down. Without prejudice to the foregoing: 2:0 Additional depreciation on diagnostic/service equipments claimed as a deduction u/s. 32 (1) (iia): 2:1 The Commissioner of Income-Tax (Appeals) has erred in upholding the disallowance of a sum of Rs. 1,63,85,522/- being the additional depreciation claimed by the Appellant on diagnostic/service equipments installed at hospitals. 2:2 The Appellant submits that considering the facts and circumstances of its case and the law prevailing on the subject, it is entitled to additional depreciation on the diagnostic/service equipments in terms of section 32 (1) (iia) of the Income-Tax Act, 1961 and the stand taken by the Assessing Officer in this regard is erroneous, misconceived and ought to be struck down and the Commissioner of Income-Tax (Appeals) ought to have held as such. 2:3 The Appellant submits that the Assessing Officer be directed to grant additional depreciation on the vaporizers as claimed by it and to re-compute its total income accordingly.”
During the course of hearing, it was submitted by the Ld. Counsel of the assessee that the issue on merits with regard to allowability of additional depreciation is covered by the order of the Tribunal in group company of the assessee namely Abbott India Ltd. vs. ACIT (ITA No. 8428/Mum/2011) dated 30.10.2015 and if this issue is decided in favour of the assesse then ground of the assessee with regard to reopening may be treated as infructuous at this stage. Therefore, we find it appropriate to first take up the ground with regard to merits i.e. ground No. 2 first.
Brief backgrounds and the facts with regard to the issue on merits are that during year assessee was engaged in the business of pharmaceuticals, nutritional and diagnostic products. The assessee claimed additional depreciation of Rs. 1,63,85,522/- on the medical equipments which were placed by the assessee at the premises of its clients i.e. hospitals at their disposal for use of patients of these hospitals. During the course of assessment proceedings, the AO disallowed the impugned additional depreciation claimed by the assessee on these medical equipments on the ground that assessee was neither manufacturing anything directly nor producing any article or thing, whereas additional depreciation was allowable u/s 32 (1) (iia) of the Act only to the manufacturers. Ld. CIT (A) confirmed the disallowance made by the AO.
During the course of hearing before us, Ld. Counsel inter-alia submitted that this issue has been decided in favour of the assessee in the case of its group company of the assessee namely Abbott India Ltd., supra. Per contra, Ld. DR did not make any distinction on facts or law.
We have gone through the orders passed by the lower Authorities as well as order passed by the Tribunal in the case of Abbott India Ltd., supra. It is noted by us that Tribunal has decided this issue in favour of the assessee by observing as under:
“5. We have perused the orders passed by the authorities below, the submission by both the parties and the judgements relied upon by the Ld. AR before we start with our observation, Section 32 (1) (iia), as it stood at the relevant assessment year, is under: Depreciation 32(1) In respect of depreciating 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 assesse engaged in the business of manufacturer 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 cause (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 deduction (whether by way of depreciation or otherwise) in computing the income chargeable under the head ‘Profits and gains of business or professions’ of anyone previous year.’ The Ld. AR submits that the assesse has been engaged in manufacturing activities, and since vaporizers are not installed at its office premises, the sum is qualified for additional depreciation. The Ld. AR placed his relevance on; 1. CIT Vs. Diamines and Chemicals Ltd. reported in 109 DTR (Guj) 62.
2. CIT Vs. VTM Ltd. reported in (2009) 319 ITR 336 (Mad).
6. The Ld. DR relies on the order of DRP.
The Delhi Bench of the Tribunal in the case of DCIT v Is. Cosmo Films Ltd., bearing inter-alia had the occasion to examine the provisions relating to the grant of additional depreciation. The Tribunal held therein that, the assessee would be able to claim the additional depreciation. While doing so, the Tribunal referred to the speech of Finance Minister while inserting the relevant provisions, when it was stated that this clause was inserted to provide an incentive for fresh investment in industrial sector.
It observed that this provision has been directed towards encouraging industrialization by allowing additional benefit to the tax payers setting up new industrial undertakings/making more investment in capital goods. Thus, these are incentives aimed to boost new investments in setting up and expanding the units.
In the facts of the present case that assesse has installed vaporizers amounting to Rs.35,58,040/- at its hospitals. The Revenue has not disputed the fact that, the assesse is not engaged in manufacturing activities, carried on at Goa plant. The assesse provides health care solutions through its fair marketing arms being primary care, specialty care, neuroscience and hospitals care. As far as the application of Sec. 32(1)(iia) of the Act as concern, the assesse is required satisfy the stipulated conditions in order to claim additional depreciating. We observe that in para 23.2 of the final order passed by the Ld. AO, the factual position in respect of the machinery, has been provided vis-à-vis the conditions u/s 32(1)(iia) of the Act. The Ld. AO, has disallowed the additional depreciation only on the ground that the assesse has been into trading activity. Apart from the manufacturing activity carried on by the assesse, it also provides health care solutions. The vaporizers, purchased by the assesse are retained by the assesse itself.
In our considered opinion, section 32(1)(iia) does not state that setting up of a new machinery or a plant, which was acquired and installed after 31.03.2005, should have an operational connectivity to the article or thing that was already being manufactured by the assesse. Therefore, the reasoning of the Ld. AO that the vaporizers, has nothing to do with the manufacturing of articles etc., is totally not germane to the specific provision contained in section 32 (1) (iia) of the Act.
In the light of the above that discussion, we hold that the assessee is eligible for additional depreciation on vaporizers u/s. 32(1) (iia) of the Act.”
It is noted by us the issue involved before us is identical. No distinction has been made on facts. Therefore, respectfully following order of the Tribunal, we allow the claim of the assessee. Thus, this ground is allowed.
7. Since, relief has been allowed to the assessee on merits, the ground regarding reopening is dismissed as infructuous at this stage.
8. As a result, appeal of the assessee stands partly allowed.