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Facts
The assessee, M/s. Kosei Minda Aluminum Co. Pvt. Ltd., filed its return for AY 2016-17 showing a loss and claimed deduction under Section 32AC for new assets acquired. The Assessing Officer (AO) disallowed the deduction, stating that the cost of new assets acquired in the relevant year did not exceed Rs. 25 Crores, and also included assets acquired in the previous year. The Commissioner of Income Tax (Appeals) confirmed the AO's action.
Held
The Tribunal held that the proviso to Section 32AC(1A) allows deduction in the year of installation if it differs from the year of acquisition, provided the conditions are met. The Tribunal found that the assessee had acquired new assets in AY 2015-16 and AY 2016-17, and installed them in AY 2016-17, with a total cost exceeding Rs. 25 Crores. The Tribunal also noted an issue regarding a deduction claimed for foreign exchange on capital assets, which was disallowed by the AO due to lack of supporting documents.
Key Issues
Whether the assessee is eligible for deduction under Section 32AC on assets acquired in a previous year but installed in the current year, and whether the disallowance of deduction claimed as foreign exchange on capital assets was justified.
Sections Cited
32AC, 43A, 142(1)
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Income Tax Appellate Tribunal, ‘C’ BENCH: CHENNAI
Before: SHRI ABY T. VARKEY & SHRI JAGADISH
आदेश / O R D E R
PER ABY T. VARKEY, JM:
1. This is an appeal preferred by the assessee against the order of the Learned Commissioner of Income Tax (Appeals)/NFAC, (hereinafter in short "the Ld.CIT(A)”), Chennai-16, dated 05.02.2024 for the Assessment Year (hereinafter in short "AY”) 2016-17.
The main grievance of the assessee is against action of the Ld.CIT(A) sustaining the disallowance made by the AO u/s.32AC of the Income Tax Act, 1961 (hereinafter in short "the Act”) to the tune of Rs.5,00,04,962/-.
The brief facts are that the AO noted that the assessee has filed its return of income for AY 2016-17 on 30.11.2016 admitting loss (-) of Rs.12,24,89,030/-. The AO noted that the assessee has claimed deduction u/s.32AC of the Act and submitted the list of new assets claimed to be acquired during the previous year relevant to AY 2016-17, which was only to the tune of Rs.14,72,45,741/- (according to the assessee, correct figure was Rs.14,75,96,240/-) and further the AO noted that the list also included assets which have been acquired during the earlier AY 2015-16 to the tune of Rs.18,57,70,173/-. Therefore, according to the AO, the actual cost of new assets acquired during the relevant year under consideration is only Rs.14,72,45,741/- (which according to the assessee is Rs.14,75,76,240/-); and since the cost of new assets acquired during the previous year didn’t exceed Rs.25 Crs., the AO held that the assessee was not eligible for deduction u/s.32AC of the Act; and thus, he disallowed the deduction claimed to the tune of Rs.5,00,04,962/-.
Aggrieved, the assessee preferred an appeal before the Ld.CIT(A) who confirmed the action of the AO.
Aggrieved, the assessee is in appeal before this Tribunal.
We have heard both the parties and perused the material available on record. We note that the assessee company M/s.Kosei Minda Aluminum Co. Ltd., (hereinafter in short "M/s.KMACL") had filed its return of income declaring loss of Rs.12,24,89,030/-. Later, the case of the assessee was selected for scrutiny and the AO noted that the assessee had made a claim of deduction u/s.32AC of the Act, for the following assets:
Particulars Amount in Rs. 14050/24.12.2014 1,79,01,605 14035/13.01.2015 1,91,20,995 14036/13.01.2015 2,66,58,602 14048/23.01.2015 6,57,23,628 14037/01.03.2015 1,70,80,827 14038/01.03.2015 2,61,66,014 14027/18.11.2014 1,31,18,502 Plant and Machinery acquired during the FY 2014-15 18,57,70,173 Total additions made in the FY 2015-16 33,33,66,413 Plant and Machinery acquired in the FY 2015-16 14,75,96,240 Plant and Machinery acquired in the FY 2015-16 as 14,72,45,741 per the Assessment Order Difference 3,50,499
The AO after verification of the claim noted that the assessee had only acquired plant & machinery (assets) in the previous year (AY 2016- 17) worth Rs.14,75,96,240/- (in the Assessment Order, the AO has noted the value of assets at Rs.14,72,45,741/-) and since assessee didn’t acquire new assets exceeding Rs.25 Crs. he was of the opinion that assessee was not eligible for deduction claimed u/s.32AC of the Act.
Therefore, he disallowed the deduction claimed u/s.32AC of the Act to the tune of Rs.5,00,04,962/-. The main plea of the assessee is that depreciation/deduction/allowance is allowable from the date of installation i.e. when the assets are put to use rather than from the date of acquisition. According to the assessee, it is settled position of law that an asset [plant & machinery (new asset)] when “acquired and installed” only can claim depreciation; and that the event of acquisition of an asset wouldn’t determine the claim of depreciation; and that it was only when the asset is put to use/installed, the assessee would be eligible to claim depreciation; and therefore in the present case, according to Ld AR, even though, assessee had acquired assets in AY 2015-16, it was put to use/installed only in the relevant year i.e. AY 2016-17, and therefore, total value of assets would exceed Rs.25 Cr. and so is eligible for deduction u/s.32AC of the Act; and that AO/CIT(A) erred in disallowing it.
In order to adjudicate the issue in hand, it would be gainful to reproduce sec.32AC of the Act, which reads as under:
[Investment in new plant or machinery. 32AC (1A) Where an assessee, being a company, engaged in the business of manufacture or production of any article or thing, acquires and installs new assets and the amount of actual cost of such new assets [acquired during any previous year exceeds twenty-five crore rupees and such assets are installed on or before the 31st day of March, 2017], then, there shall be allowed a deduction of a sum equal to fifteen per cent of the actual cost of such new assets for the assessment year relevant to that previous year.
Provided that where the installation of the new assets are in a year other than the year of acquisition, the deduction under this sub-section shall be allowed in the year in which the new assets are installed: 8. A bare reading of the aforesaid provision would reveal that if an assessee (being a company) is engaged in the business of manufacture or production of any article or thing, acquires and installs new assets and the amount of actual cost of such new assets acquired during any previous year exceeds Rs.25 Crs. and such assets are installed on or before 31st day of March, 2017, then, deduction of a sum equal to 15% of the actual cost of such new asset for the AY relevant to that previous year shall be allowed as deduction. The proviso also makes it clear that where the installation of new asset are in a year other than the year of acquisition, then the deduction shall be allowed in the year in which new assets are installed. We note from the perusal of the records that there is no dispute that the assessee company is engaged in the business of manufacture or production of article or thing. It isn’t disputed that it acquired new assets amounting to Rs.18,57,70,173/- in AY 2015-16 and also acquired new plant & machinery in AY 2016-17 to the tune of Rs.14,75,96,240/- totaling Rs.33,33,66,413/-. According to the assessee, it has acquired the new assets in AY 2015-16 & 2016-17, but installed them in the relevant year i.e. AY 2016-17, therefore, it qualifies for deduction u/s.32AC of the Act. Now, the question is whether in the facts and circumstances of the case, the assessee can claim depreciation of 15% of the actual cost of such new assets u/s.32AC(1)(a) of the Act in the year under consideration i.e AY 2016-17. The answer is in the affirmative. In other words, assessee has rightly claimed the deduction of a sum equal to 15% of the actual cost of new assets acquired during AY 2015-16 & 2016-17 in the relevant assessment year i.e. AY 2016-17, since it installed such new assets in AY 2016-17. A combined reading of Sec.32AC(1A) and proviso to it, spells out the conditions required to be satisfied for claiming deduction u/s.32AC of the Act. First condition is that assessee must be a company. Second condition is that it must be engaged in the business of manufacture or production of any article or thing. Third is that it acquires and installs any new assets. Fourthly, the actual cost of such new assets exceeds Rs.25 Crs. Fifthly, such assets are installed on or before 31st March, 2017. And the proviso inserted by Finance Act, 2016 w.e.f. 01.04.2016 allays all doubts that if installation of the new asset are in a year other the year of acquisition [exactly as in this case, the assets worth Rs.18,57,70,173/- was acquired in AY 2015-16], in such an event, the deduction u/s.32AC of the Act shall be allowed in the year when the new assets are installed. Therefore, what has to be seen in this case is that whether the plant & machinery acquired in AY 2015-16 & 2016-17 has been installed on or before 31.03.2017 and the value of such assets exceeds Rs.25 Crs. or not. In this case, the assessee has acquired the plant & machinery in AYs 2015-16 to 2016-17 as noted
:: 7 :: supra and has put to use or installed it on 25.04.2015, which was certified vide Installation Certificate O.C.No.568/2015 dated 28.09.2015 by the Office of the Superintendent of Central Excise, Oragadam-I-Range, Poonamallee, Chennai, which reads as under:
INSTALLATION CERTIFICATE
Certified that the following Capital Goods imported by of M/s.KOSEI MINDA ALUMINUM COMPANY PRIVATE LIMITED Under EPCG licence Scheme have been found installed in their factory premises situated at RNS.20A & 208, Renault Nissan Supplier Park, Vadakkupattu Village, Sriperumbudur Taluk, Kanchipuram Dist-603 204. The details of Machineries imported, Qty, BOE No, Date, EPCG License No. Date are furnished.
Sl. Description Bill of Entry No. Invoice No & Qty EPCG License Installation No of Goods/ Date No/ & Date Date 1 Rotary Heat 8352728/ KITI- KMA-14048 1 0430014314 25.04.2015 treatment 18.02.2015 DT:23.01.2015 Set Dt:31.12.2014 furnace and Aging Furnace 2 Okuma CNC 8163073/ KITI-KMA-14036 2 0430014314 25.04.2015 lathe for 31.01.2015 DT:31.01.2015 SET Dt:31.12.2014 Aluminum Wheels, LAW- F-II OP-1 Chuck FG56L 3 Okuma CNC 8727095/ KITI-KMA-14038 2 0430014314 25.04.2015 SET lathe for 26.03.2015 DT:26.01.2015 Dt:31.12.2014 Aluminum Wheels, LAW- F-II OP-2 Chuck FG56L 4 Brother 7979812 / KITI-KMA-14027 2 0430014314 25.04.2015 Brand 13.01.2015 DT:18.11.2014 SET Dt:31.12.2014 Compact Machining Centre 5 Melting & 8722133/ KITI-KMA-14037 2 0430014314 25.04.2015 Holding 26.03.2015 DT:01.03.2015 SET Dt:31.12.2014 Furnace for Kosei Minda 6 Tilt Pour 8058332 KITI-KMA-14035 2 0430014314 25.04.2015 SET Casing /21.01.2015 DT:18.11.2013 Dt:31.12.2014 Machine with Standard Accessories Model No. AWCT
According to the Ld.AR, cost of the plant & machinery acquired during the AY 2015-16 is Rs.18,57,70,173/- and the plant & machinery acquired in AY 2016-17 is Rs.14,75,96,240/-. Thus, total plant & machinery for both the years is Rs.33,33,66,413/- exceeds Rs.25 Crs. and since, these assets were put to use on 25.04.2015, assessee qualifies/eligible for deduction u/s.32AC of the Act. However, Installation Certificate reproduced (supra) in no way gives any indication of the cost of the plant & machinery acquired in AY 2015-16 & 2016-17. Therefore, we set aside the impugned order of the Ld.CIT(A) and remand the matter back to the file of the AO for a limited purpose of ascertaining the cost of the machinery acquired in AY 2015-16 as well as AY 2016-17 and thereafter, if it is found that the cost of the plant & machinery for both years exceeds Rs.25 Crs, then, deduction u/s.32AC(1)(a) of the Act, shall be allowed. Needless to say that assessee be granted proper opportunity to file the required/relevant documents to substantiate the cost of plant & machinery for both the Assessment Years.
The assessee has raised Ground No.7, wherein, he assails the action of the Ld.CIT(A) sustaining the disallowance made by the AO with regard to deduction claimed as foreign exchange on capital assets of Rs.5,51,233/-. We note that the Ld.CIT(A) has not adjudicated the Ground No.6 raised by the assessee and it is noted that the AO has decided the claim as under:
3. It is seen from the computation of Total Income submitted by Assessee, of Rs.5,51,233/- has been deducted as Foreign exchange on capital assets. However, it is seen that there was no corresponding decrease/ deduction from assets as seen from the depreciation table.
3.1 Vide notice U/s142 (1) of the IT act, dated 23.10.2019 the assessee called to give details and explanation in respect of the same as follows:
3.2 "Please give details of assets on which the exchange gain is claimed as deduction. Explain why corresponding adjustment was not made while computing depreciation".
3.3 However, assessee has not given any details or explanation regarding this. It is pertinent to note that Assessee in its reply dated 01.11.2019 has given details and reply in respect of another details called for vide notice u/s142 (1) dated 23.10.2019, but remains silent on this issue.
3.4 As per provisions of section 43A of the Act, the adjustment made on account of Foreign exchange fluctuation in respect of capital assets have to result in corresponding adjustment in the cost of asset.
3.5 As the assessee has not given any supporting documents with regard to its claim, the deduction of Rs.5,51,233/- claimed as "foreign exchange on capital assets" while computing the Total Income is disallowed.
(Add: Rs. 5, 51,233/-)
A reading of the assessment order (supra) reveals that the assessee hasn’t given any supporting documents with regard to its claim of deduction of Rs.5,51,233/- even though, called for by the AO, which resulted in disallowance of the claims; and the Ld.CIT(A) has not decided Ground No.6 raised before him. It is also noted that on this issue, there is no written submissions filed before the Ld.CIT(A). Be that as it may, since we have remanded the matter back to the file of the AO regarding deduction claimed u/s.32AC of the Act (supra) albeit for limited purpose, the assessee is given an opportunity to file the relevant documents to substantiate its claim on this issue and the AO to pass orders in accordance to law; and if the assessee fails to file relevant documents to substantiate its claim, especially which was called for by the AO in the first round, then, the AO to confirm the addition.
In the result, appeal filed by the assessee is partly allowed for statistical purposes.
Order pronounced on the 21st day of August, 2024, in Chennai.