Loading judgment…
Facts
The assessee, an infrastructure company, claimed depreciation on shuttering material at 100%. The AO disallowed the expenditure as capital and allowed depreciation at 15%, leading to an addition. The CIT(A) allowed 100% depreciation.
Held
The Tribunal, following the decision of the Hon'ble Telangana & Andhra Pradesh High Court in S. Vijay Kumar, held that shuttering material is entitled to depreciation at 15% and not 100%.
Key Issues
The allowability of depreciation on shuttering material at 100% or 15%.
Sections Cited
143(3), 32(1)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH ‘C’: NEW DELHI
Before: MS. MADHUMITA ROY & SHRI AVDHESH KUMAR MISHRA
ORDER
PER AVDHESH KUMAR MISHRA, AM
The appeal preferred by the Revenue for the Assessment Year (‘AY’) 2015-16 is directed against the order dated 29.12.2023 of the Ld. Commissioner of Income Tax (Appeals), NFAC, New Delhi [‘CIT(A)’].
The Revenue, vide revised grounds of appeal, has challenged the allowability of depreciation @ 100% on shuttering material, etc. instead of 15% allowed by the Ld. Assessing Officer (‘AO’).
3. The relevant facts giving rise to this appeal are that the assessee, an infrastructure company, filed its Income Tax Return (‘ITR’) of the relevant Jai Jai Ram Singh Infrastructure Pvt. Ltd. year on 30.09.2015 declaring income of Rs.4,91,71,350/-. The case was picked up for scrutiny, and the consequential original assessment was completed at Rs.4,93,21,350/- under section 143(3) of the Income Tax Act, 1961 (‘the Act’). Later on, the case was reopened on the reasoning that the shuttering charges debited to the Profit & Loss Account was abnormally very high at 7% of the turnover as against 0.43% in the preceding year and such expenditure was capital in nature and thus, the same could not be allowed as allowable expenditure in the relevant year. The consequential reopened assessment was completed at income of Rs.7,50,83,371/-. In the reopened assessment, the Ld. AO, holding the cost of Rs.3,03,08,260/- of shuttering material as capital expenditure, disallowed the claim of expenditure of shuttering material of Rs.3,03,08,260/- debited to the Profit & Loss Account. However, he allowed the depreciation of Rs.45,46,239/- @ 15% on shuttering material of Rs.3,03,08,260/-. Consequentially, the disallowance/addition of Rs.2,57,62,021/- was made over the original assessed income.
4. Aggrieved, the assessee filed appeal before the Ld. CIT(A) and succeeded. The relevant finding of the Ld. CIT(A) allowing the depreciation @ 100% on shuttering material is as under: -
“7. Ground No. 5 7 6 of the appeal are against allowing depreciation of only 15% as against allowable depreciation of 100%. The AO, though has raised issue of reasonability of claim of expenditure on account of depreciation but has accepted the figure of expense of Rs.3,03,08,260/- Jai Jai Ram Singh Infrastructure Pvt. Ltd. and has capitalized the same and allowed depreciation of 15% resulting in addition of Rs.2,57,62,021/-. The appellant has stated that either the expenditure on shuttering be allowed as Revenue Expenditure or if capitalized then allowable depreciation of 100% should be allowed. As per Income Tax Rules, New Appendix I, for AY 2015-16 on Purely Temporary erections such as wooden structures (i.e. shuttering etc.) depreciation is allowable @ 100%. In view of this provision the AO is directed to allow depreciation of 100% as the expenditure has been capitalized. Accordingly, the entire expense of Rs.3,03,08,260/- will be allowed. These grounds of appeal are 'Allowed’.”
5. Before us, the Ld. Sr. DR argued vehemently and defended the order of Ld. AO.
On the other hand, none attended for the respondent-assessee.
We have heard Sr. DR and have perused the material available on record. The sole issue involved in this appeal is that where the depreciation on the shuttering material is allowable @ 100% or 15%. We have gone through the order of the Hon’ble Telangana & Andhra Pradesh High Court (Full Bench) in the case of S. Vijay Kumar [2015] 376 ITR 226 in I.T.T.A No. 95 of 2001, dated 05.06.2015, wherein this issue has been threadbare in detail. The majority decision of the Hon’ble Telangana & Andhra Pradesh High Court is in the favour of the Revenue. The head note of the said decision (376 ITR 226) reads as under: -
“Held, allowing the appeal, per DILIP B. BHOSALE, ACTG. C. J. and A. RAMALINGESWARA RAO J. (M. S. RAMACHANDRA RAO J. (dissenting)), (i) that a car is a "plant" but the owner of the car was not entitled to claim hundred per cent. depreciation on its spare parts since the cost of the car Jai Jai Ram Singh Infrastructure Pvt. Ltd. was more than Rs. 5,000. Similarly, every single component or unit forming a shuttering or centering cannot be used independently in the business of construction. In other words, unless every component or unit of shuttering is combined with one or more similar or dissimilar components or units, it could not put to use in shuttering which was the "plant" in itself. The words "centering" or "shuttering" are not defined in any enactment or elsewhere, and, therefore, it would be necessary to find out how they are understood in civil engineering (ii) That whether or not each item of heterogeneous material comes under the definition of "plant" mentioned in section 32(1) is to be deter-mined. Then, if it is a "plant" whether any "item" of such "plant" utilised by the assessee for the purpose of his business or profession falls therein to be seen under the proviso to section 32(1). The "centering and shuttering" material is a homogenous qualitative material, though it is divisible. In such a case, the assessee could not claim the higher rate of depreciation by application of the proviso to such homogenous material. (iii) That where the actual cost of any "plant" does not exceed Rs. 5,000, the assessee is entitled to claim 100 per cent. depreciation. Merely because the cost of every single item is less than Rs. 5,000, every single item used for shuttering cannot be treated as plant.”
We are of the considered view that this case is squarely covered by the decision of the Hon’ble Telangana & Andhra Pradesh High Court (Full Bench) in the case of S. Vijay Kumar (supra). Hence, respectfully following the decision of the Hon’ble Telangana & Andhra Pradesh High Court (Full Bench) in the case of S. Vijay Kumar (supra), we hold that the assessee is entitled for depreciation on the shuttering material @ 15%. We therefore, set aside the impugned order and restore the order of the Ld. AO. consequentially, the Revenue succeeds on the core issue.
Jai Jai Ram Singh Infrastructure Pvt. Ltd. 9. Before parting out, we would like to mention that the revenue has raised a ground questioning the genuineness of the cost of shuttering material. The said ground reads as under:
“iii. Whether on the facts and in the circumstances of the case and in law the Ld. CIT(A) has eared in allowing 100% depreciation on shuttering charges when the expense is doubtful as it has increased from 0.43% of turnover in earlier year to 7% of turnover in FY 2014-15, and the material has been purchased from associate concerns.” We have taken note of the fact that the Ld. AO had neither questioned the cost of shuttering material nor had made any disallowance on this score. Therefore, we do not find it fit to adjudicate this ground on the reasoning that the same does not emerge from the assessment order. This ground, therefore stands dismissed.
In the result, the appeal of the Revenue is allowed as above.