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Income Tax Appellate Tribunal, “A” BENCH: KOLKATA
Before: Shri N. V. Vasudevan, JM & Shri M. Balaganesh, AM]
ORDER
Per Shri M. Balaganesh, AM:
This appeal by assessee is arising out of order of CIT(A)-XII, Kolkata vide Appeal No. 357/XII/Cir-10/2011-12 dated 19.08.2013. Assessment was framed by JCIT(OSD), under CIT-IV, Kolkata u/s. 143(3) of the Income tax Act, 1961 (hereinafter referred to as the “Act”) for AY 2009-10 vide his order dated 08.12.2011.
The first issue to be decided in this appeal of assessee is as to whether the assessee is eligible for claiming additional depreciation of Rs.2,89,58,125/- in respect of plant and machinery acquired during the year which was utilized in the sales outlet of the assessee, in the facts and circumstances of the case.
2.1. The brief facts of this issue are that the assessee is a manufacturer and retailer of apparels. The Ld. AO observed that assessee had claimed additional depreciation of Rs.2,89,58,125/- on plant and machinery added during the year u/s. 32(1)(iia) of the Act. The said plant and machinery was installed at the sales outlet in the retail division of the assessee. Hence, the AO held that assessee is not entitled for additional depreciation as the said new plant and machinery was not utilized in the manufacturing or production of any article or thing and disallowed the claim of additional depreciation of Rs.2,89,58,125/- in the assessment.
2.2. Before the ld. CIT(A), the assessee claimed that assessee is eligible for claiming additional depreciation irrespective of such plant and machinery being engaged in manufacture or production of goods as long as assessee per se is engaged in the business
2 V2 Retail ltd. AY 2009-10 of manufacture of own article. It was claimed that admittedly, assessee is engaged in the manufacture of apparels and it does not matter where the new plant and machinery is installed i.e. in sales outlet. But Ld. CIT(A) invoked first proviso to section 32(1)(iia) of the Act and held new plant and machinery installed in other than manufacturing location and not utilized in manufacture of article is not eligible for additional depreciation. However, he granted relief to the assessee to the extent of Rs.40,23,340/- being plant and machinery installed at the factory premises and upheld the remaining addition of Rs.2,49,34,785/-. Aggrieved, assessee is in appeal before us on the following grounds: “
1. For that in the facts and circumstances of the case, the Ld. AO erred in disallowing Rs.2,89,58,125/- claimed as additional depreciation on Plant & Machinery acquired during the year. The action of the AO was wholly unreasonable, uncalled for and bad in law. The Ld. CIT(a) was unjustified in deleting the additions to the extent of Rs.40,23,340/- only and not deleting the balance amount of Rs.2,49,34,785/-.
2. For that in the facts and circumstances of the case, the Ld. CIT(A) erred in observing that additional depreciation u/s. 32(iia) is allowable only on Plant and Machinery used for the manufacturing process. In fact, the act only required that the assessee should be engaged in the business of manufacturing and the Plant & Machinery shouldn’t be installed at residential accommodation or office premises. The act doesn’t postulate disallowance of additional depreciation on Plant & Machinery installed at retail outlet of a manufacturing company.”
2.3. The Ld. AR reiterated the same submissions as submitted before the lower authorities. In addition, he placed reliance on the following decisions:
(i) CIT Vs. V T M Ltd. 319 ITR 336 (Madras) & (ii) CIT Vs. Diamines & Chemicals Ltd. 271 CTR 98 (Guj).
In both the decisions it was held that provisions of section 32(1)(iia) of the act does not state setting up of new plant and machinery which should have any operational connectivity to the article or thing that was already being manufactured by the assessee.
2.4. In response to this, Ld. DR argued that the assessee’s case falls in the first proviso to section 32(1)(iia) of the Act wherein plant and machinery was installed in the sales outlet i.e. the office premises. In both the case laws relied on by the Ld. AR, assessee therein were engaged in the manufacture of article and windmills were installed which was engaged in the business of generation of power. Hence, it was put to use operationally and both the units were engaged in manufacturing activity, whereas in the instant case, the new machinery was installed only in the sales outlet which is not used 2.5. We have heard rival submissions and perused the material available on record. For the sake of convenience the provisions of section 32(1)(iia) of the Act are reproduced hereunder:
“32(1) In respect of depreciation 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 assessee engaged in the business of manufacture 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 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”.
2.6. We find that installation of new plant and machinery in sales outlet/retail office would fall under clause (B) of proviso to section 32(1)(iia) of the Act. We are in complete agreement with the arguments advanced by the Ld. DR. Needless to mention that the assessee is entitled for the benefit of having its written down value increased due to additional depreciation getting disallowed. The Ld. AO is directed to rework the written down value accordingly and give benefit of increased depreciation in the subsequent years as a consequential impact. Accordingly, ground nos. 1 and 2 raised by the assessee are partly allowed for statistical purposes.
The next issue to be decided in this appeal is as to whether the assessee is entitled for enhanced depreciation rate of 80% on Genset in the facts and circumstances of the case.
4 V2 Retail ltd. AY 2009-10 3.1. Brief facts of the case are that the assessee has claimed depreciation of 80% on Genset (Generator Sets). The Ld AO observed that as the assessee was not engaged in the manufacturing business as specified in New Appendix-1 of Rule 5 of I. T. Rules, the claim of the assessee for higher depreciation of 80% against the depreciation of 15% amounting to Rs.7,03,94,112/- (Rs.8,66,38,907/- - Rs.1,62,44,795/-) requires to be disallowed and added to the total income of the assessee. The Ld. CIT(A) verified the income tax depreciation rates and found depreciation at 80% is provided on Renewable Energy Device –
(m) and any special device including electrical generators and pumps running on wind energy.
The Ld. CIT(A) observed that in order to be eligible for depreciation at 80%, such electric generator should run on wind energy and even otherwise , electric generator is not renewable energy device. Accordingly, he upheld the depreciation allowed by the AO at 15% as against 80% claimed by the assessee. Aggrieved, the assessee is in appeal before us on the following ground:
“3. For that in the facts and circumstances of the case, the Ld. AO erred in allowing depreciation @ 15% only as against depreciation @ 80% claimed by the assessee on Genset (Generator Sets), thereby reducing the depreciation claimed by Rs.7,03,94,112/-. The Ld. CIT(A) was unjustified in confirming the action of the AO.” 3.2. The Ld. AR apart from reiterating the submissions as made before the lower authorities, relied on the decision of Hon’ble Rajasthan High Court in the case of CIT Vs. Agarwal Transformers Pvt. Ltd. reported in 258 ITR 251 (Raj) wherein it was held that electric generator clearly falls under renewal energy device and thereby eligible for enhanced rate of depreciation. In response to this, the Ld. DR argued that electric generator is run on diesel and hence not renewable energy device. He argued that renewable energy is generally defined as energy that is collected from resources which are naturally replenished on a human timescale, such as sunlight, wind, rain, tides, waves, and geothermal heat. Renewable energy often provides energy in four important areas electricity generation, air and water heating/cooling, transportation, and rural (off- grid) energy services. Based on this, he argued that no replenishable sources is used by 3.4. We have heard rival submissions and perused the material available on record. We find that the issue in dispute is squarely covered by the decision of the Hon’ble Rajasthan High court in the case of Agarwal Transformers Pvt. Ltd., supra wherein it was held as under:
“…..In order to appreciate the controversy involved, it will be convenient to extract the relevant entry at clause (xiii) of item 10A of Appendix I appended to Income-tax Rules, which reads as follows: "Any special devices including electric generators and pumps running on wind energy." 3, According to the rules of construction, where two or more words which are susceptible of analogous meaning are coupled together noscitur a sociis, they are understood to be used in their cognate sense. They take, as it were, their colour from each other, the meaning of the more general being restricted to a sense analogous to that of the less general. Thus. in our view the word 'electric generator' must be construed as ejusdem generis. The electric generator by itself generate electricity and, therefore, do not fall within the renewable energy devices. It is different from pumps run on wind energy, which falls within the renewable energy devices. Thus, it is erroneous to say that the condition 'run on wind energy' is also attached to electric generators. Even grammatically neither, nor the word 'both' is used after the word 'pumps' in the relevant entry and this also clarifies that the condition 'running on' wind 'energy' is only attached to the word 'pumps' and not to the electric generators. A further reading of the entry shows that it is inclusive, it refers to two different items namely, electric generators and secondly the pumps running on wind energy. Thus, in our view the electric generator clearly fails under the renewable energy devices and the Tribunal has rightly allowed the depreciation at the rate of 30 per cent on the basis of item 10A, clause (xiii), of Appendix 1.
4. The reference is accordingly answered in favour of the assessee and against the revenue.” Respectfully following the ratios laid down in the aforesaid decision, we allow the ground no. 3 of assessee’s appeal.
In the result, the appeal of assessee is partly allowed for statistical purposes.
Order is pronounced in the open court on 01.06.2016