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Income Tax Appellate Tribunal, “A” BENCH, MUMBAI
Before: SHRI AMIT SHUKLA & SHRI RAMIT KOCHAR
आयकर अपील�य अ�धकरण “A” �यायपीठ मुंबई म�। IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, MUMBAI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER आयकर अपील सं./I.T.A. No. 7530/Mum/2011 (�नधा�रण वष� / Assessment Year : 2006-07) Jt. CIT Cir. 8(2), M/s Lotus Energy (India) बनाम/ R. No. 216-A, Ltd., v. Aayakar Bhavan, 214, Laxmi Plaza, M.K. Road, Laxmi Industrial Estate, Mumbai -. Andheri (W), Mumbai 53. �थायी लेखा सं./PAN : AABCL 0119K (अपीलाथ� /Appellant) .. (��यथ� / Respondent)
Revenue by Shri Ganesh Bare (Sr.DR) Assessee by Shri Rushabh Mehta
सुनवाई क� तार�ख /Date of Hearing : 21-01-2016 घोषणा क� तार�ख /Date of Pronouncement : 30-03-2016 आदेश / O R D E R PER RAMIT KOCHAR, Accountant Member
This appeal, filed by the Revenue, being ITA No. 7530/Mum/2011, is directed against the order dated 29-08-2011 passed by learned Commissioner of Income Tax (Appeals)- 17, Mumbai (hereinafter called “the CIT(A)” ), for the assessment year 2006-07.
The grounds raised by the Revenue in the memo of appeal filed with the Tribunal read as under:-
“On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing additional depreciation amounting to Rs. 83,55,387/- to the assessee without appreciating the facts of the case
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that the plant and machinery was not eligible for additional depreciation as they had been acquired before 31/03/2005 thereby violating the condition laid down in the relevant clause (iia) of section 32 of the I.T. Act, 1961.”
The only issue involved in this appeal is with regard to allowability of additional depreciation amounting to Rs. 83,55,387/- u/s 32(1) (iia) of the Income Tax Act, 1961(hereinafter called “the Act”).
The Brief facts of the case are that during the course of assessment proceedings, the learned assessing officer (Hereinafter called “the A.O.”) observed that the assessee company has made a claim for allowability of additional depreciation for which the machinery or plant should have been acquired and installed after 31-3-2005. However, from the accounts of the assessee company, the AO noted that even though the plant and machinery in question was installed after 31-3-2005, but a large part of the acquisitions of the machineries were made before 31st March 2005. The assessee company did not respond to the show cause notice issued by the A.O., hence, the A.O. disallowed the claim of additional depreciation u/s 32(1)(iia) of the Act , amounting to Rs.83,55,387/-.
Aggrieved by the decision of the A.O., the assessee company preferred an appeal before the first appellate authority i.e. the CIT(A).
Before the CIT(A), the assessee company did not deny that the company has started installation of plant and machinery from the financial year 2004- 05, however the plant became operational only in the financial year 2005-06. In the Balance sheet for the financial year 2004-05, the plant and machinery in question was shown under the head capital work-in-progress which was evidenced by the Balance Sheet’s of the assessee company for the two years. It was further submitted by the assessee company before the CIT(A) that the
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AO has misinterpreted the provisions of the section 32(1)(iia) of the Act by holding that both the acquisition and installation of plant and machinery should have taken place after 31-3-2005. In this regard , the assessee company placed reliance upon the decision of Ahmedabad Bench of the ITAT in the case of Kadillac Chemicals Pvt. Ltd. v. ACIT (ITA No. 4127/Ahd./2007). The CIT(A) after considering the submissions of the assessee company and findings of the A.O. observed that the Ahmedabad Bench of the Tribunal in the case of Kadillac Chemicals Pvt. Ltd. (supra) observed as under:-
“"We noted that as per the provisions of this section the assessee has to acquire and install the plant and machinery after 31.3.2002. If the plant and machinery are acquired and installed after 31.3.2002, the assessee will be entitled for the additional depreciation subject to the fulfillment of the conditions regarding the substantial expansion in the installed capacity. Since the words used are "acquired and installed", therefore, both the conditions must be satisfied for the claim of additional depreciation. The machineries must have been acquired as well as installed. The machinery can be said to have been acquired and installed after 31.3.2002 if the machinery is installed after 31.3.2002. There is no dispute so far as the machinery worth Rs. 98,67,031/ are concerned. The machinery has been purchased by the assessee after 31.3.2002 and installed after 31.3.2002. The machinery of Rs. 75,44,577/- though purchased by the assessee before 31.3.2002 but since installed after 31.3.2002, the last condition of installation of the machinery is complied with only after 31.3.2002 and, therefore, in our opinion, the assessee will be entitled for the additional depreciation."
Since the facts and circumstances in the instant case are similar, following the decision of the Tribunal in the case of Kadillac Chemicals Pvt. Ltd. (supra), the CIT(A) directed the A.O. to allow claim of additional depreciation of the assessee company amounting to Rs. 83,55,387/- u/s 32(1) (iia) of the Act.
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The CIT(A) held that the provisions of Section 32(iia) of the Act, as amended by Finance Act, 2005, are pari-passu to the pre-amended provisions, as far as the condition of "acquired and installed" is concerned. Only the date of acquired and installed has changed from 31.3.2002 to 31.3.2005. In the circumstances, the ratio of the above cited decision, in the absence of any contradictory decision is binding and has to be followed. Thus, CIT (A) vide orders dated 29-08-2011 allowed the appeal of the assesee company.
7.Aggrieved by the orders dated 29-08-2011 of the CIT(A), the Revenue is in appeal before the Tribunal.
The ld. D.R. submitted that as per provisions of Section 32(1)(iia) of the Act, the new plant and machinery are required to be acquired and installed after 31-3-2005 , as in the instant the same was also acquired prior to 31-03- 2005 but installed after 31-3-2005, hence, additional depreciation was not allowable because the conditions stipulated u/s 32(1)(iia) of the Act with respect to acquisition of new plant and machineries prior to 31-03-2005 is not fulfilled by the assessee company , as both the conditions should be fulfilled simultaneously that the assessee company should acquire the new plant and machinery after 31-03-2005 and also installed the same after 31- 03-2005 , but in the instant case the assessee company has acquired the new plant and machinery partly before 31-03-2005 and partly after 31-03-2005, although said new plant and machineries were installed after 31-03-2005 and in this case, the A.O. has rightly disallowed the additional depreciation claimed by the assessee company. Ld. DR relied upon decision of Delhi benches of Tribunal in the case of International Cars and Motors Limited v. ITO in ITA No. 860/Del/2012 , orders dated 21-12-2012
The ld. counsel for the assessee company, on the other hand, submitted that the Finance Bill 2005 clearly stipulates that section 32(1)(iia) of the Act is
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amended in order to encourage investment , the initial depreciation on new machinery and plant was proposed to increase to 20% , from the existing level of 15%. Thus, There was already provision in the Act for granting additional depreciation and amended provision brought to encourage new investment, the initial depreciation on new machinery and plant was proposed to be increased to 20 per cent from the existing level of 15 percent and consequently the initial depreciation will be available to all new plant and machineries except those referred to in the proviso to clause (iia) of section 32 of the Act. The requirement of creating a minimum increase of 10% in installed capacity for availing the initial depreciation was proposed to be eliminated. The ld. Counsel also submitted that the new plant and machineries were purchased prior to 31-03-2005 as also after 31-03-2005 for which details such as audited accounts, copies of ledger accounts are placed in the paper book filed with the Tribunal to substantiate the same. It is submitted by the ld counsel that the installation of the plant and machinery which started in financial year 2004-05 was finally completed after 31-03- 2005 and commercial production started after 31-3-2005 which was evident from the audited accounts for the year ended 31-03-2005 and 31-03-2006, which is also an admitted position by the Revenue. The ld. Counsel drew our attention to the audited accounts ending 31-03-2005 and 31-3-2006 to substantiate his contentions that plant and machineries were acquired prior to 31-03-2005 as also post 31-03-2005 but the installation of new plant and machineries which commenced in financial year 2004-05 was completed after 31-3-2005 and commercial production started post 31-03-2005 . The Ld counsel prayed that the claim of additional depreciation should be allowed. The ld counsel relied upon decision of Mumbai Benches of the Tribunal in the case of Euro Pratik Ispat Private Limited v. ACIT in ITA no 1682/Mum/2011 , vide orders dated 02-04-2014.
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We have heard the rival contentions and also perused the material available on record. We have observed that Section 32(1)(iia) of the Act was amended by Finance Act, 2005 . It is stated in the Memorandum to the Finance Bill 2005 that the provisions are amended in order to encourage new investment, the initial depreciation on new machinery and plant was proposed to be increased to 20 per cent from the existing level of 15 percent and consequently the initial depreciation will be available to all new plant and machineries except those referred to in the proviso to the clause (iia) of section 32 of the Act. The requirement of creating a minimum increase of 10 percent in installed capacity for availing the initial depreciation is also proposed to be eliminated. We have also observed that section 32(1)(iia) of the Act stipulates that new machinery and plant should be acquired and installed after 31-3-2005 by an tax-payer and a further sum equal to twenty percent of the actual cost of such machinery or plant shall be allowed as deduction.
Provisions of Section 32(1)(ii) of the Act are a piece of beneficial legislation being incentive provision is a piece of beneficial legislation is to be liberally construed to grant the benefit to the tax-payer to fulfill the mandate of legislation which is to promote investment in business of manufacturing or production of any article or thing or in the business of generation or generation or distribution of power, rather than in the manner which may frustrate the object . Reference can be drawn to the following observations of Hon’ble Supreme Court in the case of Bajaj Tempo Limited v. CIT (1992) 196 ITR 188(SC) :
“The provision in a taxing statute granting incentives for promoting growth and development should be construed liberally; since the provision for promoting economic growth has to be interpreted liberally ,
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restrictions on it too has to be construed so as to advance the objective of the provisions and not to frustrate it.”
The words used u/s 32(1)(iia) of the Act are ‘acquired and installed’ after 31st day of March 2005. The assessee company did purchased new machineries and plant prior to 31-03-2005 as well after 31-03-2005 for the coke production plant being set up by the assessee company but the installation of the entire new plant and machineries as an integrated activity for setting up industrial project for coke production plant which started in financial year 2004-05 were completed after 31-03-2005 and commercial production of the new coke production plant being set up by the assessee company started in April 2005 i.e. in financial year 2005-06 when the new coke production plant set up by the assessee company became operational , which is an admitted position by the Revenue. The assessee company was incorporated on 2nd September 2004 i.e. in the financial year 2004-05 , and was engaged in setting up new industrial unit being coke production plant for the setting up of which new plant and machineries were acquired by the assessee company starting from financial year 2004-05 , which process of acquiring plant and machineries also continued in the financial year 2005-06 as an integrated activity with the sole and common objective for setting up new industrial unit of coke production plant and finally concluded with the completion of installation of the said new plant and machineries in April 2005 and commencement of the commercial production of LAM coke in April 2005 i.e. financial year 2005-06 when new coke production plant became operational. Once a new industrial project is initiated by an enterprise to be set up, then the entire composite plant and machineries which are acquired and installed are an integrated activities as the said plant and machineries can only function when they are integrated together as per technical requirements and specifications which can there-after lead to successful commissioning of the project to produce or manufacture the desired products/articles. The plant
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and machineries so acquired cannot be visualized and seen in the individual and itemized context as they are in-capable of production or manufacture of desired products/articles unless these itemized plant and machineries are integrated together as per technical requirements and specifications to achieve the manufacturing or production of desired products . Since, the assessee company was engaged in setting up new coke production plant which activity of setting up new industrial unit started in financial year 2004- 05 and concluded in financial year 2005-06, the entire set of new machineries and plant were acquired by the assessee company as an integrated activity with the sole and common objective towards the setting up of new coke production plant which was carried out in financial year 2004-05 and in financial year 2005-06 , with the installation of said new plant and machineries getting completed in April 2005 with the commencement of commercial production of LAM coke in April 2005 when the said new plant became operational and acquisition of said machineries and plant cannot be seen and visualized in itemized manner as unless these new plant and machineries are integrated together they will not achieve the desired results. The assessee company has finally installed the entire new plant and machineries in April 2005 i.e. after 31-3-2005 and assessee company is entitled to the benefit u/s 32(1)(iia) of the Act for claiming additional depreciation in the impugned assessment year because what is relevant is that new machineries and plant which were acquired before 31-03-2005 and also post 31-03-2005 were all purchased as an integrated activity connected with the common and sole objective directed towards activity of the assessee company to set up new coke production plant which become operational in financial year 2005-06 with completion of installation of these new plant and machineries in April 2005 when all these machineries and plant were put to use after installation with start of commencement of commercial production of LAM coke in April 2005 when the new coke production plant become operational and their acquisition which concluded in financial year 2005-06
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is to be seen in composite manner rather than in itemized manner as in an itemized capacity said new plant and machineries are not capable of producing the desired articles /products being LAM coke. It is pertinent to mention that on perusal of the Balance Sheet for financial year 2004-05 and 2005-06 (placed in paper book) will reveal that the assessee company has purchased new plant and machinery in financial year 2004-05 which is undisputed and the same was shown in the Balance Sheet as at 31-03-2005 under the head ‘Capital Work in Progress’ and the same was capitalized in financial year 2005-06 along with those new plant and machineries which were acquired in financial year 2005-06 and the assessee company has not claimed any depreciation in the financial year 2004-05 on these new plant and machineries so acquired in financial year 2004-05. Thus, acquisition of the entire set of new machineries and plant whether acquired prior to or post 31-03-2005 was an integrated event in the chain of activity undertaken with common and sole goal of setting up new coke production plant by the asssessee company which process got completed in April 2005 i.e. financial year 2005-06 with the completion of installation of the entire new machineries and plant as composite , so acquired by the assessee company whether pre or post 31-03-2005 with the commencement of the production of coke production plant becoming operational in April 2005. We find that the conditions as stipulated u/s 32(1)(iia) of the Act are duly complied with by the assessee company and the assessee company cannot be denied the benefit of the claim of additional depreciation merely because new plant and machinery was acquired partly prior to 31-3-2005 and partly post 31-03-2005 as the entire activity of acquisition of new plant and machinery was an integrated and composite activity in the chain of events with the common and sole objective of setting up new coke production plant by the assessee company, as the installation of new machinery and plant which started in financial year 2004-05 got completed after 31-3-2005 with the commencement of commercial production starting in financial year 2005-06 i.e. post 31-03-
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2005 with the plant becoming operational. Thus, in our considered view, the assessee company is entitled for claim of additional depreciation u/s 32(1)(iia) of the Act amounting to Rs.83,55,387/- during the assessment year 2006-07. Our view is fortified by the decision of Ahmedabad Bench of the Tribunal in the case of Kadillac Chemicals Pvt. Ltd. (supra) which observed as under:-
“"We noted that as per the provisions of this section the assessee has to acquire and install the plant and machinery after 31.3.2002. If the plant and machinery are acquired and installed after 31.3.2002, the assessee will be entitled for the additional depreciation subject to the fulfillment of the conditions regarding the substantial expansion in the installed capacity. Since the words used are "acquired and installed", therefore, both the conditions must be satisfied for the claim of additional depreciation. The machineries must have been acquired as well as installed. The machinery can be said to have been acquired and installed after 31.3.2002 if the machinery is installed after 31.3.2002. There is no dispute so far as the machinery worth Rs. 98,67,031/ are concerned. The machinery has been purchased by the assessee after 31.3.2002 and installed after 31.3.2002. The machinery of Rs. 75,44,577/- though purchased by the assessee before 31.3.2002 but since installed after 31.3.2002, the last condition of installation of the machinery is complied with only after 31.3.2002 and, therefore, in our opinion, the assessee will be entitled for the additional depreciation."
Reliance was placed by the assessee company on the the decision of the Mumbai Bench of the Tribunal in the case of Euro Pratik Ispat Pvt. Ltd. v. ACIT in ITA No. 1682/Mum/2011 for assessment year 2006-07 vide orders dated 2-4-2014 wherein the Tribunal allowed the claim of the tax-payer on identical ground as under:
“2.3.We have heard the rival submissions and perused the material before us. Earlier the additional depreciation was allowed in the case of a new industrial undertaking during any previous year in which it would
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start manufacturing or producing any article or thing on or after the 01.04.2002 or to any industrial undertaking existing before that date if it achieved substantial expansion during the previous year by way of increase in its installed capacity by not less than ten per cent. However, in order to encourage investment, by inserting a new section, AD was allowed to the industry on the condition that the assets should have been acquired and installed after 31.3.2005. In our opinion, provisions of section 32(1)(iia) of the Act, do not requires that the P&M has to be put into use in the year in which it is acquired for the purpose of claiming AD. From the reading the explanatory notes; with regard to introduction of the section in the relevant year; it is evident that what is important and material is the year of acquisition in the case of ships or aircraft and the year of installation in the case of machinery or plant. If the installation of a plant is spread over more than a year,the relevant year for the grant of allowance would be the year in which the installation is completed.As in the case of investment allowance, so also in the case of AD,the material date is the date of installation and not the year of acquisition.Our views are based on the judgment of the Hon’ble Calcutta High Court,delivered in the case of Surama Tubes(P.)Ltd. (201ITR124).In the case under consideration, AD has been disallowed by the FAA on the ground that P&M were acquired before 31.03.2008.In our opinion machinery was installed in the AY. under appeal, though acquisition of the P&M had started in the earlier AY. Till a machine is not assembled in a manner that it could be used to manufacture, it cannot be held that it had been installed. Mere purchasing or shifting it to factory premises is not enough. Assessee had claimed AD @10%,as the P &M had worked for a period less than one year.It is a common phenomenon that in big projects,installation of machinery takes very long time because of the sheer volume of the work to be carried out.If an assessee is not successful in installing P&M in one year and carries forward the
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installation work in subsequent year/years it cannot be denied any benefit on the ground that it had acquired the P &M in earlier year.The intent of the legislature was to attract investment,so in our opinion the section can be termed as benevolent provision.In the case under consideration production started from 01.01.2006.Before that fabrication and completion of P&M was going on.Treatment given by the assessee in the books of accounts to the P&M was in accordance with the Accounting Standards (AS)and the AO/FAA has not denied the fact that the assessee was following AS.Therefore,in our opinion,assessee was entitled to claim AD @of 10%.Reversing the order of the FAA,we decide the effective ground of appeal in favour of the assessee.”
Our view is further fortified by judgment of Hon’ble Calcutta High Court in the case of Surama Tubes(P.)Ltd. 201 ITR 124(Cal. HC.), whereby Hon’ble Calcutta High Court while dealing with the allowability of benefits of investment allowance and additional depreciation held as under :
“If the installation of a plant is spread over more than a year, the relevant year for the grant of allowance would be the year in which the installation is completed. As in the case of investment allowance, so also in the case of additional depreciation, the material date is the date of installation and not the year of acquisition. The Tribunal categorically found on a perusal of the assessment order for the assessment years 1980-81 and 1981-82 and the relevant balance-sheets of the assessee- company that the machines in question were shown as machines under installation in the previous years in the fixed assets schedule annexed to the balance-sheet. These machines have been only transferred to the machines account during the year under reference. No depreciation was claimed by the assessee on these machines and depreciation was only
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claimed on the machines which were shown as machines of the assessee in the fixed assets schedule. Two things would, therefore, be clear ; firstly, these machines were new and they were under installation and the installation was completed during the year under reference ; and secondly, no depreciation was ever claimed by the assessee prior to this assessment year on these machines. This finding of the Tribunal has not been challenged. The Tribunal also found that the machines, although acquired earlier, could not be installed in view of the change of management twice. The machines were lying idle and were kept for installation and the installation was completed in the year under reference.
In our view, therefore, neither section 32(1)(iia) nor section 32A requires that the machinery or plant has to be put into use in the year in which it is acquired for the purpose of claiming additional depreciation allowance or investment allowance. Our attention has been drawn to the decision of the Punjab and Haryana High Court in the case of CIT v. Jaideep Industries [1989] 180 ITR 81, where it has been held that the assessee is entitled to the benefit of section 32A, if the machinery or plant is installed after April 1, 1976.
For the reasons aforesaid, we answer the first question in this reference in the affirmative and in favour of the assessee.”
The ld DR on the other hand has relied upon the decision of Delhi Benches of the Tribunal in the case of International Cars and Motors Limited (supra) which was delivered on 21-12-2012 but in our considered view , the later decision of jurisdictional Tribunal Benches of Mumbai in the case of Euro
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Pratik Ispat Private Limited(supra) delivered on 02-04-2014 , in our respectful submission , is to be preferred based on our detailed discussions and reasoning keeping in view the peculiar facts and circumstances in the case of the assessee company which has been detailed by us in preceding para’s.
Thus, in our considered view, the assessee company is entitled for claim of additional depreciation u/s 32(1)(iia) of the Act amounting to Rs.83,55,387/- during assessment year 2006-07 which we allow and we do not find any infirmity in the orders dated 29-08-2011 passed by the CIT(A) and we uphold the same. We order accordingly.
In the result, the appeal filed by the Revenue in ITA No. 7530/Mum/2011 for the assessment year 2006-07 is dismissed.
Order pronounced in the open court on 30th March, 2016. आदेश क� घोषणा खुले �यायालय म� �दनांकः 30-03-2016 को क� गई ।
Sd/- sd/- (AMIT SHUKLA) (RAMIT KOCHAR) JUDICIAL MEMBER ACCOUNTANT MEMBER मुंबई Mumbai; �दनांक Dated 30-03-2016 [
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व.�न.स./ R.K. R.K. R.K., Ex. Sr. PS R.K. आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. आयकर आयु�त(अपील) / The CIT(A)- concerned, Mumbai 4. आयकर आयु�त / CIT- Concerned, Mumbai �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, मुंबई / DR, ITAT, Mumbai “A” Bench 5. 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, स�या�पत ��त //True Copy// उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपील�य अ�धकरण, मुंबई / ITAT, Mumbai