ERNAKULAM REGIONAL COOPERATIVE MILK PRODUCERS UNIONS LTD.,KOCHI vs. ACIT, CIRCLE 1(1), KOCHI, KOCHI

IN THE INCOME TAX APPELLATE TRIBUNAL BENCH : COCHIN

BEFORE SHRI N. V. VASUDEVAN, VICE PRESIDENT AND Ms. PADMAVATHY S., ACCOUNTANT MEMBER

ITA No.588/Coch/2022 Assessment Year : 2012-13

Ernakulam Regional Cooperative Milk Vs. The Assistant Commissioner Producers Union Ltd., of Income Tax, P B No.2212, Edappally, Non Corp. Circle 1(1), Cochin – 682 024. Kochi. PAN : AAAAE 0621L APPELLANT RESPONDENT

Assessee by : Shri Radhesh L. Bhat, CA Revenue by : Smt. J M Jamuna Devi, Sr. AR

Date of hearing : 06.12.2022 Date of Pronouncement : 19.12.2022

O R D E R Per Padmavathy S, Accountant Member: This appeal is against the order of CIT(A), National Faceless Assessment Centre, Delhi [NFAC] dated 15.3.2022 for the assessment year 2012-13. The grounds of appeal raised by the assessee reads as follows:-

“1. The order passed by the learned Commissioner of Appeals National Faceless Appeal Centre, Delhi (CIT-A) to the extent appealed against is against law, equity and justice. 2. The Learned CIT-A grossly erred in dismissing the appeal by not giving the appellant sufficient opportunity. The Learned CIT(A) appeal ought not have disposed of the appeal when the

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appellant sought adjournment online to furnish written submission. 3. The Learned CIT(A)/Assessing Officer (AO) grossly erred in disallowing the balance 50% of the additional depreciation of plant and machinery put to use in the immediately preceeding assessment year (i.e., AY 2011-12), inspite of the fact that only 50% of the additional eligible additional depreciation was only claimed in that year u/s.32(1)(iia) of the Act. The position of law is settled in favour of the appellant by the order of the H'ble jurisdictional High court of Kerala in the case of Kitex Garments Limited (ITA 138/2014)1 ought to have been followed by the Learned CIT(A). 4. The Learned CIT(A)/AO grossly erred on facts, in reducing the grant received towards cost of BMCU asset again from the cost of assets and disallowing depreciation thereof, though the appellant had already reduced the said Grant from the cost of assets and hence no depreciation was claimed by the appellant on such amount of grants received. 5. The Learned CIT(A)/AO erred in not appreciating the facts of the case. The details of assets put to use and the amounts of grants reduced from the assets were disclosed in Annexure IIIB forming part of Form 3 CD and available with the AO. The appellant had furnished relevant extracts of the Form 3CD along with the appeal documents on record. The Learned CIT_A ought to have allowed the ground based on the above factual matrix furnished along with Form 35. The result of assessment/appellant order is that the amount of grant received, is reduced from the value of asset twice. This is a gross error and the said adjustment requires to be deleted. 5. For these and other grounds that may be further adduced at the time of hearing, the order of the AO/CIT -A requires to be modified.” 2. The assessee is a cooperative society engaged in the business of procurement, pasteurisation, production and distribution of milk and milk products under the brand, Milma. The assessee filed the return of

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income on 21.9.2012, for the AY 2012-13 declaring total income of NIL. The case was selected for scrutiny and a notice u/s. 143(2) was duly served on the assessee. During the course of assessment proceedings, the AO noticed that the assessee has claimed an amount of Rs.3,20,902 towards additional depreciation in respect of plant machinery put to use during the immediate prior AY. The assessee was asked to show cause why the amount of additional depreciation should not be disallowed considering the fact that as per section 32(1) (iia), since the additional depreciation is a one-time benefit and is to be claimed only in the year in which the machinery is put to use. The assessee submitted that though additional depreciation is a one-time benefit, the relevant provisions have to be construed reasonably liberally and purposively to make the provision meaningful by relying on the decision of Hon’ble Supreme Courtin the case of Bajaj Tempo Ltd. v. CIT, (1992) 196 ITR 188 (SC).

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provide any scope for carry forward of the balance additional depreciation.

Additional depreciation • While completing the scrutiny assessment, the Learned Assessing Officer disallowed the said balance claim of additional depreciation. The reason for the disallowance stated by the Leaned AO is that the benefits of provisions of sec. 32(1)(iia) of the Act can be availed only in the year of acquisition and installation of assets and it cannot be carried over to the following year after acquisition and installation. • The said disallowance was confirmed by CIT(A) stating that the provisions of sec.32(1)(iia) of the Act does not provide any scope of carry forward of the balance additional depreciation. • The Learned AO did not appreciate that the appellant is eligible for 100% of additional depreciation computed @20% on plant and machinery acquired and installed after 31st day of March 2005. The appellant has claimed additional depreciation u/s. 32(1 )(iia) of the Act, in respect of the additions made and put to use in the year ended 31.03.2011, relevant to the A.Y. 2011-12. • The quantum of additional depreciation allowable in respect of these assets was restricted to 50% of 20% of the actual cost of machinery in the said year in view of the restrictive provision as per 2nd

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proviso of sec.32(1) of the Act (i.e., put to use for less than 180 days during the year). • Since the deduction allowable is 20% of the actual cost of such asset, the assessee is entitled for deduction of the entire 20% of the actual cost. The claim is restricted to 50% in the year of put to use only on account of the usage of these plant & machinery for less than 180 days in the year of acquisition. • However the expression used in section 32(1)(iia), is 'shall be allowed' and as such the allowance as provided therein is a mandatory allowance. Hence, the remaining 50% of additional depreciation is allowable during next year on a fair interpretation of provisions of sec.32(1)(iia) of the Act on account of the fact that sub sec.(iia) of Section 32(1) provides that in the case of a new plant or machinery which was acquired and installed after 31st day of March 2005 by an assessee engaged in the manufacture or production of any article or thing, a further sum equal to 20% of the actual cost of such machinery or plant shall be allowed as deduction under clause (ii). In view of the 2nd proviso of Section 32(1)(ii) of the Act, only 50% of the admissible amount of 20% was allowed in the AY 11-12 and hence the remaining 50% of the additional depreciation is to be allowed in the succeeding year, i.e., AY 12-13. • Hence the assessee is entitled to full benefit of additional depreciation when the new plant and machinery is acquired and installed. The restriction under section 32(1)(ii) based on the period of usage cannot divest the assessee's statutory right of full benefit of additional depreciation under section 32(1)(iia) which as submitted is mandatory in nature. It may also be noted that there is no provision in the Act providing that balance 50 % will not be allowed in succeeding year. Reducing grant from WDV for purpose of depreciation The assessee during the year received a grant of Rs.3,72,68,000 towards purchase of plant & machinery “Bulk milk cooling unit”. Since the said amount was specifically towards purchase of asset, the said grant was reduced from cost of asset while computing the depreciation as per IT Rules. The ld AR submitted that these details are clearly disclosed in Annexure –IIIA & B forming part of Form 3CD dated 27.1.2014 which was furnished before the AO. The ld. AR drew our attention to the fact

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that in Annexure III relating to computation of depreciation as per IT Rules, the amount of Rs.2,24,71,951 shown as the value of the asset is after reducing the grant received and is a net value. (pgs. 14 to 17 of WS). It is therefore submitted that the AO has reduced the amount once again erroneously without seeking any clarification and without examining the details furnished by the assessee. 6. The ld. DR relied on the orders of the lower authorities.

“3. The appeal deals with the controversy on availing 50% of depreciation unavailed under Section 32(1)(iia) in the previous year ending on 31.03.2008, whether could be allowed in the subsequent year or not. Substantial questions raised read as follows: "1. Whether, on the facts and in the circumstances of the case and on an interpretation of Sec. 32(1)(iia) read with the second proviso the Tribunal is right in law in holding that "the balance 50% of the depreciation has to be allowed in the subsequent year" and is not the above finding against law and perverse? 2. whether, on the Tribunal is right in law in holding that "the second proviso to section 32(1)(ii) is to mean that 10% should be

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allowed in the year in which the machinery is acquired and installed and the balance 10% has to be impliedly allowed in the subsequent year" and is not the above interpretation and approach against law and the intention of the legislature?" 4.1 The circumstances leading to the disagreement between he Revenue and the assessee are not in dispute and the fact that the assessee at the first instance availed 50% of additional depreciation allowed under Section32(1)(iia) of the Act. The assessee could avail 50% of allowed depreciation on account of the fact that the equipment for which depreciation was claimed was not used for more than 180 days in the previous year 2007- 08. Thus, the assessee claimed 10% of permissible 20% depreciation in the previous year 2007-08 and claimed balance 50%, i.e., 10% of 20%, in the Assessment Year 2008-09. The Tribunal held that there is no restriction in the Income Tax Act from availing balance of one-time-incentive in the form of additional sum of depreciation in the subsequent year. 4.2 Learned Senior Counsel appearing for the assessee refers to and relies on the judgments in Commissioner of Income-tax, Madurai v. T P Textiles (P) Ltd.' and Commissioner of Income- tax, Bangalore v. Rittal India (P) Ltd' for sustaining the view taken by the Tribunal. It is also argued that the clarificatory amendment made to Section 32(1)(ii) with effect from 01.10.2016 also supports the deduction claimed by the assessee. The amendment, no doubt, was introduced with effect from 01.10.2016, is a clarificatory amendment. The decisions relied on by the assessee are directly on the point and we are in full agreement with the view taken by the Madras and Karnataka High Courts. The proposition sated in the reported judgment applies in all fours. By following the reasons and principles laid down in T P Textiles (P) Ltd. and Rittal India (P) Ltd (supra), substantial questions are answered against the Revenue and in favour of the assessee. No order as to costs.” 8. In assessee’s case the asset was put to use for less than 180 days and accordingly the assessee had claimed only 50% of the depreciation by applying the appropriate rate. In the above decision of the jurisdictional High Court it is clearly held that the assessee could avail

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50% of allowed depreciation on account of the fact that the equipment for which depreciation was claimed was not used for more than 180 days in the previous year. Respectfully following the above decision of the Hon’ble High Court, we hold that the assessee is entitled to claim the balance 10% of the additional depreciation during the year under consideration and accordingly the addition made in this regard is deleted.

Pronounced in the open court on this 19th day of December, 2022.

Sd/- Sd/- ( N V VASUDEVAN ) ( PADMAVATHY S ) VICE PRESIDENT ACCOUNTANT MEMBER

Bangalore, Dated, the 19th December, 2022. /Desai S Murthy /

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Copy to:

Assistant Registrar, ITAT, Bangalore/Cochin.