THA ACIT, CIRCLE MORBI, MORBI vs. M/S. JAXX VITRIFIED PVT. LTD. , MORBI

O R D E R

PER SIDDHARTHA NAUTIYAL - JUDICIAL MEMBER:

“1. In the facts and circumstances of the case, the Ld. CIT(A) has erred in deleting the disallowance of additional depreciation @ 10% claimed by the assessee u/s. 32(1)(iia) of the Act.

2. In the facts and circumstances of the case, the Ld. CIT(A) has erred in allowing the claim of additional depreciation in the current year where as the plant and machinery was required and installed in ACIT vs. M/s. Jaxx Vitrified Pvt. Ltd. Asst.Year –2013-14 - 2 - the previous year, contrary to the provisions of Section 32(1)(iia) of the Act.

3. Any other grounds that the Revenue may raise before or during the proceedings before the Hon’ble ITAT.

ACIT vs. M/s. Jaxx Vitrified Pvt. Ltd. Asst.Year –2013-14 - 3 - 4. In appeal, Ld. CIT(Appeals) allowed the appeal of the assessee with the following observations:

“During the course of appellate proceedings, the appellant has contended that the plant & machineries on which the additional depreciation was claimed were new machineries and half of the additional depreciation (i.e. 10%) thereon was claimed and allowed in assessment proceedings u/s. 143(3) in Asst. Year 2012-13. Since the said plant & machineries were put to use for less than 180 days in Asst. Year 2012-13, the balance 50% of the additional depreciation (i.e. 10%) was to be allowed in the year under consideration. The appellant has also placed reliance upon various case laws in written submission which is reproduced in earlier paragraphs of this order. During the course of appellate proceedings appellant has contended that the issue is squarely covered in favour of the assessee and relied on following judgements of High Courts: - � Karnataka High Court in case of CIT vs. Rittal India (P.) Ltd. - 66 taxmann.com 4-judgement dated 24.11.2015 � Madras High Court in case of CIT vs. Shri T.P. Textiles (P.) Ltd. – 79 taxmann.com 411 � Madras High Court in case of Brakes India Limited - judgment dated 14.03.2017 in T.C.A. No. 551 of 2013

ACIT vs. M/s. Jaxx Vitrified Pvt. Ltd. Asst.Year –2013-14 - 4 - Additionally, reliance has also been made on judgements of various benches of Hon'ble ITAT as reproduced before including the decisions rendered by Hon1 ITAT Ahmedabad on the issue, which are also squarely applicable in favour of the assessee on the issue involved.

Having considered the facts and circumstances of the case and rival contentions, I find that it is uncontroverted that the assessee is entitled to 20% additional depreciation on the said machinery as in section 32(l)(iia) the allowable depreciation is 20%. The assessee claimed 10% additional depreciation in first year as machinery was put to use for less than 180 days and balance additional depreciation was claimed in the subsequent year. It is also seen that the issue has been decided by Hon'ble ITAT, Ahmedabad A bench in the case of M/s, Aswani Industires vs. ITO, Ward-2(2), Surat in 2008-09) vide order dated 31-05-2013. The relevant portion of the said order is reproduced hereunder for reference:-

"4. The Second issue relates to additional depreciation of Rs. 4,98,859/-. Assessing officer has disallowed the balance additional depreciation claimed by assessee on the machinery installed in the second half of the previous year relevant to the A.Y. 2007-08, The assessee's contention was that he was eligible for additional depreciation @ 20 % on the plant and machinery purchased in the second half of the financial year 2006- 07 but being used less than 180 days, only 10 % depreciation was allowed by A.O. The balance 10 % additional depreciation was carried forward in the year under appeal and claimed in the computation of income which was disallowed by A.O. on the ground that carried

ACIT vs. M/s. Jaxx Vitrified Pvt. Ltd. Asst.Year –2013-14 - 5 - forward of such additional depreciation is inadmissible as per provisions of section 32(1)(iia). The ld. CIT(A) has given relief to the assessee by following the decision of ITAT, Delhi in the case of DCIT vs. Cosmo Films Ltd (124 Taxman.com 189) wherein it has been held that the additional depreciation cannot be restricted to 50 % and it has to be allowed in succeeding years if it is not allowed full in the relevant year. For the sake of convenience the relevant portion of the order is as under:- "17. We have heard both the sides on this issue. Section 32(1)(iia) inserted by Finance (No. 2) with effect from 1.4.2003. In speech of Finance Minister this clause was inserted to provide incentive for fresh investment in industrial sector. This clause was intended to give impetus to new investment in setting up a new industrial unit or for expanding the installed capacity of existing units by at least 25 % thereafter these provisions were amended by the Finance (No.2) Act of2004 w.e.f. 1.4.2005 and provided that in the case of any machinery or plant which has been acquired after the 31s' day of march, 2005 by an assessee engaged in the business of manufacture of production of any article or thing a further sum equal 15 % of actual cost of such machinery or plant shall be allowed as deduction under clause (ii) of section 33(1). This additional allowance u/s 32(1) (na) is made available as certain percentage of actual cost of new machinery and plant acquired and installed. This provision has been directed to the setting up new industrial undertaking making or for expansion of the industrial undertaking by way of making more investment in ACIT vs. M/s. Jaxx Vitrified Pvt. Ltd. Asst.Year –2013-14 - 6 - capital goods. Thus, these are incentives aimed to boost new investments in setting up and expanding the units. The proviso to section 32(l)(iia) restricts the benefits in respect of following- 'Provided that no deduction shall be allowed in respect of (A) Any machinery or plant which, before its installation by the assesses was used either within or outside India by any other person; or (B) Any machinery or plant insulted! 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 vehicle, 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 previous year.”

Thus, this incentive in the form of additional sum of depreciation is not available to any plant or machinery which been used either within India or outside India by any other person or such machinery and plant are installed in any office premises or any residential accommodation, including accommodation in the nature of a guest house or any office appliances or road transport vehicles, or any machinery or plant the whole of actual cost of ACIT vs. M/s. Jaxx Vitrified Pvt. Ltd. Asst.Year –2013-14 - 7 - which is allowable as deduction (where by way of depreciation or otherwise) in computing the total income under the head "Profit and gains of business or profession" of any one prevision year. Thus, the intension was not to deny the benefit to the assets who have acquired or instated new machinery or plant. The second proviso to section 32(1)(ii) restricts the allowances only to 50% where the assets have been acquired and part to use for a period less than 160 days in the year of acquisition. This restriction is only on the basis of period of use. There is no restriction, that balance of one time incentive in the form of additional sum of depreciation shall not be available in the subsequent year. Section 32(2) provides for a carry forward set up of unabsorbed depreciation. This additional benefit in the form of additional allowance u/s 32(1)(iia) is one time benefit to encourage the industrialization and in view of the decision of Hon'ble Supreme Court in the case of Bajaj Tempo vs. CIT, cited supra, the provisions related to it have to be constructed reasonably, liberally and purposive to make the provision meaningful while granting the additional allowance. This additional benefit is to give impetus to industrialization and the basic intention and purpose of these provisions can be reasonably and liberally held that the assessee deserves to get the benefit in full when there is no restriction in the statute lo deny the benefit of balance of 50% when the new plant and machinery were acquired and use for less than 180 days. One time benefit extended to assessee has been earned in the year of acquisition of new plant and machinery. It

ACIT vs. M/s. Jaxx Vitrified Pvt. Ltd. Asst.Year –2013-14 - 8 - has been calculated @ 15% but restricted to 50% only on account of usage of these plant & machinery in the year of acquisition. In section 32(1) (iia) the expression used is "shall be allowed". Thus the assessee had earned the benefit as soon as he had purchased the new plant and machinery in full but it is restricted to 50% in that particular year on account of period of usages. Such restrictions cannot divest the statutory right Law does not prohibit that balance 50% will not succeeding year. The extra depreciation allowable u/s 32(1)(iia) in an extra incentive which has been earned and calculated in the year of acquisition but restricted for that year to 50% on account of usage. The so earned incentive must be made available in the subsequent year. The overall deduction of depreciation u/s 32 shall definitely not exceed the total cost of plant machinery. In view of this matter, we set aside the orders of the authorities below and direct to extent the benefit.”

In view of the above, we feel no need to interfere with the order passed by Ld. CIT(A) in respect of deletion of disallowance on account of additional depreciation of Rs. 4,98,859/- also and the order passed by Ld. CIT(A) is hereby upheld.”

In view of the above discussion, in my considered view, respectfully following the judicial pronouncements on this issue including the decision of Hon’ble ITAT Ahmedabad in M/s. Aswani Industries vs. ITO, Ward-2(2), Surat(supra) the appellant succeeds and the Assessing Officer is directed to allow the claim of additional depreciation @10%

ACIT vs. M/s. Jaxx Vitrified Pvt. Ltd. Asst.Year –2013-14 - 9 - of Rs.2,17,65,931/-, the other half of which was claimed and allowed to the assessee in the Asst. Year 2012-13. ”