PREMIER PLASMOTECH PVT. LTD.,FARIDABAD vs. DCIT, CIRCLE- 2, FARIDABAD

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ITA 1426/DEL/2018Status: DisposedITAT Delhi31 October 2023AY 2014-15Bench: SH. SHAMIM YAHYA (Accountant Member), SHRI YOGESH KUMAR US (Judicial Member)7 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal upheld the disallowance of depreciation for the period the plant was not fully operational but accepted that the disallowed amount should be added to the written down value for future depreciation. The Tribunal allowed the plant maintenance expenses as revenue expenditure.

What were the facts?

The assessee claimed depreciation and additional depreciation on plant and machinery, arguing it was ready for use. The Assessing Officer and CIT(A) disallowed part of the claim, stating the plant was not put to use for more than 180 days. The assessee also claimed plant maintenance expenses incurred before commercial production.

What were the issues?

Whether depreciation can be claimed on assets ready for use but not fully operational, and whether pre-production maintenance expenses are allowable as revenue expenditure.

Which sections of the Income-tax Act were involved?

Section 32

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, DELHI BENCH ‘F’, NEW DELHI

For Appellant: Shri Ashok Jain, C.A
For Respondent: Shri Vivek Vardhan, Sr. D.R
Hearing: 03.10.2023Pronounced: 31.10.2023

This appeal filed by the assessee is directed against the order of Learned Commissioner of Income Tax (Appeals), Faridabad dated 19.12.2017 pertaining to Assessment Year 2014-15.

2. The grounds of appeal

filed by assessee, read as under:

1. That the order of Ld AO as well as CIT(A) is against the provisions of law, facts, circumstances, and contrary to principles of natural justice.

2.

That Ld AO is not justified in taking the date of commercial production as date put to use of plants instead of the date when these plants were ready and put to use for trial production for working out the number of days for which the plants was used during the year under consideration for allowing depreciation U/s 32 of the Income Tax Act 1961 which is based on surmises and conjectures, contrary to provisions of law and against the principles of natural justice. As such, action of Ld AO needs to be undone and Premier Plasmotech Pvt. Ltd. vs. DCIT 2 total number of days for which plants was used needs to be worked from date put to use for trial production of these plants for allowing depreciation U/s 32 of the Income Tax Act 1961.

3.

That Ld CIT(A) is not justified in confirming the disallowance of depreciation and additional depreciation claimed of Rs. 66,06,212/- made by Ld AO by stating that the assets were put to use for a period less than 180 days which is based on surmises and conjectures contrary to facts borne on record and provisions of law. As such, the action of Ld CIT(A) needs to be undone and disallowance of depreciation and additional depreciation Rs.66,06,212 made by Ld AO needs to be deleted.

4. That Ld CIT(A) is not justified in confirming the disallowance of Plant Maintenance Expenses of Rs.8,93,055/- incurred in September & October 2013 made by Id AO by stating that the plant commence production much later in December 2013 which is based on surmises and conjectures contrary to facts borne on record and provisions of law. As such, the action of Ld CIT(A) needs to be undone and disallowance of plant maintenance expenses of Rs.8,93,055/- made by Ld AO needs to be deleted.

5.

Without prejudice to Ground No. 2 & 4 Ld AO is not justified in not treating plant maintenance expenses of Rs.8,93,055/- as part of plant cost while disallowing the same as revenue expenditure and not allowing depreciation on same during the year under consideration which is contrary to provisions of law and against the principles of natural justice. As such, the amount of Rs. 8,93,055/- should be treated as cost of plant and depreciation should be allowed on same to the appellant.

6. Without prejudice to Ground No. 2 & 3, Ld AO is not justified in not stating that the appellant is liable for depreciation on Rs.66,06,212/- in subsequent assessment years while disallowing the said amount which automatically increases the closing Written Down Value of the plant which is contrary to provisions of law and against the principles of natural justice. As such, the amount of Rs.66,06,212/- should be treated as part of closing written down value of plant and depreciation on same should be allowed in subsequent years to the appellant.

Premier Plasmotech Pvt. Ltd. vs. DCIT 3 7. That appellant craves right to amend, add, delete or withdraw any of the ground of appeal either before or at the time of hearing of this appeal.”

3. Apropos, depreciation claim of Rs.66,06,212/-. On this issue, Assessing Officer noted that there was an addition of Rs.3,77,49,780/- under the head Plant and Machinery in the Bangalore Plant. Assessing Officer further noted that assessee had submitted that the plant had commenced operations only in December, 2013. Hence, the Assessing Officer was of the opinion that depreciation for the whole year cannot be claimed on such assets and he held that the depreciation rates allowable, are as under:

Plant & Machinery Less than 180 More than 180 days days Depreciation rate 7.5% 15% Additional Depreciation Rate 10% 20%

In accordance, a disallowance of 7.5% on account of depreciation and 10% on account of additional depreciation claimed is hereby made and capitalized. Therefore, the disallowance as per below:-

17.5% (10% + 7.5%) of Rs.3,77,49,780/- = 66,06,212/-

4.

Against the above order, assessee appealed before the Learned CIT(A).

5. Learned CIT(A) considered the submissions of the assessee but he did not find the plea acceptable. He considered the assessee’s plea that the assets were ready for use. Learned CIT(A) rejected the same on the ground that it is the part of machinery and whole of the machinery cannot perform without completion. The order of Learned CIT(A) in this regard reads as under:

Premier Plasmotech Pvt. Ltd. vs. DCIT 4 “7. I have perused the submissions made by the appellant and the assessment order of the AO. The AO has denied depreciation for the full year on the rationale that plant and machinery were not put to use for the entire year. The contention of the Ld.AR has been that even though the plant and machinery was not put to use for the entire year it was "ready for use" for period of more than 180 days and hence the depreciation needs to be allowed for the entire year. In support of his contention the Ld. AR has furnished the commissioning and installation certificates of some of the machines. The appellant has also furnished the invoices for the purchase of raw material. I have perused the facts of the case and I find that the total plant and machinery installed during the period from 01.04.2013 to 31.03.2014 as per the details submitted by the appellant amounts to more than Rs.4.7 Cr. Out of this only plant and machinery to the extent of Rs.3.78 Cr. has been purchased till 01.10.2013. Thus, even if the contention of the appellant is accepted that all the machinery purchased till that date has been installed it is evident that only 3/4th of the total plant and machinery has been in place and ready to use. The plant cannot function on the basis of 75% of the machinery. It is like saying that a Car has been manufactured to the extent of 75%, even though 25% of the work is pending but the Car is ready to use and consequently the depreciation on the same should be allowed. Buying the raw material for the manufacturing, is akin to purchasing the fuel and lubricating oil for the Car. Taking the same analogy, I find that depreciation cannot be allowed till the time the entire plant is fit to be used, and only then can one say that the plant is ready to be used. In view of these facts, I find no infirmity in the order of the AO and this Ground of the appellant is dismissed.”

6.

Against the above order, assessee has filed appeal before us.

7.

We have heard the both the parties and perused the records. The Learned Counsel for the assessee submitted before us that the machines under dispute were put to use/ready for use. The assessee’s counsel has shown a Erection and Commissioning Certificate, purchase of Raw Material details and copy of VAT return and Central Excise Return for the month of August and September 2013. The Learned Counsel for the assessee has also Premier Plasmotech Pvt. Ltd. vs. DCIT 5 submitted case laws for the proposition that “used”/ “put to use for the purpose of business” in section 32 of the Act has been judicially interpreted to include both active use and passive use. Further case laws have been submitted in this connection.

8.

Upon careful consideration, we find that Learned CIT(A) has considered the assessee’s submissions and by elaborate order rejected the assessee’s contentions. We find that the reasoning adopted by the Learned CIT(A) is reasonable and cannot be disputed. Hence, disallowance of depreciation in this regard is upheld.

9.

However, assessee’s alternative submission that disallowance of depreciation for the amount of Rs.66,06,212/- is to be treated as part of closing written down value of plant and depreciation for depreciation in subsequent years, is acceptable.

10.

Hence, this ground is partly allowed.

11.

Apropos, disallowance of repairs to Plant and Machinery. On this issue the Assessing Officer noted that assessee has debited an expense of Rs.8,65,055/- in September, 2013 and Rs.28,000/- in October, 2013 towards maintenance on plant pertaining to Bangalore Unit. Assessing Officer noted that the Bangalore Unit has commenced production much later in December, 2013. Hence, there is no justification for providing for such maintenance

Premier Plasmotech Pvt. Ltd. vs. DCIT 6 expense and disallowed the same. Upon assessee’s appeal, Learned CIT(A) considered the issue but he confirmed the order by observing as under :

“I have perused the submissions made by the appellant and the order of the AO. In Ground No. 1 I have already held that the plant and machinery was not ready for use in the month of September and October. These expenses have been incurred in these two months and the commercial production has started later than October. Thus, I find that these expenses are capital in nature as they have been incurred before the plant and machinery have been commissioned for full commercial production. Thus, this Ground of the appellant is also dismissed.”

12.

Against this order, assessee is in appeal before us.

13.

We have heard both the parties and perused the records. Learned Counsel for the assessee submitted that factory premises at Bangalore is on rent. Assessee has incurred the expenditure in this regard as under: Date Particulars Amount in Rs. 01.09.2013 Repair and renovation in the nature of 8,20,820/- Aluminum partition with doors, Fibre False Celling, Playwood Fixing, POP work, Door closure etc. in rented premises 14.09.2013 Double Ribbed PVC Strips 44,235/- 24.10.2023 Networking Installation 28,000/- Total 8,93,055/-

14.

Further Learned Counsel for the assessee has claimed that the amount in this regard is an allowable expense as premises at Bangalore is on rent.

15.

Upon careful consideration, we find that the nature of repair and maintenance is not of capital in nature. Furthermore, expenditure on renovation and partition etc. have been incurred by the assessee in rented premises which is allowable as revenue expenditure. In our considered

Premier Plasmotech Pvt. Ltd. vs. DCIT 7 opinion, the said expenditure is allowable as renovation/repair expense. Hence we direct that this expense is to be allowed. Accordingly, we set aside the order of the Revenue authorities and decide the issue in favour of the assessee.

16.

In the result, the appeal of the assessee stands partly allowed.

Order pronounced in the open court on 31.10.2023

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