2010 (11) TMI 959 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of depreciation on plant and machinery.
2. Addition due to non-deduction of tax at source u/s 40(a)(ia).
3. Rejection of claim of additional depreciation u/s 32(iia).

Summary:

1. Disallowance of Depreciation on Plant and Machinery:
The assessee claimed depreciation on plant and machinery amounting to Rs. 91,16,943/- for the Asst. Year 2004-05. The AO disallowed the claim on the grounds that the plant and machinery were not used during the year, as confirmed by the director's statement. The CIT(A) upheld this decision, emphasizing the director's statement over the Central Excise Officer's report, which indicated trial production. The Tribunal, however, allowed the claim, stating that even passive use of machinery qualifies for depreciation. The Tribunal cited multiple judgments, including CIT vs. Sharda Motor Industrial Ltd. and CIT vs. Panacea Biotech Ltd., supporting the view that machinery ready for use is entitled to depreciation.

2. Addition Due to Non-Deduction of Tax at Source u/s 40(a)(ia):
The assessee faced additions for non-deduction of tax at source on various payments, including Rs. 10,35,838/- for commission to agents, Rs. 83,589/- to C & F agents, and Rs. 47,744/- for clearance charges. The Tribunal held that since these amounts were not debited to the profit and loss account but capitalized, the provisions of section 40(a)(ia) were not applicable. The Tribunal emphasized that disallowance u/s 40(a)(ia) applies only to expenses claimed in the profit and loss account.

3. Rejection of Claim of Additional Depreciation u/s 32(iia):
The assessee claimed additional depreciation u/s 32(iia) amounting to Rs. 1,09,40,332/-. The Tribunal rejected this claim, stating that the provisions for additional depreciation came into effect from 1.4.2005. Since the plant and machinery were installed and put to use before this date, the assessee was not entitled to additional depreciation.

Conclusion:
The Tribunal allowed the appeal for Asst. Year 2004-05, granting depreciation on plant and machinery, and partly allowed the appeal for Asst. Year 2005-06, rejecting the claim for additional depreciation but deleting additions made u/s 40(a)(ia) and 40A(3). The order was pronounced in open Court on 12.11.10.