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2012 (12) TMI 560 - AT - Income TaxAdditional depreciation on the windmill - Assessee was having three divisions - Whether each of divisions can be considered independently for the purpose of claiming additional depreciation u/s 32(1)(iia) AO argued that installed capacity would not increase by 10%, taking into consideration installed capacity of the entire company instead of individual unit Held that - If the weaving division is considered independently, undisputedly, the capacity had increased by almost 80%. In the nature of business of the assessee, in yarn manufacturing, we are of the opinion that the weaving division can be considered as a separate undertaking. Its expansion having resulted in installed capacity by going up more than 10%, additional depreciation was indeed allowable. Issue decides in favour of assessee Whether failure to file Form 3AA along with ROI, could result in denial of the additional depreciation Held that - Following the decision in case of Parry Agro Industries Ltd. (2006 (5) TMI 63 - KERALA HIGH COURT) that non-production of audit report can only be considered as procedural lapse and assessee having cured the lapse before completion of assessment, a disallowance could not be made for this reason. Issue decides in favour of assessee
Issues Involved:
1. Entitlement to additional depreciation on machinery installed in the Weaving Unit. 2. Requirement of filing audit report in Form 3AA with the return of income. Issue-wise Detailed Analysis: 1. Entitlement to Additional Depreciation on Machinery Installed in the Weaving Unit: The primary issue in this appeal was whether the assessee was entitled to additional depreciation on the machinery installed in its Weaving Unit. The assessee, engaged in manufacturing yarn fabric and power generation, claimed additional depreciation of Rs. 78,84,645/- for its Weaving Unit. The Assessing Officer (A.O.) disallowed this claim on two grounds: the failure to file the required audit report in Form 3AA with the return of income, and the restrictive manner in which the assessee calculated the increase in capacity, considering only the Weaving Unit rather than the entire industrial undertaking. The CIT(Appeals) allowed the claim, appreciating the assessee's contention that the Weaving Unit functioned independently and had increased its capacity by 83.33%. The CIT(A) relied on the decision of the Hon'ble Kerala High Court in Parry Agro Industries Ltd. v. ITO (284 ITR 353), which held that a procedural lapse, such as the late filing of an audit report, should not negate the claim itself. The Tribunal agreed with the CIT(A), noting that a textile mill consists of various independent segments, each with separate capacities. The Tribunal referenced the Supreme Court's analysis in CIT v. Saravana Spinning Mills P. Ltd. (293 ITR 201), which detailed the distinct processes and departments within a textile mill. The Tribunal concluded that the Weaving Unit could be considered a separate undertaking, and since its capacity had increased by more than 10%, the additional depreciation was allowable. 2. Requirement of Filing Audit Report in Form 3AA with the Return of Income: The second issue was whether the failure to file the audit report in Form 3AA with the return of income could result in the denial of additional depreciation. The A.O. argued that the non-filing of Form 3AA was a fatal procedural lapse. However, the CIT(A) and the Tribunal disagreed, citing the decision in Parry Agro Industries Ltd., which treated such lapses as procedural rather than substantive. The Tribunal emphasized that the assessee had filed the audit report during the assessment proceedings, thereby curing the procedural lapse. This view was further supported by the Mumbai Bench of the Tribunal in M/s NRB Bearings Ltd. v. DCIT (133 ITD 306). Conclusion: The Tribunal upheld the CIT(A)'s decision to allow the additional depreciation claim, recognizing the Weaving Unit as a separate undertaking with a significant capacity increase. It also ruled that the late filing of the audit report was a procedural lapse that had been rectified during the assessment proceedings, thus not warranting the denial of the claim. Consequently, the appeal of the Revenue was dismissed.
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