2015 (10) TMI 533 - AT - Income Tax

Additional depreciation on plant and machinery - Held that - A perusal of the provisions of section 32 as applicable for the relevant assessment year clearly shows that additional depreciation is allowable on the plant and machinery only for the year in which the capacity expansion has taken place which has resulted in the substantial increase in the installed capacity. In the assessee s case this took place in the assessment year 2005-06 and the assessee has also claimed the additional depreciation during that year and the same has also been allowed. Each assessment year is separate and independent assessment year. The provisions of section 32 of the Act do not provide for carry forward of the residual additional depreciation, if any. In the circumstances, the finding of the learned CIT(A) on this issue is on a right footing and does not call for any interference. When an allowance which is ordinarily not available under normal commercial principles of accounting, is made specifically allowable, through enactment of certain specific provisions of the Act, it is also a requirement that there should be similar specific provision which shows its applicability every year, unless the context strongly calls for such an interpretation. We are thus of the opinion that CIT(Appeals) was justified in confirming the disallowance of additional depreciation. - Decided against assessee.

Summary

Issues Involved:
Claim of additional depreciation.

Analysis:
The only issue in this appeal pertains to the claim of additional depreciation. The Assessing Officer disallowed the claim based on the provisions of section 32(1)(ii)(a), which state that additional depreciation is eligible only for new machinery or plant acquired and installed during the previous year. Once machinery is used and claimed for depreciation, it loses its status as new, making it ineligible for additional depreciation in subsequent years. The legislative intent behind additional depreciation is to promote industries by providing extra depreciation on new machinery. The Finance Acts of 2002, 2004, and 2005 introduced different rates of additional depreciation for new plant and machinery. The CIT(A) upheld the disallowance based on previous decisions for the assessment years 2008-09 and 2009-10, confirming that additional depreciation is only applicable to new machinery installed in the relevant assessment year.

In a similar case for the assessment year 2007-08, the Tribunal ruled that machinery claimed for additional depreciation was not new as it was acquired in previous years. The Tribunal emphasized that additional depreciation is only applicable to new machinery or plant, and once used, it cannot be claimed in subsequent years. The Tribunal highlighted that each assessment year is independent, and there is no provision for carry forward of residual additional depreciation. The decision reaffirmed that the intention of the legislature was to provide additional depreciation in the year of asset utilization, not in subsequent years. Therefore, the claim for additional depreciation on machinery acquired in earlier years was rightly disallowed.

Based on the above precedents and legal interpretations, the Tribunal for the assessment year 2010-11 dismissed the appeal filed by the assessee, upholding the disallowance of the claim for additional depreciation. The decision was in line with the principle that additional depreciation is only applicable to new machinery or plant installed in the relevant assessment year, and not to machinery acquired in previous years. The Tribunal's ruling reiterated that the legislative intent was to incentivize industries by providing additional depreciation for new assets in the year of installation, and not for assets acquired in earlier years.

In conclusion, the Tribunal's decision for the assessment year 2010-11 affirmed that the claim for additional depreciation on machinery acquired in previous years was rightly disallowed, as per the provisions of section 32 and the legislative intent behind providing additional depreciation. The ruling was consistent with previous decisions and legal interpretations regarding the eligibility criteria for claiming additional depreciation on new machinery or plant.