2015 (11) TMI 1265 - AT - Income Tax

Disallowance of depreciation @ 100% on the cost of erection of temporary structure - Held that - As period of three months was given from 24.06.2009 which can be extended by the consent of parties subject to the permission that may be given by Ennore Port. The object and purpose of erection of Jetty was for temporary in nature and not as a permanent establishment. Merely because an option was given to the assessee to continue till 31.03.2010 subject to export market conditions, that does not mean that the Jetty was a permanent structure. Ultimately, the assessee has to dismantle and remove all the equipments / structures installed at Jetty at its own cost. Therefore, this Tribunal is of the considered opinion that the assessee has installed a temporary structure for the purpose of its business. This temporary structure has to be construed as building under Old Appendix-1 Part A (1)(4). Hence, the assessee is entitled for depreciation @ 100%. Accordingly, the orders of the lower authorities are set aside. The Assessing Officer is directed to grant depreciation @ 100% on the cost of erection of temporary structure, namely, the Jetty at Ennore Port Trust. - Decided in favour of assessee

Summary

Issues:
Reopening of assessment under Section 147 of the Income-tax Act, 1961.
Claim of depreciation at 100% for a temporary Jetty structure.

Analysis:
1. The first issue in this case pertains to the reopening of assessment under Section 147 of the Income-tax Act, 1961. The appellant argued that the reasons for reopening were not initially furnished, which led to a violation of due process. However, the reasons were later provided during the appellate proceedings. The appellant contended that failure to provide reasons initially rendered the entire proceeding invalid. The appellant's counsel relied on the judgment in GKN Driveshafts (India) Ltd. v. ITO to support this argument.

2. Moving on to the second issue, the appellant claimed 100% depreciation for a temporary Jetty structure erected at Ennore Port Trust. The appellant entered into an agreement for the creation and operation of the Jetty for a specific period. The appellant argued that the structure was temporary and, therefore, qualified for 100% depreciation. The appellant cited judgments from the Bombay High Court and the Madras High Court to support their claim. The appellant contended that the structure fell under the definition of "building" as per relevant legal provisions.

3. On the contrary, the Departmental Representative argued that the Jetty was intended for permanent use, as evidenced by subsequent amendments to the agreement. The Departmental Representative contended that the structure did not qualify as temporary and, therefore, depreciation at 25% was appropriate. The Commissioner of Income Tax (Appeals) had upheld the restriction of depreciation to 25%.

4. The Tribunal analyzed the nature and purpose of the Jetty structure based on the agreement between the parties. The Tribunal noted that the agreement clearly specified the temporary nature of the structure, with provisions for dismantling and removal after a specified period. The Tribunal referred to relevant legal provisions and previous judgments to determine the classification of the structure. Ultimately, the Tribunal concluded that the Jetty was indeed a temporary structure and fell under the category of "building" for depreciation purposes.

5. Consequently, the Tribunal set aside the lower authorities' orders and directed the Assessing Officer to grant depreciation at 100% for the cost of erecting the temporary Jetty structure at Ennore Port Trust. The appeal of the assessee was allowed, emphasizing the temporary nature of the structure and its eligibility for higher depreciation.

In conclusion, the judgment addressed the issues of reopening assessment and claiming depreciation for a temporary structure, providing a detailed analysis of the arguments presented by both parties and applying relevant legal provisions and precedents to reach a decision in favor of the appellant.