2020 (1) TMI 1367 - AT - Income Tax

Revision u/s 263 - additional depreciation is claimed on the whole of the new assets added during the year except on used items purchased - CIT was of the view that the AO failed to verify the genuineness of the claim as the deduction is over and above the normal depreciation allowed with specific intention by the legislature - AO by not verifying the claim and without establishing that the new assets are plant and machinery used for manufacturing activity and not general purpose assets used for office purpose, has erred in allowing the claim in total - HELD THAT - This Tribunal in assessee s own case has taken the view that to claim additional depreciation, the assessee should be engaged in manufacturing activity and that it is not necessary that the assets on which additional depreciation is claimed should be used in the manufacturing activity. Therefore, we modify the directions contained in the impugned order of the CIT whereby he has directed the AO to examine the purpose for which the assets on which additional depreciation is claimed is used in the manufacturing activity as not the requirement of the law. With this modification of the impugned order, we partly allow the appeal of the assessee.

Issues:
1. Correctness of additional depreciation claimed by the assessee on plant and machinery.
2. Eligibility of assets for claiming additional depreciation under section 32(1)(iia).
3. Interpretation of the requirement for claiming additional depreciation under section 32(1)(iia).

Issue 1: Correctness of additional depreciation claimed by the assessee on plant and machinery

The case involved an appeal by the assessee against an order passed under section 263 of the Income Tax Act, 1961. The Assessing Officer had allowed additional depreciation on plant and machinery claimed by the assessee, which the CIT found to be erroneous and prejudicial to the revenue's interest. The CIT noted that the assets on which additional depreciation was claimed were categorized as 'office equipments,' which are not eligible for additional depreciation. The CIT set aside the claim for further verification by the Assessing Officer.

Issue 2: Eligibility of assets for claiming additional depreciation under section 32(1)(iia)

The CIT, upon reviewing the list of new assets added by the assessee, found that many items categorized as plant and machinery were actually office equipments used for general purposes, such as UPS, TV, and air conditioner. Similarly, items listed under computer and software for additional depreciation lacked details on their specific usage for manufacturing activities. The CIT emphasized that assets must be used for manufacturing activity to qualify for additional depreciation under section 32(1)(iia). The CIT directed the Assessing Officer to verify the eligibility of assets for claiming additional depreciation.

Issue 3: Interpretation of the requirement for claiming additional depreciation under section 32(1)(iia)

During the appeal, the assessee argued that the assets claimed for additional depreciation were indeed plant and machinery, citing a previous decision by the High Court. The assessee contended that the assets need not be directly used in the manufacturing process to claim additional depreciation. The Tribunal referenced a previous decision in the assessee's own case, which clarified that the assets should be used by an entity engaged in manufacturing activity, but not necessarily in the manufacturing process itself. The Tribunal modified the CIT's directions, stating that the assets' usage in manufacturing activity, not in the manufacturing process, is sufficient for claiming additional depreciation. Consequently, the appeal was partly allowed based on this interpretation.

In conclusion, the judgment addressed the correctness of the additional depreciation claimed by the assessee, the eligibility of assets for claiming additional depreciation under section 32(1)(iia), and the interpretation of the requirement for claiming such depreciation. The Tribunal's decision clarified that assets need to be used in manufacturing activity, not necessarily in the manufacturing process itself, to qualify for additional depreciation.

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