2014 (10) TMI 1042 - AT - Income Tax

Nature of expenditure - Product registration expenses - revenue or capital expenditure - assessee had obtained valuable marketing benefits in several countries; hence the expenditure was in capital field and not a revenue expenditure - AO has disallowed the assessee s claim of additional depreciation in respect of such machinery which were generating electricity on the ground that those machineries were not producing any article or thing hence not eligible for additional depreciation as prescribed u/s.32(1)(iia) - HELD THAT - Assessee in these cases were involved in different items of manufacturing and purchased windmills. On the identical issue M/S. VTM LIMITED 2009 (9) TMI 35 - MADRAS HIGH COURT TEXMO PRECISION CASTINGS 2009 (10) TMI 140 - MADRAS HIGH COURT AND M/S. HI TECH ARAI LIMITED 2009 (9) TMI 60 - MADRAS HIGH COURT held that assessee are entitled to additional depreciation on cost of windmill acquired. It is also held that the plant and machinery purchased need not be operationally used for manufacturing articles or things. Since the only objection of the assessing officer was that newly purchased machinery generated electricity which is not articles or thing is no longer a relevant issue in the light of these decisions. From the facts narrated in the assessment order and in the appellant s submission it is clear that appellant fulfilled all the conditions required for claim of additional depreciation on machinery purchased by it. The addition of machinery was after 31st of March 2005. Appellant was already in the business of manufacturing articles for things. The machine purchased is not covered by any clause of proviso to this section. The same was not used by any person before installation. It is not installed in office or residential premises. This is not office appliance or road transport vehicle - these machines are also not eligible for 100 percent depreciation in one year. Considering this appellant fulfils all the conditions required for claim of additional depreciation. Respectfully following the decisions of Madras High Court relied upon by the appellant assessing officer is directed to allow additional depreciation on new plant and machinery purchased - Decided against revenue.

Summary

Issues:
1. Deletion of addition of expenses on product registration less depreciation.
2. Deletion of addition of additional depreciation on power plant.

Issue 1: Deletion of addition of expenses on product registration less depreciation

The appeal by the Revenue challenged the deletion of an addition of Rs. 1,03,02,666 made by the Assessing Officer (AO) on account of product registration expenses less depreciation. The AO contended that the registration expenses entitled the assessee to benefits of enduring nature, constituting intangible assets. The First Appellate Authority, however, allowed the claim, emphasizing that the expenses were normal business expenses necessary for running the business and not capital in nature. The authority cited relevant case laws to support its decision, highlighting that such expenses did not result in the creation of a capital asset. The Appellate Tribunal, considering precedents and the genuineness of the expenditure, dismissed the Revenue's appeal, as the issue was covered in favor of the assessee by established case laws.

Issue 2: Deletion of addition of additional depreciation on power plant

The AO disallowed the assessee's claim of additional depreciation on machinery generating electricity, arguing that the machinery did not produce any "article or thing" and thus did not qualify for additional depreciation under section 32(1)(iia). The First Appellate Authority ruled in favor of the assessee, noting that the conditions for claiming additional depreciation were met as the machinery was acquired after March 31, 2005, and the assessee was engaged in manufacturing articles or things. Citing decisions of the Madras High Court, the authority emphasized that operational connectivity to existing manufactured items was not a prerequisite for claiming additional depreciation. The Appellate Tribunal upheld the authority's decision, affirming that the assessee fulfilled all conditions required for claiming additional depreciation, leading to the dismissal of the Revenue's appeal.

In conclusion, the Appellate Tribunal upheld the decisions of the First Appellate Authority in both issues, dismissing the Revenue's appeal. The judgments were based on the interpretation of relevant legal provisions, precedents, and the specific circumstances of the case, ensuring a fair and just resolution of the disputes raised by the Revenue.