2013 (3) TMI 876 - AT - Income Tax

Summary

Issues Involved:
1. Depreciation on mining and drilling accessories.
2. Depreciation on steel and temporary structures.
3. Depreciation on office appliances.
4. Unabsorbed depreciation.
5. Disallowance of prior period expenditure.

Summary of Judgment:

1. Depreciation on Mining and Drilling Accessories:
The AO contested the allowance of 100% depreciation on mining and drilling accessories, arguing it should be 15%. The CIT(A) had equated these accessories with sand stowing pipes, allowing 100% depreciation, which was disputed by the AO. The Tribunal found that the issue of whether drill rods and pipe casings constitute accessories was not adequately addressed by the CIT(A). The matter was restored to the file of the CIT(A) for fresh consideration.

2. Depreciation on Steel and Temporary Structures:
The assessee claimed 100% depreciation on a steel structure, which the AO allowed at 10%, treating it as a capital expenditure. The CIT(A) upheld this decision, stating that 100% depreciation was only available for temporary structures like wooden structures. The Tribunal agreed with the CIT(A) and AO, confirming that steel structures should only receive 25% depreciation.

3. Depreciation on Office Appliances:
The AO allowed only 10% depreciation on office appliances, categorizing items like air conditioners and water coolers as furniture and fixtures rather than plant and machinery. The CIT(A) upheld this view. The Tribunal confirmed the CIT(A)'s decision, stating that such items do not directly relate to manufacturing or processing activities and should be treated as furniture and fixtures.

4. Unabsorbed Depreciation:
The AO disallowed the carry forward of unabsorbed depreciation beyond eight years, based on the provisions applicable from AY 1997-98. The CIT(A) reversed this, citing amendments to Section 32(2) that allowed unabsorbed depreciation to be carried forward without a time limit. The Tribunal upheld the CIT(A)'s decision, confirming that the amended provisions were applicable and the unabsorbed depreciation should be allowed.

5. Disallowance of Prior Period Expenditure:
The AO disallowed prior period expenses of Rs. 3.65 lakhs, arguing that they should be accounted for in the year they accrued. The CIT(A) upheld this disallowance. The Tribunal, however, found that the assessee had consistently followed a practice of accounting for such expenses in subsequent years when they crystallized. It ruled that the prior period expenses should be allowed, following precedents from various High Courts.

Conclusion:
- Appeals by the AO for AYs 2006-07, 2007-08, and 2008-09 were partly allowed.
- Appeals by the assessee for AY 2003-04 and 2008-09 were partly allowed.
- Appeal by the assessee for AY 2007-08 was dismissed.