2018 (1) TMI 25 - AT - Income Tax

Addition on account of disallowance of depreciation - it was alleged that the assessee had failed to satisfy the requisite condition contemplated under Sec. 32(1) of the Act as regards user of the machinery for the purpose of its business - Held that - the assessee was entitled to depreciation on the diagnostic machines installed at the customers site - reliance placed in appellant own case M/s Lilac Medicare Pvt. Ltd. Versus ACIT- 8 (3) (OSD) , Mumbai 2016 (11) TMI 1504 - ITAT MUMBAI , where it was held that the installation of the diagnostic machines owned by the assessee and forming part of its Block of assets at the customers site, being a part of the business of the assessee, and rather as a matter of fact a modus operandi adopted by the assessee to boost its sales of reagents, therefore the latter being found to have duly satisfied the requisite conditions contemplated u/s 32(1) of the Act, is thus entitled to deprecation on the said diagnostic machines. Appeal allowed.

Summary

Issues involved:
1. Disallowance of depreciation on plant and machinery installed at customers' premises.
2. Claim of depreciation under Sec. 32(1) of the Income-tax Act, 1961.
3. Interpretation of whether diagnostic machines installed at customers' sites form part of the assessee's block of assets.

Detailed Analysis:
1. The appeal was filed against the order of the Commissioner of Income Tax (Appeals) confirming the disallowance of depreciation on plant and machinery installed at customers' premises. The Assessing Officer (A.O) disallowed the depreciation claimed by the assessee as the machines were being used by third parties for their business, not the assessee's business. The A.O found that the machines were not being used for the purpose of the assessee's business as required under Sec. 32(1) of the Act, leading to the disallowance of depreciation amounting to ?7,69,333. The CIT(A) dismissed the appeal, citing similar issues in previous years. The Tribunal, in a previous order, allowed depreciation on similar diagnostic machines installed at customers' sites, emphasizing the strategic business approach adopted by the assessee to boost sales of reagents.

2. The Tribunal analyzed the nature of the assessee's business and the strategic deployment of diagnostic machines at customers' sites under agreements requiring exclusive purchase of reagents from the assessee. The Tribunal found that the machines were part of the assessee's business strategy to enhance reagent sales, satisfying the conditions under Sec. 32(1) of the Act. The Tribunal disagreed with the CIT(A)'s view that the machines did not form part of the assessee's block of assets, highlighting the evidence provided by the assessee regarding the machines' inclusion in the block of assets. The Tribunal set aside the CIT(A)'s order and allowed the appeal, stating that the assessee was entitled to depreciation on the diagnostic machines installed at customers' sites.

3. The Tribunal concluded that the issue in the current case was similar to the one in previous years where the Tribunal had allowed depreciation on diagnostic machines installed at customers' sites. The Tribunal, following its previous order, set aside the CIT(A)'s decision to uphold the disallowance of depreciation by the A.O. The Tribunal allowed the appeal, stating that the assessee met the conditions under Sec. 32(1) of the Act and was entitled to depreciation on the diagnostic machines. The appeal was allowed based on the Tribunal's previous order and the evidence presented by the assessee regarding the machines' inclusion in its block of assets.