2018 (3) TMI 1082 - AT - Income Tax

Disallowance of additional depreciation u/s 32(1)(iia) - assessee has started production in the succeeding year, but assets were purchased in the previous year and the assessee was not engaged in the business of manufacturing profits when new machinery and plant were acquired - Held that - The assessee is entitled to additional depreciation in case of new machinery or plant which are acquired and installed after 31.03.2005 by the assessee engaged in the business of manufacture or production of any article or thing. In the present case, the assessee has acquired the plant and machinery in the year prior to the previous year relevant to current assessment year. In that year, the said plant and machinery was under capital work-in-progress. The plant has started from 01.07.2011 and all the capital assets purchased by 31.3.2011 and shown as capital work-in-progress were transferred to respective assets on 31.03.2012. CIT (Appeals) has himself given a clear finding that the plant and machinery purchased in the financial year 2010-11 which is subsequent to the date specified for the allowance of the additional depreciation in the Act, i.e., 31.03.2005. We do not find any reason why the assessee should be denied additional depreciation. It is clear that the machineries in dispute were acquired after the date specified in the Act and their use was commenced from the current assessment year. Hence, the claim of additional depreciation is fully justified. - Decided in favour of assessee

Summary

Issues:
Disallowance of additional depreciation under Section 32(1)(iia) of the Act

Analysis:
The appeal was against the Commissioner of Income Tax (Appeals) order regarding the disallowance of additional depreciation under Section 32(1)(iia) of the Act amounting to ?1,11,10,266. The Assessing Officer disallowed 35% of the cost of assets towards depreciation and additional depreciation on the grounds that the assets were purchased in a previous financial year. The appellant contended that as the plant and machinery were first put to use in the relevant assessment year, additional depreciation should be allowed. The Commissioner of Income Tax (Appeals) allowed normal depreciation but disallowed additional depreciation, stating that the appellant was not engaged in manufacturing business when the assets were acquired. The appellant argued that they were entitled to both depreciation and additional depreciation as per Section 32(1)(iia) of the Act.

The Tribunal analyzed the provisions of Section 32(1)(iia) of the Act, which allows additional depreciation for new machinery or plant acquired and installed after a specified date by an assessee engaged in manufacturing. The Tribunal noted that the plant and machinery were acquired in the year prior to the relevant assessment year and were under capital work-in-progress. The production started in the current assessment year, and all assets were transferred to respective assets during that year. The Tribunal found that the machinery was acquired after the specified date, and their use commenced in the current assessment year, making the appellant eligible for additional depreciation. The Tribunal held that the Commissioner of Income Tax (Appeals) erred in denying additional depreciation based on the timing of asset acquisition and production commencement, ruling in favor of the appellant.

In conclusion, the Tribunal allowed the appeal by the assessee, setting aside the Commissioner of Income Tax (Appeals) order and holding that the assessee is eligible for additional depreciation under Section 32(1)(iia) of the Act.