2018 (6) TMI 50 - AT - Income Tax

Higher rate of depreciation on injection Molding Machine - CIT-A allowing depreciation @ 30% as against 15% allowed by the AO - Held that - Since the appellant is engaged in the manufacture and printing of laminated pouches and plastic bags, the injection moulding machine used in such manufacturing can only be termed as moulding machine and, therefore, the same shall qualify for higher rate of depreciation (@30%) instead of 15% as allowed by the A.O. The remaining equipment e.g. office equipments, electrical fittings, lab equipments etc. shall not come under this block and no higher rate of depreciation shall be applicable on these assets. The appellant s argument that since main machinery used by it is injection moulding machine , all the items should qualify for depreciation @30% is devoid of merits since lab equipments, electrical fittings, vehicles etc. form separate block of assets on which different rates of depreciation are applicable. - Decided against revenue

Summary

Issues:
1. Depreciation rate on "injection Molding Machine" - 30% vs. 15%

Analysis:

Issue 1: Depreciation rate on "injection Molding Machine" - 30% vs. 15%

The appeal filed by the revenue was against the order passed by the ld. CIT(A)-X, New Delhi for the assessment year 2008-09. The dispute revolved around the depreciation rate applied to the "injection Molding Machine," with the AO allowing 15% depreciation while the assessee claimed 30%. The case was reopened by the AO due to discrepancies in the depreciation claimed. The assessing officer disallowed an excess claim of depreciation totaling to ?71,18,710, leading to an addition in the income of the assessee. The CIT(A) allowed the appeal of the assessee on merit, leading to the revenue's appeal before the Tribunal.

During the Tribunal proceedings, the revenue argued that no extra depreciation should be allowed as the assessee failed to provide proof of operating in multiple shifts. Conversely, the assessee contended that the plant operated 24 hours, justifying the higher depreciation rate. The Tribunal noted that the appellant had changed its argument during the reassessment proceedings, initially justifying the higher depreciation due to triple-shift operations but later claiming that the machinery was categorized as "moulds used in rubber and plastic goods factories." The Tribunal analyzed the specific category of assets eligible for higher depreciation rates and concluded that only the "injection Molding Machine" used in manufacturing qualified for the 30% rate. Other assets like office equipment, lab equipment, and vehicles did not fall under this category. Therefore, the Tribunal directed the AO to allow 30% depreciation only on the "injection Molding Machine," granting a partial relief to the appellant.

The Tribunal upheld the CIT(A)'s order, emphasizing that the higher depreciation rate was justified only for the specific machinery involved in the manufacturing process. The reasoned order of the CIT(A) was deemed appropriate, leading to the dismissal of the revenue's appeal.

In conclusion, the Tribunal's decision favored the assessee by allowing a higher depreciation rate only on the "injection Molding Machine" used in the manufacturing activity, while other assets did not qualify for the increased rate. The CIT(A)'s order was upheld, and the revenue's appeal was dismissed.