2019 (1) TMI 594 - AT - Income Tax

Depreciation on CNC Drill Machine - A.O denied 80% depreciation charged by the assessee and only allowed the normal rate of 15% and additional depreciation @20% on the CNC drill machine purchased by the assessee - Held that - The issue needs re-examination as to whether the impugned assets purchased by the assessee i.e. CNC Drilling machine is eligible for depreciation under which of the category of assets; (a) Being a machine in the nature of agricultural and municipal waste conversion device. (b) Being a machine used to manufacture machines in the form of agricultural and municipal waste conversion device. (c) The machine eligible for 15% depreciation along with 20% additional depreciation. Assessee has placed various documents and materials on record in support of its claim for 80% depreciation on the cost of CNC Drilling machine by submitting that the CNC Drilling machine are used to manufacture Pellet Mill die drills Pelletting dies which are further used for manufacturing agricultural and municipal waste conversion device. However it is not transcribing from the records whether the claim of the assessee is for the assets coming under Clause (xiii)(P) or Clause (xiii) (R) of the depreciation chart which refers to agricultural and municipal waste conversion device producing energy Clause (xiii) (P) or machinery and plant used in the manufacturing of agricultural and municipal waste conversion device Clause (xiii) (R) of the depreciation chart. Since the issue discussed above about the chargeability of depreciation on the cost price of CNC Drilling Machines goes to the root cause of the ground raised before us, the same needs to be examined afresh - Appeal of the assessee is allowed for statistical purpose

Summary

Issues Involved:
1. Disallowance of depreciation on CNC Drill Machine claimed at 80%.

Issue-wise Detailed Analysis:

1. Disallowance of Depreciation on CNC Drill Machine Claimed at 80%:

The assessee, a Private Limited Company engaged in the manufacturing of Dies, Roller Shell, Machineries, and Feed & Grain Plant equipment, filed an appeal against the order of the Commissioner of Income Tax (Appeals)-I, Indore. The primary issue was the disallowance of ?1,39,47,703/- out of the depreciation claimed by the assessee on CNC Drill Machine at a rate of 80%, which was reduced by the Assessing Officer (AO) to 15% normal depreciation and 20% additional depreciation.

The assessee argued that the CNC Drill Machines were used to manufacture pellet machine dies, which in turn were used to produce biomass pellets, a renewable form of energy. The assessee claimed that these machines should qualify for higher depreciation under the category of "Renewal energy devices" as per the depreciation schedule.

The AO, however, did not accept this claim, stating that the CNC Drill Machine is a machining tool that does not produce any energy itself, nor does it convert agricultural or municipal waste into energy. The AO allowed depreciation at a normal rate of 15% and additional depreciation at 20%, leading to an addition of ?1,39,47,703/- to the income assessed.

The CIT(A) upheld the AO's decision, stating that the CNC machine is a specialized machining tool and does not qualify as a renewable energy device. The CIT(A) emphasized that the CNC machine does not convert agricultural or municipal waste into energy and thus does not fall under the relevant clauses (p) and (r) of the depreciation schedule.

The assessee contended that the AO and CIT(A) had misinterpreted the nature of the CNC Drill Machine and its eligibility for higher depreciation. The assessee provided definitions and examples of devices and argued that the CNC Drill Machine, used to manufacture parts for pellet mills, should qualify for higher depreciation as it indirectly contributes to the production of renewable energy.

The Tribunal noted that the issue required re-examination to determine whether the CNC Drill Machine falls under the category of machines used for manufacturing agricultural and municipal waste conversion devices, or if it qualifies for the standard depreciation rates. The Tribunal directed the AO to re-examine the claim of depreciation on the CNC Drill Machine, considering the documents and evidence provided by the assessee.

The Tribunal set aside the issue to the AO for fresh adjudication and directed the AO to provide a reasonable opportunity for the assessee to present its case. The appeal of the assessee was allowed for statistical purposes.

Conclusion:

The Tribunal concluded that the issue of depreciation on the CNC Drill Machine needed further examination by the AO to determine its eligibility for higher depreciation rates. The decision was set aside for de novo adjudication, with instructions to the AO to consider all relevant documents and evidence provided by the assessee. The appeal was allowed for statistical purposes, ensuring that the assessee would have another opportunity to substantiate its claim.