2019 (8) TMI 798 - AT - Income Tax

Revision u/s 263 - as per CIT additional depreciation on the plant machinery wrongly allowed by the AO - additional depreciation was allowed on assets purchased before 01.04.2002 but installed after 01.04.2002 - additional depreciation was introduced by the Finance Act, 2002 and it was to be allowed only if assets are acquired and installed after 01.04.2002 - HELD THAT - It is noted that the date of purchase of machinery as given in the audit report and relied upon by CIT in the order u/s 263 was given on the basis of the date of proforma invoices. Proforma invoice is a kind of quotation given by the seller in order to help the buyer in taking decision regarding whether to place an order or not. It thus is not a confirmation of sale and the delivery of goods cannot be associated or inferred on the basis of proforma invoice so as to ascertain the date of acquisition of machinery. The delivery of goods is generally associated with the final invoices raised by the supplier and the same, in our opinion, is the relevant document on the basis of which the delivery of machinery can be ascertained or inferred. In the present case, a perusal of the summary of details and documents furnished on record clearly shows that the relevant invoices in respect of the machinery in question were raised by the concerned supplier only after 01.04.2002 except in case of one machine of small value of ₹ 2.6 lacs and the same, in our opinion is sufficient to show that the machinery in respect of which additional depreciation was claimed by the assessee had been acquired after 01.04.2002. Keeping in view the legal position emanating from the judicial pronouncement in Pr. CIT vs IDMC Ltd. 2017 (2) TMI 644 - GUJARAT HIGH COURT and Lakra Fabrics (P) Ltd. 2014 (1) TMI 591 - ITAT CHANDIGARH and having regard to the facts of the present case, we are of the view that the assessee was entitled to additional depreciation u/s 32(1)(iia) on the plant machinery in question for the year under consideration i.e. AY 2003-04 when the installation was completed and there was no error in the order of the AO passed u/s 143(3) in allowing the same. In that view of the matter, we set aside the impugned order passed by the Ld. CIT u/s 263 on this issue - Decided in favour of assessee.

Summary

Issues Involved:

1. Eligibility for Additional Depreciation under Section 32(1)(iia) of the Income Tax Act, 1961.
2. Interpretation of the terms "acquisition" and "installation" of machinery for additional depreciation.
3. Validity of the order passed by the CIT under Section 263 of the Income Tax Act, 1961.
4. Examination of documentary evidence and factual findings by the Tribunal and the High Court.

Issue-Wise Detailed Analysis:

1. Eligibility for Additional Depreciation under Section 32(1)(iia) of the Income Tax Act, 1961:

The assessee, a company engaged in printing and publishing, claimed additional depreciation of ?5,61,23,019/- on machinery acquired and installed after 01.04.2002. The CIT observed that the machinery was purchased before 01.04.2002 but installed after this date. According to Section 32(1)(iia), additional depreciation is allowed only if both acquisition and installation occur after 31.03.2002. The CIT, therefore, considered the allowance of additional depreciation by the AO as erroneous and prejudicial to the revenue's interest, leading to the issuance of a notice under Section 263 and subsequently directing the AO to withdraw the additional depreciation claim.

2. Interpretation of the Terms "Acquisition" and "Installation" of Machinery for Additional Depreciation:

The CIT interpreted "acquisition" to mean the date of purchase, irrespective of the installation date. The assessee argued that the machinery was acquired and installed during the previous year ending on 31.03.2003, and the purchase dates noted in the books were based on proforma invoices, not actual delivery. The Tribunal initially sided with the assessee, stating that the machinery was acquired and installed after 01.04.2002. However, the High Court remanded the case, emphasizing the need to establish the acquisition and installation dates with specific reference to documentary evidence.

3. Validity of the Order Passed by the CIT under Section 263 of the Income Tax Act, 1961:

The CIT's order under Section 263 was based on the belief that the AO's assessment allowing additional depreciation was erroneous and prejudicial to the revenue. The Tribunal initially set aside the CIT's order, stating that the AO had verified the documents and allowed the claim correctly. The High Court, however, found the Tribunal's reasoning lacking in specificity and remanded the case for a detailed factual determination.

4. Examination of Documentary Evidence and Factual Findings by the Tribunal and the High Court:

Upon remand, the Tribunal re-examined the documentary evidence, including invoices, delivery challans, and installation certificates. It was found that the machinery was delivered and installed after 01.04.2002, except for one small-value machine. The Tribunal noted that proforma invoices are not confirmations of sale, and the final invoices raised after 01.04.2002 indicated the actual acquisition date. The Tribunal also considered judicial precedents, emphasizing that the installation date is crucial for claiming additional depreciation. Cases cited included CIT vs. Surama Tubes (P) Ltd., Pr. CIT vs. IDMC Ltd., and others, which supported the view that installation date is significant.

Conclusion:

The Tribunal concluded that the assessee was entitled to additional depreciation as the machinery was installed after 01.04.2002, and there was no error in the AO's order. Thus, the Tribunal set aside the CIT's order under Section 263 and restored the AO's assessment, allowing the appeal in favor of the assessee. The judgment was pronounced on 9th August 2019.