2023 (2) TMI 465 - HC - Income Tax

Maintainability of appeals on low tax effect - Maintainability of these appeals and specifically whether these appeals fall under the exception clause of Circular No. 3 of 2018 issued by the CBDT - HELD THAT - From perusal of the entire record, it is crystal clear that though the revenue-Auditor has made objection, however, nowhere on record it transpires that the revenue objection was accepted. Also as per the revenue own circular No. 3/2018 CBDT has engrafted certain exceptions and at paragraph 10(c) it has been specifically provided that any appeal even below monetary limit can be entertained provided the audit objection has been accepted by the revenue - even after opportunities given to the learned standing counsel for revenue, he was unable to produce a single chit of paper to show that audit objection has been accepted by the revenue. Thus, since the tax effect in both the cases, the monetary limit is much below the ceiling as prescribed in the Circular No. 3/2018; both these appeals are not maintainable and deserves to be quashed in limine. Disallowance of claim of additional depreciation - disallowance made on the ground that additional depreciation under Section 32(1)(iia) of the Act can only be claimed in the first year of use of the new machinery and the additional depreciation cannot be taken in the subsequent year - ITAT deleted the disallowance - HELD THAT - ITAT in the Impugned Judgment has correctly allowed the claim of additional depreciation of the respondent made in the subsequent year by relying on the judgment of M/s. Brakes India Limited 2017 (4) TMI 511 - MADRAS HIGH COURT to hold that the additional depreciation amount, claimed by Respondent in the subsequent year of first usage of new machinery, cannot be disallowed by the assessing officer -. As in Rittal India Pvt. Ltd. case 2016 (1) TMI 81 - KARNATAKA HIGH COURT wherein the High Court held in favour of the assessee that additional depreciation can be availed even in the subsequent year to the first year when the machinery was put to use. additional depreciation, in terms of Section 32 (1) (iia), can be availed in subsequent assessment year to the assessment year in which the machinery was first put to use. See Shri T.P. Textiles Private Limited 2017 (3) TMI 739 - MADRAS HIGH COURT Thus both questions of law is decided in favour of Assessee and both the appeals deserve to be dismissed on both counts. Firstly, on the question of maintainability; as the tax effect of both the cases are much below the monetary limit fixed by the CBDT and secondly, even on merit, in view of the judgment passed by the Madras High Court and upheld by the Hon ble Apex Court as discussed hereinabove.

Summary

Issues Involved:
1. Justification of ITAT's deletion of disallowance of additional depreciation claims.
2. Maintainability of appeals under the exception clause of Circular No. 3 of 2018 issued by the CBDT.

Issue-wise Detailed Analysis:

1. Justification of ITAT's deletion of disallowance of additional depreciation claims:

The appeals were filed by the Revenue Department against the ITAT's order favoring the Respondent-Assessee regarding additional depreciation on new plant or machinery claimed in the subsequent year of first usage. The Assessing Officer disallowed these claims for AY 2009-10 and 2010-11, arguing that additional depreciation under Section 32(1)(iia) of the Income Tax Act can only be claimed in the first year of use. The CIT (A) upheld this disallowance.

The ITAT, however, allowed the Respondent's claims, relying on the Madras High Court's judgment in M/s Brakes India Limited v. DCIT, which permitted additional depreciation in subsequent years. The High Court examined the relevant section of the Act and noted that there is no restriction in Section 32(1)(iia) that additional depreciation can only be claimed in the first year. The provision aims to promote industrialization by allowing a 20% deduction on new machinery or plant, and the Revenue cannot impose extra conditions not specified in the statute.

The Court cited several judgments, including the Karnataka High Court in CIT v. Rittal India Pvt. Ltd. and the Madras High Court in CIT v. Shri T.P. Textiles Private Limited, which supported the view that additional depreciation can be claimed in subsequent years. The Supreme Court's dismissal of the Revenue's SLP against the Madras High Court's judgment further reinforced this position.

2. Maintainability of appeals under the exception clause of Circular No. 3 of 2018 issued by the CBDT:

The second issue concerned whether the appeals fell under the exception clause of Circular No. 3 of 2018, which allows appeals below the monetary limit if an audit objection is accepted by the Revenue. The audit objection in this case stated that additional depreciation is available only in the year the new plant and machinery are first used. However, the audit report itself indicated that the Income Tax department disagreed with this objection, stating that additional depreciation could be claimed in subsequent years.

The Court noted that the Revenue's own circular allows appeals below the monetary limit only if the audit objection is accepted by the Revenue, which was not the case here. Despite opportunities, the Revenue could not produce evidence that the audit objection was accepted. Consequently, the appeals were deemed non-maintainable as the tax effect was below the prescribed limit.

Conclusion:

The High Court dismissed both appeals, agreeing with the ITAT's decision and confirming that additional depreciation can be claimed in subsequent years. The appeals were also dismissed on the grounds of maintainability due to the tax effect being below the monetary limit prescribed by the CBDT Circular No. 3 of 2018.