2020 (1) TMI 1701 - HC - Income Tax

Nature of receipts - carbon receipts - revenue v/s capital receipt - ITAT upholding the order of the CIT(A) for deleting the addition - HELD THAT -is already considered by us in 2020 (1) TMI 258 - GUJARAT HIGH COURT by the order of even date and accordingly, the appeal stands dismissed so far as Question No.2(A) is concerned. Additional depreciation - plant and machinery used for less than 182 days - CIT(A) allowed additional depreciation of 10% for the assessment year 2011 -12 adopting purposive approach to the issue - HELD THAT - On perusal of the provision of Section 32(1) of the Act and proviso thereto read with Section 32(1)(iia) it is clear that the assessee can claim additional depreciation at the rate of 20% of the actual cost of the plant and machinery purchased during the financial year - Such allowance of the depreciation can be claimed only to the extent of 10%, if the plant and machinery purchased by the assessee is used for less than 182 days. Accordingly, the assessee has claimed the additional depreciation to the extent of 10% only for Assessment Year 2010- 11, and therefore, the claim of remaining 10% additional depreciation is made for the Assessment Year 2011 -12. Assessee can claim remaining additional depreciation of 10% in the assessment year 2011 -12. The legislature has also thought it fit to clarify the situation by inserting third proviso to Section 32(1) by the Finance Act, 2015 with effect from 01.04.2016. According to third proviso to Section 32(1) of the Act, the assessee can claim the remaining additional depreciation in the subsequent assessment year. Thus, both the authorities below have rightly held that the assessee is entitled to remaining additional depreciation of 10% - Decided against revenue.

Summary

Issues:
Interpretation of Section 32(1)(iia) of the Income Tax Act, 1961 regarding the claim of additional depreciation for plant and machinery used for less than 182 days.

Analysis:
The Tax Appeal under Section 260A of the Income Tax Act, 1961 was filed by the Revenue against the order of the Income Tax Appellate Tribunal for the assessment year 2011-2012. The Revenue raised substantial questions of law regarding the deletion of carbon receipts as capital receipt and the deletion of additional depreciation claim by the assessee. The Tribunal had dismissed the appeal filed by the Revenue concerning the additional depreciation claim (Question No. 2(B).

Regarding the claim of additional depreciation, the assessee had acquired and installed new plant and machinery in the financial year 2009-10. The claim for additional depreciation in the assessment year 2010-11 was restricted to 50% as the assets were used for less than 182 days. In the assessment year 2011-12, the assessee claimed the balance 50% of additional depreciation, which was disallowed by the Assessing Officer but allowed by the CIT (Appeal). The CIT (Appeal) considered Section 32(1)(iia) and allowed 10% additional depreciation for the assessment year 2011-12, interpreting the provision purposively.

The High Court analyzed Section 32(1) of the Act and the relevant provisos, particularly Section 32(1)(iia), which allows a further sum of 20% of the actual cost of new machinery or plant acquired and installed after March 31, 2005, for manufacturing or production activities. The Court held that the assessee could claim the remaining 10% of additional depreciation in the assessment year 2011-12, as clarified by the third proviso to Section 32(1) inserted by the Finance Act, 2015.

Consequently, the High Court affirmed the decisions of the lower authorities, stating that the assessee was entitled to the remaining additional depreciation of 10% for the assessment year 2011-12. The Court found no legal infirmity in the orders of the CIT (Appeal) and the Tribunal, dismissing the appeal on Question No. 2(B) as well.