2005 (10) TMI 221 - AT - Income Tax

Summary

Issues:
1. Allowance of depreciation on additional investment/income in building and machinery.
2. Allowance of deduction under section 80-IB.

Analysis:

Issue 1: Allowance of depreciation on additional investment/income in building and machinery:
The appeal by the Revenue challenges the order directing the AO to allow depreciation on the amounts surrendered for additional investment in building and machinery. The assessee declared income from job work and rent of machinery, with a surrender of Rs. 3 lakhs in the building account and Rs. 12 lakhs in plant and machinery account during a survey. The AO contended that the machinery was not proven to be new and not put to use before installation. The surrendered amount was credited as miscellaneous income, which the AO deemed ineligible for deduction under section 80-IB. The Tribunal found discrepancies in the evidence presented by the assessee, including a manipulated rent agreement and lack of concrete evidence regarding the machinery's installation and usage. Citing relevant case law, the Tribunal concluded that full depreciation cannot be allowed, reversing the CIT(A) order.

Issue 2: Allowance of deduction under section 80-IB:
The Revenue contended that the assessee failed to prove that the income was derived from the machinery to claim deduction under section 80-IB. The Tribunal noted the absence of evidence supporting income generation directly from industrial activity, as the surrendered miscellaneous income could not be linked to the industrial business. The Tribunal emphasized the requirement for substantial fresh capital investment, employment of labor, manufacturing activity, and a distinct industrial unit identity to qualify for section 80-IB benefits. Given the lack of evidence regarding the machinery's newness, usage, and fabrication charges, the Tribunal ruled in favor of the Revenue, disallowing the deduction under section 80-IB.

In conclusion, the Tribunal allowed the Revenue's appeal, emphasizing the importance of concrete evidence and compliance with statutory requirements for claiming depreciation and deductions under relevant tax provisions.