2024 (10) TMI 711 - HC - Income Tax

Additional depreciation u/s 32 (1) (iia) - AO denied claim as assessee is not engaged in manufacture or production of any article or thing - addition on account of alleged incorrect claim of depreciation and additional depreciation on various electrical items by not treating them as plant and machinery - ITAT allowed claim - HELD THAT - On perusal of the aforesaid provision of Section 32(1) of the Act and proviso thereto read with Section 32 (1) (ii) of the Act, 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 However, such allowance of the depreciation can be claimed only to the extent of 10%, if the plant an machinery purchased by the assessee is used for less than 182 days. Accordingly, the assessee has claim the additional depreciation to the extent of 10% on for Assessment Year 2010-11, and therefore, the claim of remaining 10% additional depreciation is made f the Assessment Year 2011-12. Depreciation on electrical items which are forming part of plant and machinery - Tribunal following the decision of this Court in case of CIT vs. Starlight Silk Mills Pvt. Ltd. 2005 (8) TMI 40 - GUJARAT HIGH COURT wherein it is held that AC plants, electric installation and transformers form integral part of plant and machinery and eligible for depreciation. Similarly, in case of Raw Flints (P) Ltd 1987 (1) TMI 490 - ITAT AHMEDABAD held that electrical installations are integral part of the manufacturing process and cannot be said to be not forming part of plant and machinery. The Tribunal following the aforesaid decision held that the electrical fittings could be forming part of the plant and machinery and the assessee is eligible for depreciation and additional depreciation accordingly. We are in complete agreement with the reasonings given by the Tribunal on the basis of the findings stated herein above

Summary

Issues:
1. Additional depreciation claim under Section 32 (1) (iia) of the Income Tax Act, 1961.
2. Retrospective nature of the amendment to Section 32 (1) (ii) by Finance Act, 2015.
3. Treatment of electrical items as part of plant and machinery for depreciation.

Analysis:

1. The appellant, a revenue entity, filed a Tax Appeal under Section 260A challenging the order of the Income Tax Appellate Tribunal regarding the allowance of additional depreciation. The main contention was whether the appellant, engaged in processing and manufacturing of milk products, was eligible for additional depreciation under Section 32 (1) (iia) despite not being directly involved in the manufacture of articles or things. The Assessing Officer disallowed the claim, citing that the additional depreciation was only allowed in the year of installation of plant and machinery. However, the Tribunal ruled in favor of the appellant, considering the milk processing activities as manufacturing and allowing the additional depreciation based on the products manufactured. The Tribunal also referenced the clarificatory amendment to Section 32 (1) (ii) by the Finance Act, 2015, supporting the appellant's claim.

2. The issue of the retrospective nature of the amendment to Section 32 (1) (ii) by the Finance Act, 2015 was raised. The Tribunal analyzed the applicability of the third proviso to Section 32 (1) (ii) and concluded that it was clarificatory in nature. This clarification allowed the respondent to claim additional depreciation for the year under consideration, even though the amendment was made effective from 01.04.2016. The Tribunal's decision was supported by the appellant's activities in manufacturing milk products, which were considered eligible for the additional depreciation benefit.

3. The Tribunal also addressed the treatment of electrical items as part of plant and machinery for depreciation purposes. The Assessing Officer disallowed depreciation on certain electrical items, arguing they were not integral to the manufacturing process. However, the Tribunal disagreed, citing precedents where electrical installations were deemed integral to plant and machinery. By considering the specific circumstances of the appellant's manufacturing units and the necessity of electrical items for production, the Tribunal upheld the eligibility of these items for depreciation and additional depreciation benefits. The Tribunal's decision was based on the integral role of electrical fittings in the manufacturing process, aligning with established legal interpretations.

In conclusion, the Tribunal's rulings favored the appellant on all three issues, emphasizing the eligibility for additional depreciation based on the nature of the manufacturing activities and the integral role of electrical items in the production process. The judgment provided a detailed analysis of the legal provisions and precedents, supporting the appellant's claims and dismissing the appeal for lack of merit.