2014 (1) TMI 126 - AT - Income Tax

Allowance of 100% depreciation of temporary shed Held that - A temporary structure constructed for the purpose of carrying out a massive construction project is eligible for depreciation at 100% in view of Item I(4) of Part A of New Appendix I of the Income-tax Rules, 1962 - temporary erection which was intended to use for temporary purpose is entitled for 100% depreciation - The department is not correct in saying that the wooden structure alone is entitled for 100% depreciation - If that is the intention of the rule making authority, then the structure made of teak wood and rose wood which would last for several hundred years has to be allowed depreciation at 100% - this is not the intention of the rule making authority - If the structure is for temporary purpose, then the assessee is entitled for depreciation @100% - the structure constructed by G.I. pipes, etc. is only for the purpose of temporary use so as to facilitate the carrying out of massive construction activity - the assessee is entitled for 100% depreciation - the assessee has claimed only 50% of the total expenditure since the structure was used for less than 180 days - The CIT(A), after taking note of the fact has allowed only 50% of the expenditure as depreciation There was no infirmity in the order Decided against Revenue. Additional Depreciation u/s 32(1)(iia) of the Act Held that - Following Apollo Tyres Ltd. Versus The ACIT., Range 1, Kochi 2014 (1) TMI 33 - ITAT COCHIN - the assessee is entitled for additional depreciation of 10% in the subsequent assessment year - The balance 50% of the depreciation has to be allowed in the subsequent year, therefore, the orders of the lower authorities set side and the assessing officer is directed to allow the claim of balance 50% additional depreciation in the year under consideration Thus, the assessee is entitled for additional depreciation of 10% in the year under consideration Decided against Revenue.

Summary

Issues Involved:
1. Allowance of 100% depreciation on temporary shed.
2. Claim of additional depreciation in the succeeding year.

Detailed Analysis:

1. Allowance of 100% Depreciation on Temporary Shed:
The primary issue is whether the assessee is entitled to claim 100% depreciation on a temporary shed constructed using materials such as steel, G.I. pipes, cement, and bricks. The revenue argued that such a structure, having a life span of 3 to 4 years, should not be considered temporary and thus not eligible for 100% depreciation. They relied on the Gauhati High Court judgment in CIT vs. Sibson Construction & Co, which stated that temporary constructions are eligible for only 7.5% depreciation.

The assessee, however, contended that the structure was indeed temporary, intended for use only until the completion of the construction project, and should be dismantled afterward. They claimed depreciation only for the period the structure was used, which was less than 180 days, thus claiming 50% of the total expenditure as depreciation.

The Tribunal examined Item I(4) of Part A of New Appendix I of the Income-tax Rules, 1962, which allows 100% depreciation for "purely temporary erections such as wooden structures." It concluded that the term "purely temporary erections" is not limited to wooden structures but includes any temporary structures irrespective of the materials used. The Tribunal found that the purpose of the construction plays a crucial role in determining its temporary nature and that the structure in question, used for temporary purposes, qualifies for 100% depreciation. Therefore, the Tribunal upheld the CIT(A)'s decision to allow the claim of 50% of the expenditure as depreciation since the structure was used for less than 180 days.

2. Claim of Additional Depreciation in the Succeeding Year:
The second issue was whether the assessee could claim the remaining 10% of additional depreciation in the succeeding year when the asset was used for less than 180 days in the previous year. The revenue argued that there is no specific provision in the Income-tax Act to allow additional depreciation in the subsequent year.

The assessee argued that they are entitled to 20% additional depreciation, and since the asset was used for less than 180 days in the previous year, they claimed 10% in that year and the remaining 10% in the current year. They cited the Delhi Bench Tribunal's decision in DCIT vs. Cosmo Films Ltd, which supported their claim.

The Tribunal referred to its earlier decision in Apollo Tyres Ltd, where it was held that the assessee is entitled to the remaining 10% additional depreciation in the subsequent year. It emphasized that Section 32(1)(iia) of the Income-tax Act does not restrict the allowance of additional depreciation to the year of acquisition alone. The Tribunal concluded that the assessee is entitled to the remaining 10% additional depreciation in the current year, thus affirming the CIT(A)'s order.

Conclusion:
The Tribunal dismissed the revenue's appeal, confirming the CIT(A)'s decisions on both issues. The assessee was entitled to 100% depreciation on the temporary shed and the remaining 10% additional depreciation in the succeeding year. The judgment emphasized the importance of the purpose and intended use of structures in determining their eligibility for depreciation and clarified the provisions regarding additional depreciation under the Income-tax Act.