2014 (4) TMI 397 - AT - Income Tax

Confirmation of additional claim of depreciation Held that - Provisions of section 32(1)(iia) of the Act, do not requires that the P&M has to be put into use in the year in which it is acquired for the purpose of claiming AD - what is important and material is the year of acquisition in the case of ships or aircraft and the year of installation in the case of machinery or plant - If the installation of a plant is spread over more than a year, the relevant year for the grant of allowance would be the year in which the installation is completed Relying upon Commissioner Of Income-Tax Versus Surama Tubes Pvt. Limited 1991 (1) TMI 9 - CALCUTTA High Court - Till a machine is not assembled in a manner that it could be used to manufacture, it cannot be held that it had been installed - Mere purchasing or shifting it to factory premises is not enough. It is a common phenomenon that in big projects, installation of machinery takes very long time because of the sheer volume of the work to be carried out - If an assessee is not successful in installing P&M in one year and carries forward the installation work in subsequent year/years it cannot be denied any benefit on the ground that it had acquired the P &M in earlier year - The intent of the legislature was to attract investment the production started from 01. 01. 2006 - Before that fabrication and completion of P&M was going on - Treatment given by the assessee in the books of accounts to the P&M was in accordance with the Accounting Standards (AS)and the AO/FAA has not denied the fact that the assessee was following AS - assessee was entitled to claim AD @of 10% - the order of the FAA is reversed Decided in favour of Assessee.

Summary

Issues:
- Additional depreciation claim disallowed by the Assessing Officer.
- Interpretation of provisions under section 32(1)(iia) of the Act regarding acquisition and installation of assets.
- Consideration of evidence submitted during assessment proceedings.

Analysis:

Additional Depreciation Claim Disallowed:
- The Assessing Officer disallowed the additional depreciation (AD) claim of Rs. 1,27,23,266 made by the assessee on assets acquired before 31.03.2005. The AO held that as per section 32(iia) of the Act, deduction would only be allowed if the machinery was acquired/installed after 31.03.2005. The FAA upheld this decision, emphasizing that AD was available only to those who acquired and installed new machinery after the specified date. The FAA also clarified that the term "new" in the section referred to assets recently acquired or discovered, and the machinery should be both acquired and installed after the specified date.

Interpretation of Section 32(1)(iia) Provisions:
- The ITAT considered the provisions of section 32(1)(iia) and the requirement that assets should be acquired and installed after 31.03.2005 to claim AD. The ITAT noted that the installation date was crucial, and machinery need not be put into use in the year of acquisition. Referring to a judgment by the Calcutta High Court, the ITAT emphasized that the installation date, not the acquisition year, was significant for claiming AD. The ITAT highlighted that until machinery is assembled for use in manufacturing, it cannot be considered installed, even if acquired earlier.

Consideration of Additional Evidence:
- The ITAT allowed additional evidence submitted by the assessee during the hearing, which consisted of ledger accounts related to the acquisition and installation of assets. The ITAT found that the documents were part of the AO's record and should be considered, as they were relevant to the assessment proceedings. By analyzing the evidence and the accounting treatment followed by the assessee, the ITAT concluded that the assessee was entitled to claim AD at the rate of 10% based on the installation and commencement of commercial production in the relevant assessment year.

In conclusion, the ITAT reversed the FAA's decision and allowed the appeal filed by the assessee, determining that the assessee was eligible to claim additional depreciation based on the acquisition and installation of assets as per the provisions of section 32(1)(iia) of the Act.