2015 (7) TMI 174 - AT - Income Tax

Disallowance of claim of additional depreciation - CIT(A) deleted the addition - Held that - On due consideration of the order of CIT(A)in the light of decision of CIT vs. VTM Ltd. (2009 (9) TMI 35 - MADRAS HIGH COURT ) and CIT vs. Hi Tech Arai Ltd. 2009 (9) TMI 60 - MADRAS HIGH COURT wherein held that additional depreciation on windmill will be admissible to the assessee. Thus we are of the view that ld. first appellate authority has appreciated the facts and circumstances of the case in right perspective and the issue in dispute is covered in favour of the assessee by the decision of Hon ble Gujarat High Court. - Decided against revenue. Depreciation on fans electrical installations - at 10% OR 15% - Held that - The AO in the impugned order has nowhere observed that these are not part and parcel of the plant and machinery. The assessee has pleaded that electric cables and fans are being installed in casting department where additional load of electricity is required. These fittings at the location attach moulding and casting at three places. Therefore they are integral part of the machinery. We allow this ground of appeal and delete the disallowance. The ld. AO shall compute the depreciation admissible to the assessee @ 15% on these electrical fittings and fans. The moment they are treated as a part of plant the assessee will get additional depreciation also - Decided against revenue. Disallowance of Employee s Stock Option Scheme (ESOP) - Held that - AO was of the view that it is a capital loss. It is not materialized in this year. It would happen only when option is exercised by the employees. All these aspects have been considered by the Special Bench of the Tribunal rendered in the case of Biocon Ltd. Vs. Dy.CIT reported at (2013 (8) TMI 629 - ITAT BANGALORE ) wherein it has been explained that share premium is a capital receipt and not chargeable to tax in the hands of the company. If a company issues shares to the public or to the existing shareholders at lesser than otherwise prevailing premium due to market sentiments or otherwise such share receipts of a premium would be a case of receipt of lower amount on capital amount. Because the object of issuing such share at a lower price is nowhere directly connected with the earning of income but when the company undertakes to issue shares to its employees at a discounted premium at a future date the primary object of this exercise is not to raise share capital but to earn profit by securing the consistent and concentrated efforts of dedicated employees during the vesting period such discount is construed both by the employees and the company as nothing but a part of package of remuneration a substitute to giving direct incentive in cash for availing the services of the employees. Therefore in our opinion ld. first appellate authority is not justified while upholding the disallowance of the assessee s claim.- Decided against revenue. Additional depreciation on Mumbai Display Centre disallowed - Held that - The AO has to compute the true written down value in this year in view of confirmation of additional depreciation in earlier year. We have duly considered the rival contentions and gone through the record carefully. If claim of depreciation in one year is being disallowed then that would enhance the written down value of the asset by the disallowed amount in the subsequent year the depreciation is to be computed on this enhanced written down value. The confirmation of disallowance in AY 2007-08 upto the Tribunal has materialized after passing of the assessment order in the present Asst. Year. Therefore in our opinion this issue requires reconsideration at the level of AO. - Decided in favour of assessee for statistical purposes.

Summary

Issues Involved:
1. Deletion of addition by CIT(A) regarding additional depreciation on windmill.
2. Restriction of depreciation on fans and electrical installations.
3. Disallowance of ESOP (Employee Stock Option Plan) expenses.
4. Calculation of written down value for depreciation.
5. Charging of interest under sections 234B and 234C.
6. Initiation of penalty under section 271(1)(c).

Issue-wise Detailed Analysis:

1. Deletion of Addition by CIT(A) Regarding Additional Depreciation on Windmill:
The Revenue argued that CIT(A) erred in deleting the addition of Rs. 1,29,17,418/- made by the AO by disallowing additional depreciation on a windmill. The AO contended that the windmill generates power and does not manufacture any article or thing, thus making it ineligible for additional depreciation under Section 32(1)(iia). However, CIT(A) allowed the claim based on precedents from the Hon'ble Madras High Court, which established that additional depreciation is allowable even if the machinery is not directly used in manufacturing. The Tribunal upheld CIT(A)'s decision, citing the Hon'ble Gujarat High Court's ruling in CIT vs. Diamines & Chemicals Ltd., which supported the assessee's entitlement to additional depreciation on the windmill.

2. Restriction of Depreciation on Fans and Electrical Installations:
The assessee contested the CIT(A)'s decision to restrict depreciation on fans and electrical installations to 10% instead of the 15% applicable to plant and machinery. The AO had classified these items separately, leading to the lower rate. The Tribunal, referencing the ITAT's ruling in Madhu Industries Ltd., determined that electrical fittings and fans are integral to the plant and machinery and should not be classified independently. Consequently, the Tribunal directed the AO to allow depreciation at 15% and additional depreciation on these items.

3. Disallowance of ESOP Expenses:
The assessee challenged the disallowance of Rs. 92,10,249/- related to ESOP expenses. The Tribunal noted that the issue was previously addressed in the assessee's favor for AY 2007-08, following the ITAT Special Bench's ruling in Biocon Ltd. vs. Dy. CIT. The Special Bench had established that ESOP discounts are a form of employee remuneration and thus deductible. The Tribunal found no disparity in facts and concluded that the CIT(A) erred in upholding the disallowance. The Tribunal allowed the assessee's claim for ESOP expenses.

4. Calculation of Written Down Value for Depreciation:
The assessee argued that the written down value (WDV) should be recalculated to reflect the disallowed depreciation on the Mumbai Display Centre from AY 2007-08. The Tribunal agreed that disallowed depreciation increases the WDV, impacting subsequent depreciation calculations. The Tribunal remanded the issue to the AO for re-examination and recalculation of the WDV.

5. Charging of Interest under Sections 234B and 234C:
The assessee's challenge to the charging of interest under sections 234B and 234C was deemed consequential. As no specific arguments were presented, the Tribunal rejected this ground of appeal.

6. Initiation of Penalty under Section 271(1)(c):
The assessee contested the initiation of penalty proceedings under section 271(1)(c). The Tribunal considered this ground premature, noting that the assessee would have the opportunity to defend itself during the penalty proceedings. Hence, this ground was rejected.

Conclusion:
The Tribunal dismissed the Revenue's appeal and partly allowed the assessee's appeal for statistical purposes. The order was pronounced in open court on 29.5.2015.