2015 (12) TMI 690 - AT - Income Tax

Disallowance of investment allowance and the depreciation on Plant & Machinery relating to cement unit - Held that - CIT(A) did not disturb the interest allowed on capital borrowed for the purpose of cement unit by holding that the cement business forms part of the fertilizer business. However, she disallowed the claim of depreciation and investment allowance. As regards the interest and other expenditure is concerned, we find that the findings of the Tribunal have attained finality that both fertilizer unit as well as the cement unit form part of the same business and has been accepted and followed by the Revenue. However, this finding will not apply to the claim of depreciation as well as the investment allowance. The claim of depreciation as well as investment allowance is asset specific and are allowable only when the assets are installed and put to use. In the case before us, the AO has clearly brought out on record that the machinery was not installed by the end of the relevant previous year i.e., 31-12-1983 in the case of assessee which fact has been considered and accepted by the Hon ble High Court of AP. When the machinery has not been installed and used by the assessee for the purpose of manufacturing of cement, then the claim of depreciation and investment allowance is rightly not allowed by the AO. In view of the same, we do not see any reason to interfere with the order of the CIT(A) - Decided against assessee.

Summary

Issues:
- Disallowance of investment allowance and depreciation on Plant & Machinery for the AY 1984-85.
- Whether the cement business and fertilizer business constitute the same business.
- Whether the assessee is entitled to depreciation and investment allowance for the AY 1984-85.

Analysis:
1. The appellant challenged the disallowance of investment allowance and depreciation on Plant & Machinery for the AY 1984-85. The CIT(A) upheld the disallowance, stating that the fertilizer business and cement business carried on by the assessee were separate entities. The appellant contended that the Tribunal had previously ruled that both businesses constituted the same business, a decision not challenged by the Revenue before the High Court, making it final. The AO observed that the cement unit did not commence production by 31-12-1983, leading to the disallowance of the expenditure, depreciation, and investment allowance related to the cement unit.

2. The assessee's request to change the previous year ending was rejected, leading to a series of appeals. The AO found that most of the Plant & Machinery for the cement unit was installed after 31-12-1983, concluding that the business had not commenced by then. The AO disallowed the expenditure claiming it was not related to business, as the fertilizer and cement units were independent entities with separate accounts. The CIT(A) allowed the appeal based on the previous Tribunal's decision, but the Revenue challenged it. The High Court ruled that cement manufacturing had not started, denying depreciation and investment allowance for the AY 1984-85.

3. The appellant argued that the Tribunal's finding that the cement unit was part of the fertilizer business should allow depreciation and investment allowance. However, the AO's evidence showed that the machinery was not installed or used for cement manufacturing by 31-12-1983, a fact upheld by the High Court. The Tribunal upheld the disallowance of depreciation and investment allowance, as they are asset-specific and can only be claimed when assets are installed and operational. Therefore, the appeal was dismissed, affirming the decision of the CIT(A) and the AO regarding the disallowance of depreciation and investment allowance for the AY 1984-85.