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2016 (5) TMI 630 - AT - Income TaxEntitlement to additional depreciation on plant and machinery - Held that - Acquisition of the entire set of new machineries and plant whether acquired prior to or post 31-03-2005 was an integrated event in the chain of activity undertaken with common and sole goal of setting up new coke production plant by the assessee company which process got completed in April 2005 i.e. financial year 2005-06 with the completion of installation of the entire new machinery and plant as composite , so acquired by the assessee company whether pre or post 31-03-2005 with the commencement of the production of coke production plant becoming operational in April 2005. We find that the conditions as stipulated u/s 32(1)(iia) of the Act are duly complied with by the assessee company and the assessee company cannot be denied the benefit of the claim of additional depreciation merely because new plant and machinery was acquired partly prior to 31-3-2005 and partly post 31-03-2005 as the entire activity of acquisition of new plant and machinery was an integrated and composite activity in the chain of events with the common and sole objective of setting up new coke production plant by the assessee company, as the installation of new machinery and plant which started in financial year 2004-05 got completed after 31-3-2005 with the commencement of commercial production starting in financial year 2005-06 i.e. post 31-03- 2005 with the plant becoming operational. Thus, in our considered view, the assessee company is entitled for claim of additional depreciation u/s 32(1)(iia) of the Act during the assessment year 2006-07. - Decided in favour of assessee
Issues Involved:
1. Allowability of additional depreciation amounting to ?83,55,387 under Section 32(1)(iia) of the Income Tax Act, 1961. Detailed Analysis: 1. Allowability of Additional Depreciation: Facts of the Case: The Revenue filed an appeal against the order of the CIT(A) allowing additional depreciation of ?83,55,387 to the assessee for the assessment year 2006-07. The AO disallowed the claim, noting that the plant and machinery were acquired before 31-03-2005, even though installed after 31-03-2005, thus violating the conditions of Section 32(1)(iia). Assessee's Argument: The assessee argued that the plant and machinery were shown under capital work-in-progress in the financial year 2004-05 and became operational in 2005-06. The assessee contended that the AO misinterpreted Section 32(1)(iia), which requires only the installation to be post-31-03-2005. Reliance was placed on the ITAT Ahmedabad decision in Kadillac Chemicals Pvt. Ltd. v. ACIT, which supported the view that if machinery is installed after the specified date, additional depreciation is allowable. CIT(A)'s Decision: The CIT(A) agreed with the assessee, holding that the provisions of Section 32(1)(iia) require both acquisition and installation of plant and machinery after 31-03-2005. However, the CIT(A) referenced the ITAT Ahmedabad decision, which allowed additional depreciation if the installation occurred after the specified date, irrespective of the acquisition date. Revenue's Argument: The Revenue argued that both conditions of acquisition and installation post-31-03-2005 must be met simultaneously. Since the assessee acquired the machinery partly before and partly after the specified date, the claim should be disallowed. The Revenue cited the Delhi ITAT decision in International Cars and Motors Limited v. ITO to support their stance. Assessee's Counter-Argument: The assessee emphasized that the amendment to Section 32(1)(iia) aimed to encourage investment by increasing initial depreciation to 20%. The assessee maintained that the plant and machinery were acquired and installed as part of an integrated activity, with commercial production starting after 31-03-2005. The assessee relied on the Mumbai ITAT decision in Euro Pratik Ispat Private Limited v. ACIT, which allowed additional depreciation based on the installation date. Tribunal's Analysis: The Tribunal noted that Section 32(1)(iia) is a beneficial provision intended to promote investment. The provision should be liberally construed to fulfill its legislative intent. The Tribunal referred to the Supreme Court's observation in Bajaj Tempo Limited v. CIT, emphasizing a liberal interpretation of incentive provisions. The Tribunal observed that the assessee's plant and machinery were acquired and installed as an integrated activity for setting up a new industrial unit. The installation was completed, and commercial production began in April 2005. The Tribunal held that the acquisition and installation should be viewed as a composite activity, not itemized, to achieve the desired production. Conclusion: The Tribunal concluded that the assessee met the conditions of Section 32(1)(iia) by completing the installation post-31-03-2005. The Tribunal upheld the CIT(A)'s decision, allowing the additional depreciation of ?83,55,387. The appeal filed by the Revenue was dismissed, affirming the CIT(A)'s order. Order: The appeal filed by the Revenue in ITA No. 7530/Mum/2011 for the assessment year 2006-07 is dismissed. The decision was pronounced in the open court on 30th March, 2016.
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