2017 (2) TMI 644 - HC - Income Tax

Additional depreciation claim @ 20% under Section 32 1 (iia) - machinery purchased before 31st March 2005, but installed after 31st March 2005 ? - Held that - If the contention on behalf of the Revenue is accepted, in that case, the assessee shall never get the additional depreciation as provided under Section 32(1)(iia) of the IT Act. In the facts and circumstances of the case, the twin conditions of the acquired and installed shall never be satisfied in a year and therefore, the assessee shall never get any depreciation. The purpose and object of granting additional depreciation under Section 32(1)(iia) of the IT Act is stated hereinabove i.e. to encourage the industries by permitting the assessee setting up the new undertaking / installation of new plant and machinery and to give a boost to the manufacturing sector by allowing additional depreciation deduction. Thus, as rightly held by the learned ITAT the provision of section 32(1)(iia) of the IT Act is required to be interpreted reasonably and purposively as the strict and literal reading of section 32(1)(iia) of the IT Act will lead to an absurd result denying the additional depreciation to the assessee though admittedly the assessee has installed new plant and machinery. Under the circumstances, no error has been committed by the learned ITAT in allowing the additional depreciation at the rate of 20% on the plant and machinery installed by the assessee after 31st Day of March 2005 i.e. the year under consideration. No substantial question of law arise. - Decided in favour of the assessee

Summary

Issues Involved:
1. Whether the Tribunal was justified in allowing additional depreciation claim under Section 32(1)(iia) of the Income-tax Act, 1961 on machinery purchased before 31st March 2005 but installed after 31st March 2005.

Issue-wise Detailed Analysis:

1. Tribunal's Justification in Allowing Additional Depreciation Claim:

Background:
The assessee, engaged in the business of fabrication and manufacturing of equipment, filed a return for AY 2006-07. The Assessing Officer (AO) initially assessed the total income at NIL after allowing depreciation. The assessment was reopened under Section 147 of the Income Tax Act due to an audit objection regarding additional depreciation claimed on machinery purchased before 31st March 2005 but installed after this date. The AO disallowed the additional depreciation of ?2,18,50,976 and reassessed the income. The CIT(A) upheld the reassessment and disallowance. The ITAT, however, allowed the appeal and deleted the disallowance, relying on Supreme Court and Calcutta High Court decisions.

Revenue's Argument:
The Revenue contended that the ITAT erred in allowing additional depreciation under Section 32(1)(iia) since the machinery was purchased before 31st March 2005 but installed after this date. They argued that the twin conditions of acquisition and installation in the same year must be fulfilled for claiming additional depreciation. The Revenue emphasized a strict and literal interpretation of the statute, asserting that equitable considerations are irrelevant in tax law interpretation.

Assessee's Argument:
The assessee argued that the issue is covered by Supreme Court and Calcutta High Court decisions, emphasizing the purpose and object of Section 32(1)(iia) to promote the manufacturing sector. They contended that a purposive construction should be applied to avoid frustrating the legislative intent. The assessee highlighted that damaged parts were replaced, causing installation delay, and strict interpretation would deny additional depreciation, defeating the provision's purpose.

Court's Analysis:
The court considered whether the assessee is entitled to additional depreciation on machinery purchased before 31st March 2005 but installed after this date. The court noted the provision's purpose to boost the manufacturing sector by allowing additional depreciation on new machinery. The court reviewed several Supreme Court decisions emphasizing reasonable and purposive construction of statutes to avoid absurd results and achieve legislative intent. The court concluded that a strict and literal interpretation would lead to an unjust result, denying additional depreciation and frustrating the provision's purpose. The court upheld the ITAT's decision, allowing additional depreciation at 20% on the machinery installed after 31st March 2005.

Conclusion:
The court dismissed the Revenue's appeal, affirming that the ITAT correctly allowed the additional depreciation claim under Section 32(1)(iia). The question of law was answered in favor of the assessee and against the Revenue.