2018 (5) TMI 626 - AT - Income Tax

Additional depreciation u/s. 32(1)(iia) on items installed in the various outlets - proof of manufacturing activities - Held that - As obvious from the financial statement that about 91% of the Revenue is collected by the assessee from manufacturing activities and 9% thereof is earned from restaurant. Also, the equipments or plants are installed at those premises. AO has not brought any material on record to show that those plants are installed at any office premises or any residential accommodation in the nature of guest house. It is also a matter of common knowledge that Air Conditioners are required at manufacturing outlets to keep the sweets also in proper condition over and above refrigerators. Electricity distribution penal also cannot be said to be installed at residential place. No material is brought on record by the AO that the outlets do not manufacture sweets. It is of paramount importance that the AO has granted normal depreciation on all those items holding them to be plant and machinery. Assessee has satisfied the conditions for additional depreciation. No justification to interfere with the order of the CIT(A) for allowing additional depreciation, as claimed by the assessee. - Decided in favour of assessee.

Issues Involved:

1. Eligibility for additional depreciation under Section 32(1)(iia) of the IT Act.
2. Classification of assets as plant and machinery.
3. Installation of assets in factory premises versus office/residential premises.

Issue-wise Detailed Analysis:

1. Eligibility for Additional Depreciation Under Section 32(1)(iia) of the IT Act:

The Revenue challenged the deletion of disallowance of additional depreciation worth ?72,90,238/- claimed by the assessee under Section 32(1)(iia) of the IT Act. The Assessing Officer (AO) disallowed the claim on the grounds that the assessee was not engaged in manufacturing activities and that the products were not excisable commodities. The AO also cited the proviso to Section 32(1)(iia), which disallows additional depreciation on machinery or plant installed in office premises or residential accommodations.

The CIT(A) overturned the AO's decision, stating that the assessee is engaged in the business of manufacturing sweets and namkeens, which qualifies for additional depreciation. The CIT(A) relied on various case laws and the definition of 'manufacture' under Section 2(29BA) of the IT Act. The CIT(A) concluded that the assessee's activities met the criteria for manufacturing, making it eligible for additional depreciation.

2. Classification of Assets as Plant and Machinery:

The AO argued that many of the assets on which additional depreciation was claimed did not qualify as plant and machinery. The AO listed items such as air conditioners, inkjet printers, and distribution panels, asserting that these were office appliances or furniture and fixtures rather than plant and machinery used in manufacturing.

The CIT(A) disagreed, noting that additional depreciation is allowable for new machinery or plant acquired and installed after March 31, 2005, provided they are used for manufacturing. The CIT(A) emphasized that the assessee's business involves the production of food items, which qualifies as manufacturing under the IT Act. The CIT(A) also referred to the Supreme Court's decision in Aspinwall & Co. Ltd. v. CIT, which held that transforming raw materials into a new product constitutes manufacturing.

3. Installation of Assets in Factory Premises Versus Office/Residential Premises:

The AO contended that the assets were not installed in the factory but in office or residential premises, which disqualifies them from additional depreciation under the proviso to Section 32(1)(iia). The AO provided a list of items and their installation locations to support this claim.

The CIT(A) found that the assessee's outlets where the assets were installed are involved in manufacturing activities. The CIT(A) noted that the AO did not provide evidence to show that the assets were installed in office or residential premises. The CIT(A) also pointed out that the AO allowed normal depreciation on these items, indicating they were considered plant and machinery.

The Tribunal upheld the CIT(A)'s decision, stating that the assessee's activities qualify as manufacturing and the assets were used in the manufacturing process. The Tribunal noted that the AO failed to provide evidence that the assets were installed in non-qualifying premises. The Tribunal concluded that the assessee met the conditions for additional depreciation and dismissed the Revenue's appeal.

Conclusion:

The Tribunal affirmed the CIT(A)'s order, allowing the assessee's claim for additional depreciation under Section 32(1)(iia) of the IT Act. The Tribunal agreed that the assessee is engaged in manufacturing activities, the assets qualify as plant and machinery, and there was no evidence to show the assets were installed in disqualifying premises. The Revenue's appeal was dismissed.

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