2018 (9) TMI 771 - AT - Income Tax

Additional depreciation on boiler - assessee claimed higher depreciation @80% on boilers treating the same as Energy Savings Devices - Held that - Upon due consideration, we find that the relief has been provided to the assessee by Ld. first appellate authority by relying upon the decision of Hon ble Madhya Pradesh High Court rendered in DCIT Vs Vippy Solvex Products Limited 2007 (3) TMI 746 - MADHYA PRADESH HIGH COURT . The cited case, in turn, places reliance on the decision of Hon ble Kerala High Court rendered in CIT Vs. Cochin Refineries Limited 1987 (1) TMI 9 - KERALA HIGH COURT . In both the cases, Hon ble High Courts have allowed the claim of the assessee by observing that additional plant & machinery had no separate existence and could not be utilized for any other purpose and formed integral component of the boiler and therefore, eligible for higher depreciation. Similar observation has been made by Ld. First appellate authority while arriving at the conclusion. Before us, the revenue has neither controverted the factual findings nor able to bring on record any contrary judgment to defend its viewpoint. CIT(A), in our opinion, has clinched the issue in right / proper perspective and provided relief to the assessee with due application of mind. Therefore, we find no reason to interfere with the same. - Decided against revenue

Summary

Issues:
- Disallowance of higher depreciation on boilers and ancillary equipment
- Interpretation of depreciation rates under Appendix-I
- Applicability of relevant case laws on depreciation claims

Issue 1: Disallowance of higher depreciation on boilers and ancillary equipment
The dispute arose when the assessee claimed higher depreciation on boilers treating them as Energy Savings Devices. The Assessing Officer disallowed the higher depreciation on additional expenditure, amounting to &8377; 39.52 Lacs, as it was not available for specific plant and equipment as prescribed in Appendix-I. The assessee was allowed normal depreciation at 15% against these additional costs. The CIT(A) decided in favor of the assessee, stating that the ancillary equipment and accessories were integral to the specialized boiler and facilitated its efficient functioning, forming a common plant. Therefore, the depreciation at the rate of 80% on these items, included in the cost of the boiler, was justified. The addition of &8377; 39,52,136 on account of depreciation on the boiler was deleted based on this reasoning.

Issue 2: Interpretation of depreciation rates under Appendix-I
The Assessing Officer relied on the decision of the Madras High Court in a similar case to support disallowing higher depreciation on ancillary equipment and accessories. However, the CIT(A) observed that the cost of installation of these items, including civil work, was rightly capitalized with the cost of the boiler, allowing depreciation at the rate of 80%. The CIT(A) also referenced a case where the Tribunal extended the benefit of 100% depreciation on components integral to the boiler, supporting the assessee's claim for higher depreciation. The CIT(A) concluded that the ancillary equipment and accessories were closely linked to the specialized boiler, justifying the higher depreciation rate.

Issue 3: Applicability of relevant case laws on depreciation claims
The ITAT Mumbai upheld the CIT(A)'s decision, citing relevant case laws where High Courts allowed claims for higher depreciation on integral components of machinery. The ITAT noted that the revenue failed to provide contrary judgments or challenge the factual findings, leading to the dismissal of the revenue's appeal. The ITAT found that the CIT(A) correctly applied the law and provided relief to the assessee based on established legal principles. Consequently, the ITAT upheld the decision of the CIT(A) and dismissed the revenue's appeal on the matter.