2019 (7) TMI 856 - AT - Income Tax

Disallowance of additional depreciation - items of the assets installed at retail outlets(sweet shops) - use of machinery in the actual process of manufacture of food products/sweets/namkeens - whether additional depreciation is allowable at the rate of 20% of the actual cost of such plant and machinery - HELD THAT - Additional depreciation cannot be denied to the assessee for installing the items of the assets at retail outlets, because retail outlets are not either office promises or residential accommodation in the nature of the guesthouse as per the proviso to section 32(1)(iia) excluding the additional depreciation. In the year under consideration, also the items of fixed assets have been installed at various retail outlets and there is no dispute between the assessee and the Revenue on this factual aspect. Thus following the finding of the Tribunal in own case 2018 (5) TMI 626 - ITAT DELHI , the additional depreciation in the year under consideration also cannot be disallowed on the ground that those items were not installed at the factory premises of the assessee. There is no doubt that TOP sealer are used for sealing containers for supply of food to the customers, which is part of the process of manufacturing and delivery of the products of the assessee and thus additional depreciation on the same is allowable. The Canopy of Generator is part of the entire plant and machinery engaged for manufacturing. Similarly, there is no doubt that the items Mixi, Lassi machine, Grinder Machine, Charcoal Griller, Table top burner, Gas Plant SS Double Body Tandoor, SS Kadahi Table, SS Selves Barcket Big and small are the items of assets engaged in manufacturing of food products/sweets/namkins etc. The trollys are also used for transferring of raw materials or finished products in the process of manufacturing of food products carried out by the assessee at the retail outlets. We do not find the action of the Ld. CIT(A) in upholding the disallowance of additional depreciation as justified and accordingly, we reject the contention of the CIT(A) in upholding the disallowance. - Decided in favour of assessee.

Summary

Issues Involved:
1. Disallowance of additional depreciation on new plant and machinery.
2. Determination of whether the machinery was involved in the actual process of manufacturing food products/sweets/namkeens.
3. Installation of machinery at locations other than the factory premises.

Detailed Analysis:

1. Disallowance of Additional Depreciation on New Plant and Machinery:

The appellant contested the disallowance of additional depreciation claimed under section 32(1)(iia) of the Income-tax Act, 1961, on certain fixed assets. The Ld. CIT(A) upheld the disallowance on the grounds that the assets were not installed at the factory premises and were not involved in the actual manufacturing process. The appellant argued that similar depreciation claims were allowed in the previous assessment year (AY 2010-11) by the Tribunal, which found the appellant eligible for additional depreciation on plant and machinery.

2. Determination of Whether the Machinery was Involved in the Actual Process of Manufacturing Food Products/Sweets/Namkeens:

The Tribunal in the previous assessment year (AY 2010-11) had held that the appellant was engaged in manufacturing activities and thus eligible for additional depreciation. The Tribunal noted that the appellant's business involved manufacturing sweets and other food products at various retail outlets, which constituted 91% of its revenue. It was established that items such as air conditioners, electricity distribution panels, and other machinery were integral to the manufacturing process. The Tribunal concluded that the machinery used at retail outlets was part of the manufacturing process and thus qualified for additional depreciation.

3. Installation of Machinery at Locations Other Than the Factory Premises:

The Ld. CIT(A) disallowed the additional depreciation on the basis that the machinery was not installed at the factory premises but at retail outlets. The Tribunal, however, found that retail outlets could not be classified as office premises or residential accommodations, which are excluded from additional depreciation under the proviso to section 32(1)(iia). The Tribunal in the previous year had allowed additional depreciation for machinery installed at retail outlets, recognizing them as part of the manufacturing setup. The Tribunal reiterated that the machinery installed at retail outlets, such as "TOP sealers," Mixi, Lassi machine, Grinder machine, and others, were used in the manufacturing process and thus eligible for additional depreciation.

Conclusion:

The Tribunal allowed the appellant's claim for additional depreciation for the assessment year 2011-12, following its previous decision for AY 2010-11. The Tribunal found that the machinery installed at retail outlets was part of the manufacturing process, and such outlets did not fall under the exclusions specified in the proviso to section 32(1)(iia). Consequently, the grounds of the appeal of the assessee were allowed, and the disallowance of additional depreciation by the Ld. CIT(A) was overturned. The appeal of the assessee was allowed in full, and the order was pronounced in the open court on June 6, 2019.