2019 (11) TMI 208 - AT - Income Tax

Additional depreciation claimed on new Plant and Machinery in accordance with the provisions of Section 32(i)(iia) - HELD THAT - No merit in the arguments advanced by the ld. counsel. The provisions of section 32(1)(iia) clearly mention that in the case of any new machinery or plant which has been acquired and installed after the 31st day of March, 2005 by an assessee engaged in the business of manufacture or production of any article or thing, a further sum equal to 20% of the actual cost of such machinery or plant shall be allowed as deduction under clause (ii). Thus, an analysis of the aforementioned provision shows that the assessee has to by new machinery or plant and not for replacement of any part of the plant or machinery. A perusal of the list of assets on which additional depreciation has been denied by the Assessing Officer shows that these are mainly replacement of various plant machinery earlier in use. We, therefore, do not find any infirmity in the order of the CIT(A) rejecting the claim of additional depreciation on the ground that the various items are not new machinery which has been purchased by the assessee, but, it is in the nature of repair and maintenance of the existing machinery. The grounds raised by the assessee on this issue are accordingly dismissed. Disallowance on account of reclassification of certain assets as Building other than Residential - eligible for depreciation at 10%, which were originally classified by the Appellant as Plant and Machinery , eligible for depreciation at 15% - HELD THAT - No infirmity in the order of the CIT(A) on this issue. The coal shed and GI sheets, in our opinion, cannot be considered as plant machinery when the assessee is engaged in manufacture of cement. We find merit in the logic given by the CIT(A) that the godowns, warehouses and other buildings which are utilized in an ordinary manner even for housing plant or machinery would not become plant or machinery by itself. Further, he has also given a finding that the GI sheets are such material which are utilized for the plant and by its nature this cannot be characterized as plant or machinery. Under these circumstances, we uphold the order of the CIT(A) and dismiss the grounds raised by the assessee on this issue. Disallowance of net of depreciation on account of capitalization of 25% of Technical Know-how Fee incurred by the Appellant in the subject year - addition on the ground that such expenses have resulted in benefits of enduring nature to the Appellant and thereby constitutes a capital asset - HELD THAT - We hold that the ld.CIT(A) is not justified in upholding the action of the Assessing Officer in treating 25% of the technical know-how fees as capital in nature. We, therefore, set aside the order of the CIT(A) on this issue and direct the Assessing Officer to treat the entire amount as revenue in nature. The grounds raised by the assessee on this issue are accordingly allowed. See HERO HONDA MOTORS LIMITED 2015 (2) TMI 368 - DELHI HIGH COURT

Summary

Issues Involved:

1. Disallowance of additional depreciation on new Plant and Machinery.
2. Reclassification of certain assets as 'Building other than Residential' instead of 'Plant and Machinery'.
3. Capitalization of Technical Know-how Fee as capital expenditure.
4. Levy of interest under Section 234A.
5. Premature nature of a specific ground of appeal.

Detailed Analysis:

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

The primary issue here was whether the assessee was entitled to additional depreciation under Section 32(1)(iia) of the Income Tax Act for certain items claimed as part of new Plant and Machinery. The assessee argued that these items were integral to the Plant and Machinery and essential for smooth operations. However, the Assessing Officer disallowed the claim, stating that the items were replacements rather than new acquisitions. The CIT(A) upheld this decision, noting that the items were in the nature of repair and maintenance rather than new machinery. The Tribunal agreed with the CIT(A), emphasizing that Section 32(1)(iia) requires the acquisition and installation of new machinery, not the replacement of existing parts. Thus, the disallowance of additional depreciation was upheld.

2. Reclassification of Certain Assets as 'Building other than Residential':

The assessee claimed a higher depreciation rate on coal sheds and GI sheets, classifying them as 'Plant and Machinery'. The Assessing Officer reclassified these as 'Building other than Residential', eligible for a lower depreciation rate. The CIT(A) supported this reclassification, arguing that coal sheds and GI sheets used for roofing cannot be considered Plant and Machinery. The Tribunal upheld this view, stating that buildings and sheds used in ordinary business operations do not qualify as Plant and Machinery. Thus, the higher depreciation claim was disallowed.

3. Capitalization of Technical Know-how Fee as Capital Expenditure:

The assessee incurred expenses for technical know-how from a foreign company and claimed it as revenue expenditure. The Assessing Officer treated 25% of this fee as capital expenditure, arguing that it provided enduring benefits. The CIT(A) upheld this decision. However, the Tribunal found merit in the assessee's argument that the know-how was for improving the manufacturing process and did not result in acquiring a new asset. Citing various judicial precedents, the Tribunal concluded that the technical know-how fee should be treated as revenue expenditure. Thus, the disallowance was overturned, and the entire amount was allowed as revenue expenditure.

4. Levy of Interest under Section 234A:

The assessee contested the levy of interest under Section 234A. The Tribunal dismissed this ground, stating that the levy of interest is mandatory and consequential.

5. Premature Nature of a Specific Ground of Appeal:

The Tribunal dismissed a ground of appeal as premature, indicating that it was not ripe for adjudication at this stage.

Conclusion:

The Tribunal partly allowed the appeal, upholding the disallowance of additional depreciation and reclassification of assets but overturning the capitalization of the technical know-how fee. The grounds related to interest under Section 234A and the premature nature of a specific ground were dismissed.