2021 (7) TMI 717 - AT - Income Tax

Additional depreciation claimed on new Plant and Machinery u/s 32(i)(iia) - AO'S view that additional depreciation was allowable for acquisition of new Plant and Machinery and not on replacement of parts of Plant and Machinery already in existence - HELD THAT - As decided against assessee in own case 2019 (11) TMI 208 - ITAT DELHI as held no 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 of depreciation on account of re-classification of assets as 'building other than residential', eligible for depreciation @ 10%, which was originally classified by the assessee as 'Plant and Machinery', eligible for depreciation at 15% - HELD THAT - As decided against assessee in own case 2019 (11) TMI 208 - ITAT DELHI no 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. Addition of net of depreciation on account of capitalization of 25% of Technical Know-how fee - 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.

Issues Involved:
1. Disallowance of additional depreciation on new Plant and Machinery.
2. Disallowance of depreciation due to reclassification of assets.
3. Capitalization of Technical Know-how Fee.
4. Initiation of penalty proceedings under Section 271(i)(c) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Disallowance of Additional Depreciation on New Plant and Machinery:
The assessee challenged the disallowance of additional depreciation amounting to ?9,17,283 on new Plant and Machinery under Section 32(i)(iia) of the Income Tax Act. The Assessing Officer (AO) disallowed the claim, stating that additional depreciation is allowable only for the acquisition of new Plant and Machinery and not for the replacement of parts of existing machinery. The Dispute Resolution Panel (DRP) upheld this view. The Tribunal referred to its earlier decision in the assessee's case for the Assessment Year 2011-12, where it was held that the provisions of Section 32(1)(iia) clearly stipulate that additional depreciation is allowed only for new machinery or plant and not for replacement parts. Consequently, the Tribunal dismissed the assessee's grounds on this issue.

2. Disallowance of Depreciation Due to Reclassification of Assets:
The assessee contested the disallowance of depreciation amounting to ?10,07,066 due to the reclassification of certain assets from 'Plant and Machinery' (eligible for 15% depreciation) to 'Building other than Residential' (eligible for 10% depreciation). The Tribunal noted that this issue was also covered against the assessee in the previous year's order. The Tribunal upheld the AO's and CIT(A)'s findings that assets like coal sheds and GI sheets could not be classified as Plant and Machinery when used in the manufacture of cement, as they were more appropriately categorized as buildings. Thus, the Tribunal dismissed the assessee's grounds on this issue.

3. Capitalization of Technical Know-how Fee:
The assessee challenged the addition of ?2,99,88,750 on account of the capitalization of 25% of the Technical Know-how Fee. The AO had treated 25% of the technical know-how expenses as capital expenditure, resulting in a reduction of the depreciation claim. The Tribunal referred to its decision in the assessee's case for the Assessment Year 2011-12, where it was held that the technical know-how fees paid were for the purpose of running the business effectively and profitably, and not for acquiring any new capital asset. The Tribunal cited various judicial precedents, including decisions from the Hon'ble Delhi High Court and Hon'ble Allahabad High Court, which supported the view that such expenses should be treated as revenue in nature. Consequently, the Tribunal allowed the assessee's grounds on this issue.

4. Initiation of Penalty Proceedings:
The Tribunal did not specifically address the initiation of penalty proceedings under Section 271(i)(c) of the Income Tax Act in the detailed analysis, implying that the primary focus was on the substantive issues of depreciation and capitalization.

Conclusion:
The Tribunal's decision resulted in the partial allowance of the assessee's appeal. The grounds related to additional depreciation and reclassification of assets were dismissed, while the ground related to the capitalization of the Technical Know-how Fee was allowed. The decision was announced on the conclusion of the virtual hearing on 7th July 2021.

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