2021 (11) TMI 439 - HC - Income Tax

Depreciation on machinery and equipments - Depreciation @ 25% or 100% - pollution control equipments used aqua culture purposes for providing healthy growth of prawn restricting pollution etc.-HELD THAT - No evidence was led by the Assessee and no material was placed before the AO to indicate that it was using a specially designed natural pond for rearing prawns. Therefore, the Court is not persuaded that on the basis of the above decision Victory Aqua Farm Ltd. 2015 (9) TMI 758 - SUPREME COURT , the conclusion reached on factual basis by the AO and CIT(A) concurrently and latter affirmed by the ITAT is erroneous. Even before this Court, learned counsel for the Assessee was unable to demonstrate why the depreciation on the equipments in question should be allowed @ 100% and in respect of approach road, drainage, bore wells, reservoir etc. it should be 25% and not 100%. Question II framed by this Court is answered in the affirmative i.e. in favour of the Revenue and against the Assessee - As held that the ITAT was right in restricting the claim for depreciation on the equipments in question @ 25% as against 100% as claimed by the Assessee. Road, drainage, bore-well, reservoir etc on which claim for depreciation made @ 25% holding as per schedule holding them as plant etc. can it be reduced to 10% - Question III is again answered in favour of the Revenue and against the Assessee by holding that the claim for depreciation @25% on approach road, drainage, bore wells and reservoirs etc. is not admissible and that the ITAT has rightly limited it to 10%.

Summary

Issues:
1. Depreciation rate on machinery and equipment for pollution control in aquaculture.
2. Depreciation rate on approach road, drainage, bore-well, reservoirs, etc. in aquaculture.

Analysis:
1. The judgment involved questions of law regarding depreciation rates on machinery, equipment, and infrastructure used in aquaculture for pollution control. The appeal arose from an order of the Income Tax Appellate Tribunal (ITAT) dismissing the Assessee's appeal for the Assessment Years (AYs) 1994-95 and 1995-96. The Assessee, engaged in prawn cultivation, claimed 100% depreciation on certain plant and machinery, and 25% depreciation on ponds and reservoirs treated as plants. The Assessing Officer (AO) disallowed the 100% claim on machinery and reduced it to 25%, citing lack of evidence that the equipment qualified as pollution control devices. The AO also limited the depreciation rate on infrastructure like approach roads to 10% instead of the claimed 25%.

2. The Assessee failed to provide evidence supporting the depreciation claims during assessment proceedings. The AO's decision was upheld by the Commissioner of Income Tax (Appeals) and the ITAT. The Assessee relied on a Supreme Court decision related to natural ponds for prawn rearing, but the court found no evidence of specially designed ponds in the present case. The court affirmed the lower authorities' decision, stating that the Assessee failed to demonstrate why the depreciation rates should be higher. Consequently, the court ruled in favor of the Revenue, upholding the ITAT's decision to restrict depreciation rates to 25% for machinery and equipment and 10% for infrastructure like approach roads.

3. The court answered the framed questions in favor of the Revenue and against the Assessee, dismissing the appeals without costs. The judgment emphasized the importance of providing evidence to support depreciation claims and highlighted the need for clear documentation to justify higher depreciation rates. Overall, the judgment underscored the significance of factual evidence and compliance with tax rules in determining depreciation rates for assets used in aquaculture activities.