2022 (8) TMI 1028 - AT - Income Tax

Carry forward of additional depreciation - Asset put to use for less than 180 days - whether additional depreciation if claimed @ 10% in one year, being the plant and machinery installed and put to use for the purposes of business for a period of less than 180 days, the balance 10% of the additional depreciation can be claimed in the succeeding year or not? - HELD THAT - As decided in Cosmo Films Ltd. 2012 (9) TMI 281 - ITAT DELHI assessee deserves to get the benefit in full when there is no restriction in the statute to deny the benefit of balance on 50% when the new plant and machinery were acquired and use for less than 180 days. One time benefit extended to assessee has been earned in the year of acquisition of new plant and machinery. It has been calculated @ 15% but restricted to 50% only on account of usage of these plant machinery in the year of acquisition. In section 32(l)(iia), the expression used is shall be allowed . Thus, the assessee had earned the benefit as soon as he had purchased the new plant and machinery in full but it is restricted to 50% in that particular year on account of period of usages. Such restrictions cannot divest the statutory right. Law does not prohibit that balance 50% will not be allowed in succeeding year. The extra depreciation allowable u/s 32(l)(iia) in an extra incentive which has been earned and calculated in the year of acquisition but restricted for that year to 50% on account of usage. The so earned incentive must be made available in the subsequent year. The overall deduction of depreciation u/s 32 shall definitely not exceed the total cost of plant and machinery. In CIT vs. Rittal India (P) Ltd 2016 (1) TMI 81 - KARNATAKA HIGH COURT held that benefit which is to be granted is 20% additional depreciation. By virtue of the proviso referred to above, only 10% can be claimed in one year, if plant and machinery is put to use for less than 180 days in the said financial year. This would necessarily mean that the balance 10% additional deduction can be availed in the subsequent assessment year, otherwise the very purpose of insertion of Clause (iia) would be defeated because it provides for 20% deduction which shall be allowed. CIT(A) has followed the decisions (supra) in coming to the conclusion that the impugned disallowance made by the Ld. AO is unsustainable. We, therefore endorse the view of the Ld. CIT(A). Accordingly, the appeal of the Revenue is dismissed.

Summary

Issues Involved:
1. Whether additional depreciation claimed at 10% in one year, for plant and machinery used for less than 180 days, can be claimed in the succeeding year.

Issue-Wise Detailed Analysis:

1. Additional Depreciation Claim:
The primary issue in this case is whether an assessee can claim the balance of additional depreciation in the succeeding year if the plant and machinery were used for less than 180 days in the previous year. The assessee, a company engaged in manufacturing sweets, namkeens, and running restaurants, had claimed additional depreciation of Rs. 1,46,75,508/- at 10% for the AY 2015-16 on plant and machinery installed during the previous FY 2013-14. The AO disallowed this claim, arguing that there was no provision in the Act, specifically under Section 32(1)(iia), allowing the carry forward of additional depreciation to the next year.

2. CIT(A) Decision:
The CIT(A) examined the issue and concluded that the assessee was entitled to claim the balance additional depreciation in the succeeding year. The CIT(A) relied on various judicial precedents, including decisions from the High Courts of Madras and Karnataka, and the Delhi Tribunal, which supported the view that additional depreciation could be claimed in the subsequent year if the plant and machinery were used for less than 180 days in the year of acquisition.

3. Revenue's Appeal:
The Revenue appealed the CIT(A)'s decision, contending that the CIT(A) erred in allowing the carry forward of additional depreciation. The Revenue argued that the second proviso to Section 32(1)(ii) restricts such allowances and does not permit the carry forward of additional depreciation to subsequent years.

4. Tribunal's Analysis:
The Tribunal carefully considered the submissions and the legal position. It noted that the additional depreciation of 20% is allowable under Section 32(1)(iia) for new plant and machinery acquired and installed. If the machinery is used for less than 180 days, only 50% of the additional depreciation is allowed in that year, and the balance can be claimed in the next year. The Tribunal referred to several judicial precedents, including the Delhi Tribunal's decision in Cosmo Films Ltd., the Karnataka High Court's decision in Rittal India (P) Ltd., and the Madras High Court's decision in CIT vs. Shri T.P. Textiles (P) Ltd., which supported the assessee's claim for the balance additional depreciation in the succeeding year.

5. Tribunal's Conclusion:
The Tribunal endorsed the CIT(A)'s view and concluded that the impugned disallowance by the AO was unsustainable. The Tribunal dismissed the Revenue's appeal, allowing the assessee to claim the balance additional depreciation of Rs. 1,46,75,508/- in the succeeding year.

Final Judgment:
The Revenue's appeal was dismissed, and the order pronounced in the open court on 23rd August 2022 confirmed that the assessee could claim the balance additional depreciation in the succeeding year.