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TMI Blog2022 (4) TMI 582X X X X Extracts X X X X X X X X Extracts X X X X ..... ates that, in the case of any new machinery or plant (other than ships and aircraft), which has been acquired and installed after the 31st day of March, 2002, by an assessee engaged in the business of manufacture or production of any article or thing, a further sum equal to 15% of the actual cost of such machinery or plant shall be allowed as deduction under clause (ii). Further, there are provisos to this Clause ii , but they are not relevant for the instant issue. So, the fact remains as per this proviso the assessee is only required to acquire and install the machines, which in this case has been rightly done so by the assessee and is duly supported by the certificate of the Chartered Engineer as well as of Chartered Accountant which proves that the assessee has purchased the machines and installed the same and this resulted in increase in installed capacity of production of the assessee and, therefore, assessee is eligible for claiming the additional depreciation. We, therefore, under the given facts and circumstances of the case, are of the considered view that the assessee has rightly claimed the additional depreciation - Decided in favour of assessee. - I.T.A. No. 04/K ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Revenue and proceed to hear the case on merits. 4. Brief facts as per the records are that the assessee is a limited company engaged in the business of manufacturing of electrical pumps, other equipments etc. Return of income for AY 2005-06 filed on 31.10.2005 declaring total income of ₹ 1,82,37,158/-. The return was duly processed u/s 143(1) of the Act. Thereafter, the case was re-opened and assessment u/s 147 r.w.s. 143(3) of the Act was made, after making addition for disallowance of warranty expenses at ₹ 85,81,254/- and disallowance of additional depreciation of ₹ 66,81,900/-. Income assessed at ₹ 3,35,00,312/-. 5. Aggrieved, the assessee preferred appeal before the ld. CIT(A) and partly succeeded as the ld. CIT(A) dismissed the assessee s grounds challenged against the re-assessment proceedings but deleted the disallowance made for warranty expenses and additional depreciation. 6. Now, the Revenue is in appeal before this Tribunal against the addition deleted and the assessee has raised Cross Objection challenging the re-assessment proceedings. 7. As per the merits of the case are concerned, ld. D/R vehemently argued supporting the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ms of ₹ 1,60,88,554/- and ₹ 3,62,820/- respectively which were held to be not allowable as deduction. The ld. AO observed that the said provision for warranty had not been made by the assessee on a scientific basis and hence, disallowed the same in this assessment year also following the action taken in assessment years 2007-08 and 2008-09. The Ld. CIT(A) went through the books of accounts and the audited financial statements wherein the break up for provision for warranty has been mentioned by the assessee by way of notes on account as under: Opening balance as on 01.04.2008 ₹ 74,76,910/- Add: Addition during the year ₹ 52,15,220/- Total ₹ 1,26,92,130/- Less: Utilized/ reversed during the year ₹ 82,79,110/- Closing Balance as worked out for provision For warranty as on 31.03.2009 ₹ 44,13,020/- It has also been mentioned in the audited financial statement notes on accounts vide Para 9 that provision for warranty has been recognized based on estimate warranty claims on products sold during the last three financial years . The Ld. CIT(A) observed that the provision has been made during the year under appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business is fully allowable as business expenditure. Accordingly, we uphold the order of Ld. CIT(A). Hence, we dismiss both the appeals of revenue . We find that the provision has been made during this year based on the transaction carried out in the last preceding three years on a scientific basis and this method has been consistently followed by the assessee in the past. In view of these facts and findings and respectfully following the decision of this Tribunal in the assessee s own case for the earlier years (supra), we hold that the Ld. CIT(A) had rightly deleted this disallowance and granted relief to the assessee. Accordingly ground nos. 3 4 raised by the revenue are dismissed. 6. The next issue to be decided in this appeal is as to whether the Ld. CIT(A) was justified in deleting the disallowance made in the sum of ₹ 18,93,809/- towards provision for non-moving inventory in the facts and circumstances of the case. 6.1. The brief facts of this issue is that the assessee company in this year made a provision of ₹ 18,93,809/- towards provision for non-moving inventory and claimed the same as deduction in the return of income. The ld. AO observed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4,60,218/- being the amount of reduction in the provision for non-moving inventory of raw materials and components which is meant for use in manufacturing, was reduced from the manufacturing and operating expenses as per Schedule 10 of the audited accounts owing to the same and identical procedure followed from year to year and consequently the income enhanced by that amount of ₹ 54,60,218/-. But the said sum of ₹ 54,60,218/- being a negative figure of the provision, is ultimately deductible from the total income. 6.2. It was further stated that in the return and computation of total income for the assessment year 2008-09, the total excess provision of ₹ 39,75,753/- being a positive figure, was added back and offered for taxation as the closing balance of such provision as on 31.03.2008 was higher than the opening balance of such provision as on 01.04.2007. Conversely in assessment year 2009-10 the entire amount of reduction in the provision of ₹ 73,54,027/-, being a negative figure, was claimed by the assessee as deduction in its return for assessment year 2009- 10. 6.3. It was further pointed out that the ld. AO did not spot even after making t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ritten submission has contended that the said sum of ₹ 18,93,809/- has already been considered in the computation of income and has already been disallowed by the appellant itself in the computation and hence it has been contended by the appellant that the AO has wrongly made such addition. In such respect, the appellant has submitted the working of the provision / reversal which is as follows: (i) (-) ₹ 54,60,218 Provision for non-moving inventory (raw material and component) (ii) (-) ₹ 12,72,750 - Provision for non-moving inventory (finished goods) (iii) (-) ₹ 6.21,059/- Provision for non-moving inventory (store and spare parts) Total (-) ₹ 73,54,027/- The appellant has contended that the AO has added a sum of ₹ 12,72,750/- ₹ 6,21,059/- aggregating to ₹ 18,93,809/- without appreciating the fact that the said sums are actually reversal on account of non-moving inventory and actually it is a reduction only. Further, the appellant has also submitted a working of the provision which stands at ₹ 39,75,753/- which has already been added back in the computation of income . In the background of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ized statement of the new addition of plant machinery and electrical installation. We, further, notice that ld. AO has allowed the claim of normal depreciation of such items purchased during the year but denied the claim of additional depreciation mainly by observing that during the year assessee s production has not increased as claimed by the assessee. Before ld. CIT(A), the assessee provided the details and after going through the same, the ld. CIT(A) allowed the claim of the assessee observing as follows: The discussion in the impugned assessment order is itself sufficient to examine to decide the issue. The dispute is only on interpretation of by way of increase in installed capacity by not less than ten percent in the Section 32(1)(iia). The phrase is very simple and clear. The AO's arguments for disallowance deviate from the very simple and clear meaning of the phrase. The AO's various arguments, and my remarks thereon, are: AO's arguments My Observations/Remarks That the aggregate of increase in installed capacity for all product-types is only at 11% Even by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies that machines are purchased during November, 2004 to January, 2005. In this certificate given by the Govt. approved valuer Chartered Engineer, complete details of new machines namely Hydraulic Press Brake, CNC Turret Punch Press is appearing. These machines are purchased from some Bhartia Industries Limited and with installation of these machines, it is certified that installed capacity for manufacturing the boxes will increase to 2,70,000 nos. per annum from the present capacity of 75,000 per annum. It is not in dispute that the machines have been purchased and installed and, therefore, these machines certainly have increased production capacity of the assessee. For claiming the additional depreciation, the assessee has to prove that the new machines have been purchased, put to use and the capacity of production is increased. The actual production is not at all mandatory for claiming the additional depreciation. Provisions of Section 32(1)(iia) of the Act states that, in the case of any new machinery or plant (other than ships and aircraft), which has been acquired and installed after the 31st day of March, 2002, by an assessee engaged in the business of manufacture or produ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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