M/s. IDMC Limited, Anand V. The ACIT.,Anand Circle, Anand

ITA 143/AHD/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 1839 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 2 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-04-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 30-03-2016
• Assessment Year: 2006-2007
• Appeal Filed On: 15-01-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NARENDRA SINGH
• Keywords: Depreciation; Additional depreciation
• Section: 32; 147

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD C BENCH (BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER & SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER) ITA. NO: 143/AHD/2013 (ASSESSMENT YEAR: 2006-07) M/S. IDMC LIMITED PLOT NO. 124, 128, GIDC ESTATE VITHAL UDHYOGNAGAR- 388121 TAL & DIST: ANAND V/S ASSISTANT COMMISSIONER OF INCOME TAX ANAND CIRCLE, ANAND (APPELLANT) (RESPONDENT) PAN: AAACI4631E APPELLANT BY : SHRI SANJAY R. SHAH, AR RESPONDENT BY : SHRI NARENDRA SINGH, SR. D.R . ( )/ ORDER DATE OF HEARING : 30 -03-201 6 DATE OF PRONOUNCEMENT : 05 -04-2016 PER N.K. BILLAIYA, ACCOUNTANT MEMBER: 1. THIS APPEAL BY THE ASSESSEE IS PREFERRED AGAINST TH E ORDER OF LD. CIT(A)-IV, BARODA DATED 23.11.2012 PERTAINING TO A. Y. 2006-07. ITA NO. 143/ AHD/2013 . A.Y. 2006-0 7 2 2. THE GRIEVANCE OF THE ASSESSEE IS TWOFOLD; FIRSTLY, THE ASSESSEE HAS CHALLENGED THE VALIDITY OF THE RE-ASSESSMENT PROCEE DINGS ON THE GROUND THAT THE A.O HAS INITIATED PROCEEDINGS U/S. 147 OF THE ACT WITHOUT JURISDICTION. SECONDLY, ON MERITS OF THE CA SE, THE ASSESSEE IS AGGRIEVED BY THE ORDER OF THE LD. CIT(A) BY WHICH D ISALLOWANCE OF THE CLAIM OF ADDITIONAL DEPRECIATION ON PLANT AND MACHI NERY HAS BEEN UPHELD. 3. AT THE VERY OUTSET, THE LD. COUNSEL FOR THE ASSESSE E STATED THAT HE IS NOT PRESSING THE GROUND RELATING TO THE CHALLENGE O F THE RE-OPENING OF THE ASSESSMENT. HENCE, THE SAME IS DISMISSED AS NOT PRESSED. 4. COMING TO THE MERITS OF THE CASE, DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS AND ON VERIFICATION OF THE CASE RECORDS , THE A.O FOUND THAT THE ASSESSEE HAD CLAIMED DEPRECIATION OF RS. 2,18,5 0,976/- WHICH WAS @ 20% U/S. 32(1)(IIA) OF THE ACT. ON FURTHER PROBE, THE A.O FOUND THAT THE MACHINERY WAS PURCHASED BEFORE 31.03.2005 BUT W AS INSTALLED ON 15.04.2005 I.E. AFTER 31.03.2005. THE A.O WAS OF TH E FIRM BELIEF THAT FOR THE PURPOSE OF CLAIMING THE ADDITIONAL DEPRECIA TION ON NEW PLANT AND MACHINERY @ 20% U/S. 32(1)(IIA) OF THE ACT, THE PLANT AND MACHINERY SHOULD HAVE BEEN ACQUIRED AND INSTALLED A FTER 31.03.2005. HOWEVER, IN THE PRESENT CASE, THE MACHINERY WAS ACQ UIRED BEFORE 31.03.2005 BUT WAS INSTALLED AFTER THAT DATE, THERE FORE THE ASSESSEE HAS FAILED TO FULFILL THE TWIN CONDITION AND ACCORD INGLY NOT ENTITLED FOR ADDITIONAL DEPRECIATION. 5. ASSESSEE WAS ASKED TO JUSTIFY ITS CLAIM OF ADDITION AL DEPRECIATION. IN ITS REPLY, THE ASSESSEE STATED THAT THE MACHINERIES REC EIVED WERE DAMAGED AND, THEREFORE, HAD TO BE RETURNED/REPLACED BY THE VENDOR ITA NO. 143/ AHD/2013 . A.Y. 2006-0 7 3 WHICH TOOK SOMETIME AND, THEREFORE, THE INSTALLATIO N TOOK PLACE AFTER 31.03.2005. IT WAS STRONGLY CONTENDED THAT THE CLAI M OF ADDITIONAL DEPRECIATION CANNOT BE DENIED. 6. HOWEVER, THE CLAIM OF THE ASSESSEE DID NOT FI ND FAVOUR WITH THE A.O WHO WAS OF THE OPINION THAT SINCE THE ASSESSEE HAS FAILED TO FULFILL THE TWIN CONDITION OF SECTION 32(1)(IIA) OF THE ACT . THE ASSESSEE IS NOT ENTITLED FOR ADDITIONAL DEPRECIATION. THE A.O DISAL LOWED THE ADDITIONAL DEPRECIATION AND MADE AN ADDITION OF RS. 2,18,50,97 6/-. 7. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CI T(A) BUT WITHOUT ANY SUCCESS. 8. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE R EITERATED WHAT HAS BEEN STATED BEFORE THE LOWER AUTHORITIES. IT IS THE SAY OF THE LD. COUNSEL THAT SINCE ADDITIONAL DEPRECIATION IS A BENEFIT CON FERRED UPON THE ASSESSEE BY THE STATUTE, IT DESERVES LIBERAL CONSTR UCTION AND THE BENEFITS CANNOT BE DENIED ON TECHNICAL REASONS. 9. PER CONTRA, THE LD. D.R. STRONGLY SUPPORTED THE FINDINGS OF THE REVENUE AUTHORITIES. IT IS THE SAY OF THE LD. D.R. THAT THE A.O HAS RIGHTLY DENIED THE CLAIM SINCE THE ASSESSEE HAS NOT FULFILLED THE MANDATORY CONDITIONS FOR THE CLAIM OF ADDITIONAL DE PRECIATION. 10. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULLY P ERUSED THE ORDERS OF THE AUTHORITIES BELOW. IN SO FAR AS THE F ACTUAL MATRIX IS CONCERNED, THERE IS NO DISPUTE. ADMITTEDLY, THE ASS ESSEE ACCEPTS THAT THE MACHINERY WAS ACQUIRED BEFORE 31.03.2005 BUT TH E SAME WAS INSTALLED AFTER 31.03.2005. ALL THAT HAS TO BE CONS IDERED BY US IS ITA NO. 143/ AHD/2013 . A.Y. 2006-0 7 4 WHETHER ACQUISITION AND INSTALLATION HAVE TO BE REA D TOGETHER FOR ENTERTAINING THE CLAIM OF ADDITIONAL DEPRECIATION. IT WOULD NOT BE OUT OF PLACE TO CONSIDER AT THIS STAGE, THE OBJECTS FOR IN SERTING SECTION 32(1)(IIA) OF THE ACT AND WHICH READS AS UNDER:- INCENTIVES FOR INVESTMENT AND INDUST RIAL GROWTH ADDITIONAL DEPRECIAT ION ON NEW MACHINERY AND PLANT UNDER THE EXISTING PROVISIONS CONTAINED IN SUB-SECT ION (1) OF SECTION 32 OF THE INCOME-TAX ACT, DEDUCTION IS ALLOWED IN RESPECT OF DEPRECIATIO N ON ASSETS OWNED WHOLLY OR PARTLY BY THE ASSESSEE AND USED FOR THE PURPOSES OF THE BUSIN ESS OR PROFESSION AT THE RATES PRESCRIBED UNDER THE INCOME-TAX RULES, 1962. WITH A VIEW TO GIVE A BOOST TO THE MANUFACTURING SE CTOR, IT IS PROPOSED TO ALLOW A DEDUCTION OF A FURTHER SUM EQUAL TO FIFTEEN PER CEN T OF THE ACTUAL COST OF SUCH MACHINERY OR PLANT ACQUIRED AND INSTALLED AFTER 31ST DAY OF M ARCH, 2002 (I) IN THE CASE OF A NEW INDUSTRIAL UNDERTAKING IN THE PREVIOUS YEAR IN WHICH IT BEGINS TO MANUFACTURE OR PRODUCE ANY ARTICLE OR THING; OR (II) IN THE CASE OF AN EXISTING INDUSTRIAL UNDERTAK ING IN THE PREVIOUS YEAR IN WHICH IT ACHIEVES SUBSTANTIAL EXPANSION BY WAY OF INCREASE I N THE INSTALLED CAPACITY BY NOT LESS THAN TWENTY FIVE PER CENT. SUCH FURTHER SUM SHALL BE DEDUCTIBLE FROM THE WRITT EN DOWN VALUE OF THE ASSET. 'INSTALLED CAPACITY' HAS BEEN DEFINED TO MEAN THE CAPACITY OF PRODUCTION AS EXISTING ON THE LAST DAY OF ANY PREVIOUS YEAR COMMENCING ON OR AFTER THE 31S T MARCH, 2002. THE PROPOSED AMENDMENT WILL TAKE EFFECT FROM 1ST AP RIL, 2003 AND WILL, ACCORDINGLY, APPLY IN RELATION TO THE ASSESSMENT YEAR 2003- 2004 AND SUBSEQUENT YEARS. 11. A PERUSAL OF THE AFOREMENTIONED OBJECT CLEARLY SHOW S THAT THE LEGISLATURE WANTED TO GIVE A BOOST TO THE MANUFACTU RING SECTOR. 12. THIS PROVISION WAS SUBSEQUENTLY AMENDED BY THE FINA NCE BILL, 2005 AND THE OBJECT FOR AMENDING THE PROVISIONS REA D AS UNDER:- ITA NO. 143/ AHD/2013 . A.Y. 2006-0 7 5 CLAUSE 8 SEEKS TO AMEND SECTION 32 OF THE INCOME-T AX ACT RELATING TO DEPRECIATION. UNDER THE EXISTING PROVISIONS CONTAINED IN CLAUSE ( IIA) OF SUB-SECTION(1) OF THE SAID SECTION, A FURTHER SUM EQUAL TO FIFTEEN PER CENT. O F THE ACTUAL COST OF ANY NEW MACHINERY OR PLANT (OTHER THAN SHIPS AND AIRCRAFT) ACQUIRED A ND INSTALLED AFTER THE 31 ST DAY OF MARCH, 2002 BY AN ASSESSEE ENGAGED IN THE BUSINESS OF MANUFACTURE OR PRODUCTION OF ANY ARTICLE OR THING, IS ALLOWED AS DEDUCTION AS FURTHE R DEPRECIATION. IT IS PROPOSED TO INCREASE THE SAID SUM OF FURTHER DEPRECIATION MENTIONED IN THE SAID CLAUSE (IIA) FROM FIFTEEN PER CENT TO TWENTY PERCEN T. IT IS FURTHER PROPOSED TO OMIT THE CONDITIONS RELATING TO INDUSTRIAL UNDERTAKING BEING NEW OR SUBSTANTIAL EXPANSION MENTIONED IN THE FIRST PROVISO TO THE AFORESAID CLA USE (IIA) AND ALSO TO OMIT THE REQUIREMENTS OF FURNISHING DETAILS OF MACHINERY OR PLANT AND REPORT OF AN ACCOUNTANT MENTIONED IN THE THIRD PROVISO OF THAT CLAUSE (IIA) . THIS AMENDMENT WILL TAKE EFFECT FROM 1 ST APRIL, 2006 AND WILL, ACCORDINGLY, APPLY IN RELATION TO ASSESSMENT YEAR 2006-07 AND SUBSEQUENT YEARS. 13. THUS, IT CAN BE SEEN THAT NOT ONLY THE RATE OF ADDI TIONAL DEPRECIATION WAS INCREASED FROM 15% TO 20% BUT ALSO THE RIGIDITY OF CONDITIONS PERTAINING TO THE INCREASE IN THE INSTAL LED CAPACITY AND FOR FURNISHING DETAILS OF MACHINERY AND PLANT AND REPOR T OF AN ACCOUNTANT WERE DONE AWAY WITH. MEANING THEREBY, THAT THESE CO NDITIONS WERE NOT NECESSARY FOR THE CLAIM OF ADDITIONAL DEPRECIATION. 14. ONCE AGAIN, IT CAN BE SEEN THAT THE AMENDMENTS BROU GHT TO THIS SECTION IS TO ENCOURAGE NEW INVESTMENT IN PLANT AND MACHINERY. 15. COMING BACK TO THE FACTS OF THE PRESENT CASE, AS ME NTIONED ELSEWHERE, THE ASSESSEE HAS ACQUIRED THE PLANT AND MACHINERIES BEFORE 31.03.2005 BUT THE MACHINERIES WERE INSTALLED AFTER 31.03.2005. IF THE REVENUE AUTHORITIES VIEW IS ACCEPTED THEN THE ASSE SSEE CANNOT CLAIM ITA NO. 143/ AHD/2013 . A.Y. 2006-0 7 6 ADDITIONAL DEPRECIATION AS PER EARLIER PROVISION SI NCE THE MACHINERIES WERE NEITHER ACQUIRED NOR INSTALLED AFTER 31.03.200 2. AT THE SAME TIME, THE ASSESSEE CANNOT CLAIM THE ADDITIONAL DEPR ECIATION UNDER THE NEW PROVISIONS AS MACHINERIES WERE ACQUIRED BEFORE 31.03.2005 BUT INSTALLED AFTER 31.03.2005. SUCH INTERPRETATION WOU LD LEAD TO A PRECARIOUS SITUATION AND PUT THE ASSESSEE IN A VULN ERABLE SITUATION WHEREIN EVEN AFTER MAKING INVESTMENTS IN NEW PLANT AND MACHINERIES, THE ASSESSEE IS DEPRIVED OF ADDITIONAL DEPRECIATION . 16. LET US LOOK AT THE FACTS FROM ANOTHER ANGLE. THE RE VENUE HAS ALLOWED THE CLAIM OF DEPRECIATION ADMITTING THAT TH E PLANT AND MACHINERIES HAVE BEEN USED BY THE ASSESSEE FOR ITS BUSINESS ONLY THE CLAIM OF ADDITIONAL DEPRECIATION HAS BEEN DENIED. IN OUR CONSIDERED OPINION AND THE UNDERSTANDING OF THE LAW, THE ELIGI BILITY FOR THE CLAIM OF DEPRECIATION SHOULD BE CONSIDERED FROM THE DATE OF THE INSTALLATION OF THE PLANT AND MACHINERIES, AND THE WORD ACQUIRED HAS TO BE CONSIDERED IN THE LIGHT OF OWNERSHIP OF THE ASSET . 17. THE OBSERVATIONS OF THE HONBLE HIGH COURT OF CALCU TTA IN THE CASE OF SURAMA TUBES PVT. LTD. 201 ITR 124 NEEDS SP ECIAL MENTION AND WHICH READ AS UNDER:- 4. IT WILL BE EVIDENT THAT WHAT IS RELEVANT AND MAT ERIAL IS THE YEAR OF ACQUISITION IN THE CASE OF SHIPS OR AIRCRAFT AND THE YEAR OF INSTALLATION IN T HE CASE OF MACHINERY OR PLANT. IF THE INSTALLATION OF A PLANT IS SPREAD OVER MORE THAN A YEAR, THE REL EVANT YEAR FOR THE GRANT OF ALLOWANCE WOULD BE THE YEAR IN WHICH THE INSTALLATION IS COMPLETED. AS IN THE CASE OF INVESTMENT ALLOWANCE, SO ALSO IN THE CASE OF ADDITIONAL DEPRECIATION, THE MATERIAL D ATE IS THE DATE OF INSTALLATION AND NOT THE YEAR OF ACQUISITION. THE TRIBUNAL CATEGORICALLY FOUND ON A PERUSAL OF THE ASSESSMENT ORDER FOR THE ASST. YRS. 1980-81 AND 1981-82 AND THE RELEVANT BALANCE S HEETS OF THE ASSESSEE-COMPANY THAT THE MACHINES IN QUESTION WERE SHOWN AS MACHINES UNDER I NSTALLATION IN THE PREVIOUS YEARS IN THE FIXED ASSETS SCHEDULE ANNEXED TO THE BALANCE SHEET. THESE MACHINES HAVE BEEN ONLY TRANSFERRED TO THE MACHINES ACCOUNT DURING THE YEAR UNDER REFERENC E. NO DEPRECIATION WAS CLAIMED BY THE ITA NO. 143/ AHD/2013 . A.Y. 2006-0 7 7 ASSESSEE ON THESE MACHINES AND DEPRECIATION WAS ONL Y CLAIMED ON THE MACHINES WHICH WERE SHOWN AS MACHINES OF THE ASSESSEE IN THE FIXED ASSE TS SCHEDULE. TWO THINGS WOULD, THEREFORE, BE CLEAR; FIRSTLY, THESE MACHINES WERE NEW AND THEY WE RE UNDER INSTALLATION AND THE INSTALLATION WAS COMPLETED DURING THE YEAR UNDER REFERENCE ; AND SEC ONDLY, NO DEPRECIATION WAS EVER CLAIMED BY THE ASSESSEE PRIOR TO THIS ASSESSMENT YEAR ON THESE MACHINES. THIS FINDING OF THE TRIBUNAL HAS NOT BEEN CHALLENGED. THE TRIBUNAL ALSO FOUND THAT THE M ACHINES, ALTHOUGH ACQUIRED EARLIER, COULD NOT BE INSTALLED IN VIEW OF THE CHANGE OF MANAGEMENT TW ICE. THE MACHINES WERE LYING IDLE AND WERE KEPT FOR INSTALLATION AND THE INSTALLATION WAS COMP LETED IN THE YEAR UNDER REFERENCE. 18. IF THE FACTS OF THE CASE IN HAND ARE CONSIDERED IN THE LIGHT OF THE OBSERVATIONS OF THE HONBLE HIGH COURT OF CALCUTTA, THERE REMAINS NO DOUBT THAT THE ASSESSEE IS VERY MUCH ENTITLED FOR T HE CLAIM OF ADDITIONAL DEPRECIATION. LET US CONSIDER ONE MORE E XAMPLE. IN THE CASE OF LARGE PETRO CHEMICALS INDUSTRIES WHICH REQUIRES HUSE PLANT AND MACHINERIES FOR THE MANUFACTURING PROCESS, THERE MA Y BE A SITUATION WHEN HUNDREDS OF MACHINERIES ARE ACQUIRED IN FINANC IAL YEAR AND THE INSTALLATION PROCESS CROSSES ANOTHER FINANCIAL YEAR BECAUSE OF THE HUMONGOUS TASK OF INSTALLING SUCH MACHINERIES. IN S UCH A SITUATION, CAN THE ASSESSEE BE DENIED THE CLAIM OF ADDITIONAL DEPRECIATION MERELY BECAUSE THE ACQUISITION AND INSTALLATION HAVE TAKEN PLACE IN TWO DIFFERENT FINANCIAL YEARS? IN OUR CONSIDERED OPINIO N, THE SINE QUA NON FOR THE CLAIM OF DEPRECIATION SHOULD BE THE DATE OF INSTALLATION WHEN IT CAN BE SAID THAT THE PLANT AND MACHINERIES ARE READ Y FOR USE. ACQUISITION CAN AT BEST BE RELATED TO THE OWNERSHIP . 19. OUR UNDERSTANDING DRAWS SUPPORT FROM THE DECISION OF THE HONBLE HIGH COURT OF CALCUTTA (SUPRA). ITA NO. 143/ AHD/2013 . A.Y. 2006-0 7 8 20. THE OBSERVATIONS OF THE HONBLE SUPREME COURT IN TH E CASE OF BAJAJ TEMPO LTD. 196 ITR 188 DESERVES SPECIAL MENTI ON HERE AND WHICH READ AS UNDER:- 6. THE SECTION, READ AS A WHOLE, WAS A PROVISION DI RECTED TOWARDS ENCOURAGING INDUSTRIALIZATION BY PERMITTING AN ASSESSEE SETTING UP A NEW UNDERTAKING TO CLAIM THE BENEFIT OF NOT PAYING TAX TO THE EXTENT OF SUCH PER CENT IN A YEAR ON THE CAPITAL EMPLOYED. BUT THE LEGISLATURE TOOK CARE TO RESTRICT SUCH BENE FIT ONLY TO THOSE UNDERTAKINGS WHICH WERE NEW IN FORM AND SUBSTANCE BY PROVIDING THAT TH E UNDERTAKING SHOULD NOT BE FORMED IN ANY MANNER PROVIDED IN CL. (I) OF SUB-S . 15C. EACH OF THESE REQUIREMENTS NAMELY, FORMATION OF THE UNDERTAKING BY SPLITTING U P OR RECONSTRUCTION OF AN EXISTING BUSINESS OR TRANSFER TO THE UNDERTAKING OF BUILDING , RAW MATERIAL OR PLANT USED IN ANY PREVIOUS BUSINESS RESULTS IN DENIAL OF THE BENEFIT CONTEMPLATED UNDER SUB-S. (1). SINCE A PROVISION INTENDED FOR PROMOTING ECONOMIC GROWTH HA S TO BE INTERPRETED LIBERALLY, THE RESTRICTION ON IT, TOO, HAS TO BE CONSTRUED SO AS T O ADVANCE THE OBJECTIVE OF THE SECTION AND NOT TO FRUSTRATE IT. 21. CONSIDERING THE FACTS OF THE CASE IN THE LIGHT OF T HE OBSERVATIONS OF THE HONBLE HIGH COURT OF CALCUTTA (SUPRA) AND I N THE LIGHT OF THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT (SUPRA ), IN OUR CONSIDERED OPINION, THE ASSESSEE SHOULD NOT BE DENI ED THE CLAIM OF ADDITIONAL DEPRECIATION. WE ACCORDINGLY SET ASIDE T HE FINDINGS OF THE LD. CIT(A ) AND DIRECT THE A.O TO ALLOW THE CLAIM OF AD DITIONAL DEPRECIATION AND DELETE THE ADDITION OF RS. 2,18,50,976/-. 22. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 05 - 04 - 2016 . SD/- SD/- (RAJPAL YADAV) (N. K. BILLAIYA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD: TRUE COPY