Hinduja Foundries Ltd., CHENNAI V. ACIT, CHENNAI

ITA 1593/CHNY/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 7927 (ITAT-CHENNAI)
• Duration Of Justice: 7 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-02-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 06-01-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 10-07-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PATHLAVATH PEERYA
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Capital asset; Depreciation; Additional depreciation; Unabsorbed depreciation; Revenue expenditure; Capital expenditure
• Section: 32

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI . . . , . !' , $ % BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ ITA NOS.1590, 1591, 1592 & 1593/MDS/2015 ' (' / ASSESSMENT YEARS : 2006-07, 2007-08, 2009-10 & 20 10-11 M/S HINDUJA FOUNDRIES LTD., (FORMERLY KNOWN AS M/S ENNORE FOUNDRIES LTD.), KATHIVAKKAM HIGH ROAD, ENNORE, CHENNAI - 600 057. PAN : AAACE 1078 K V. THE ASSISTANT COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 2, CHENNAI - 600 034. (*+/ APPELLANT) (,-*+/ RESPONDENT) *+ . / / APPELLANT BY : SH. R. VIJAYARAGHAVAN, ADVOCATE ,-*+ . / / RESPONDENT BY : SH. PATHLAVATH PEERYA, CIT 0 . 1$ / DATE OF HEARING : 06.01.2016 2!( . 1$ / DATE OF PRONOUNCEMENT : 19.02.2016 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER: ALL THE APPEALS OF THE ASSESSEE ARE DIRECTED AGAI NST THE COMMON ORDER OF THE COMMISSIONER OF INCOME TAX (APP EALS)-6, CHENNAI, DATED 13.02.2015, FOR THE ASSESSMENT YEARS 2006-07, 2007-08, 2009-10 AND 2010-11. SINCE COMMON ISSUES ARISE FOR 2 I.T.A. NOS.1590 TO 1593/MDS/15 CONSIDERATION, WE HEARD ALL THESE APPEALS TOGETHER AND DISPOSING OF THE SAME BY THIS COMMON ORDER. 2. THE FIRST ISSUE ARISES FOR CONSIDERATION IS WITH REGARD TO DISALLOWANCE OF DEPRECIATION ON GOODWILL IN CONNECT ION WITH TAKEOVER OF UNIT FROM ASHOK LEYLAND LIMITED. 3. SH. R. VIJAYARAGHAVAN, THE LD.COUNSEL FOR THE A SSESSEE, SUBMITTED THAT THE GOODWILL TAKEN OVER BY THE ASSES SEE WOULD INCLUDE MARKETABLE, MANUFACTURING RIGHT AS WELL AS TRADE NAME. THEREFORE, THE SURPLUS AMOUNT PAID BY THE ASSESSEE WOULD REPRESENT THE PAYMENT MADE FOR COMMERCIAL RIGHTS RE QUIRED BY THE ASSESSEE IN CONNECTION WITH TAKING OVER OF THE UNIT FROM ASHOK LEYLAND LIMITED. THEREFORE, ACCORDING TO THE LD. C OUNSEL, THE ASSESSEE IS ENTITLED FOR DEPRECIATION ON THE GOODWI LL IN CONNECTION WITH TAKEOVER OF THE UNIT BY THE ASSESSEE. THE LD. COUNSEL PLACED HIS RELIANCE ON THE JUDGMENT OF APEX COURT IN CIT V . SMIFS SECURITIES LTD. ((2012) 348 ITR 302. ACCORDING TO THE LD. COUNSEL, GOODWILL IS LIKE INTANGIBLE ASSET, THEREFORE, ENTIT LED FOR DEPRECIATION AT THE RATE OF 25%. 3 I.T.A. NOS.1590 TO 1593/MDS/15 4. ON THE CONTRARY, SH. PATHLAVATH PEERYA, THE LD. DEPARTMENTAL REPRESENTATIVE, SUBMITTED THAT THE ASS ESSEE PURCHASED THE UNIT CALLED DUCTRON CASTINGS UNIT D URING THE FINANCIAL YEAR 2005-06 RELEVANT TO ASSESSMENT YEAR 2006-07, AS GOING CONCERN FROM ASHOK LEYLAND LIMITED, FOR A TOT AL CONSIDERATION OF ` 62 CRORES. THE ASSESSEE-COMPANY APPORTIONED THE SA ID PAYMENT OF ` 62 CRORES BETWEEN TANGIBLE AND INTANGIBLE ASSETS. THE ASSESSEE HAS APPORTIONED ` 147.57 LAKHS TOWARDS GOODWILL, OTHER THAN NET CURRENT ASSET OF ` 2237.15 LAKHS. ALL OTHER ITEMS WERE TAKEN AS CURRENT ASSETS IN THE BOOKS OF ACCOUNT OF THE AS SESSEE. REFERRING TO THE ORDER OF THE CIT(APPEALS), MORE PA RTICULARLY, PAGES 9 AND 10, THE LD. D.R. SUBMITTED THAT THE ASSESSEE ITSELF RECOGNIZED TWO TYPES OF INTANGIBLE ASSETS ACQUIRED FROM THE PU RCHASE OF THE DUCTRON CASTINGS UNIT OF M/S ASHOK LEYLAND LTD. TH E ASSESSEE CLAIMED BEFORE THE LOWER AUTHORITIES THAT TECHNICAL KNOWHOW WAS ` 618.96 LAKHS AND THE GOODWILL WAS ` 147.57 LAKHS. THESE ARE THE TWO FORMS OF INTANGIBLE ASSETS ADMITTED AND ACCOUNT ED BY THE ASSESSEE IN ITS BOOKS OF ACCOUNT. ACCORDING TO THE LD. D.R., THE TERM GOODWILL INCLUDES VARIETY OF RIGHTS AND THIN GS. THOUGH ALL THE ITEMS INCLUDED IN THE GOODWILL ARE INTANGIBLE ITEMS , HOWEVER, EVERYTHING IS NOT AUTOMATICALLY ENTITLED FOR DEPREC IATION. UNDER THE 4 I.T.A. NOS.1590 TO 1593/MDS/15 PROVISIONS OF INCOME-TAX ACT, CERTAIN INTANGIBLE AS SETS ARE ENTITLED FOR DEPRECIATION. THEY ARE: (1) KNOW-HOW, (2) PAT ENTS, (3) COPYRIGHT, (4) TRADEMARK, (5) LICENCE, (6) FRANCHIS E (7) ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE. A CCORDING TO THE LD. D.R., ONLY THOSE ASSETS, WHICH WERE INCLUDED IN THE ABOVE LIST, WOULD BE ELIGIBLE FOR EXCEPTION UNDER SECTION 32(1) (II) OF THE INCOME-TAX ACT, 1961 (IN SHORT 'THE ACT'). 5. REFERRING TO THE CONTENTION OF THE ASSESSEE, THE LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT COMMERC IAL RIGHT MEANS A RESIDUAL RIGHT FOUND IN THE EXPRESSION LIKE KNOW-HOW, PATENTS, COPYRIGHTS, LICENCES, FRANCHISES, ETC. AC CORDING TO THE LD. D.R., THE GOODWILL SAID TO BE ACQUIRED BY THE ASSES SEE WOULD NOT FALL WITHIN THE EXPRESSION OF ANY OTHER BUSINESS OR COM MERCIAL RIGHTS WHICH ARE IN THE NATURE SIMILAR TO KNOW-HOW, PATENT , COPYRIGHT, ETC. THE LD. D.R. FURTHER SUBMITTED THAT DEPRECIATION ON INTANGIBLE ASSET IS ALLOWABLE UNDER SECTION 32(1)(II) OF THE ACT. H OWEVER, THE GOODWILL DOES NOT FIND PLACE IN THE PROVISIONS OF S ECTION 32(1)(II) OF THE ACT. HENCE, ACCORDING TO THE LD. D.R., THE CIT (APPEALS) HAS RIGHTLY CONFIRMED THE ORDER OF THE ASSESSING OFFICE R. 5 I.T.A. NOS.1590 TO 1593/MDS/15 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. WE HAVE CAREFULLY GONE THROUGH THE JUDGMENT OF APEX COURT I N SMIFS SECURITIES LTD. (SUPRA). IN THE CASE BEFORE APEX C OURT, THE ASSESSEE CLAIMED DEDUCTION TOWARDS DEPRECIATION ON GOODWILL. THE ASSESSEE CLAIMED THAT THE EXCESS CONSIDERATION PAID BY THE ASSESSEE OVER THE VALUE OF NET ASSET TO BE CONSIDER ED AS GOODWILL ARISING ON AMALGAMATION. HOWEVER, THE ASSESSING OF FICER FOUND THAT THE GOODWILL IS NOT AN ASSET. HOWEVER, THE AP EX COURT FOUND THAT THE ASSESSEE HAD ACQUIRED A CAPITAL RIGHT IN T HE FORM OF GOODWILL BECAUSE OF WHICH THE MARKET WORTH OF THE ASSESSEE-C OMPANY STOOD INCREASED. IN THOSE CIRCUMSTANCES, THE APEX COURT FOUND THAT THE ASSESSEE IS ENTITLED FOR DEPRECIATION ON THE GOODWI LL WHICH IS IN THE NATURE OF COMMERCIAL ASSET. IN THE CASE BEFORE US, IT IS NOT IN DISPUTE THAT THE ASSESSEE HAS PURCHASED DUCTRON CAS TINGS UNIT FROM M/S ASHOK LEYLAND LTD. THE ASSESSEE HAS PAID OVER THE VALUE OF NET ASSET TO THE EXTENT OF ` 147.57 LAKHS AND CLAIMED THE SAME AS COST OF THE GOODWILL. HOWEVER, THE ASSESSING OFFIC ER DISALLOWED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT THE PAYMEN T DOES NOT FALL WITHIN THE MEANING OF KNOW-HOW, PATENT OR COPYRIGHT . THE ASSESSING OFFICER HAS NOT CONSIDERED THE JUDGMENT O F APEX COURT IN 6 I.T.A. NOS.1590 TO 1593/MDS/15 SMIFS SECURITIES LTD. (SUPRA). THE APEX COURT, AFT ER CONSIDERING THE PROVISIONS OF EXPLANATION 3 TO SECTION 32(1) OF THE ACT FOUND THAT THE WORD ANY OTHER BUSINESS OR COMMERCIAL RIGHTS O F SIMILAR NATURE IN CLAUSE (B) OF EXPLANATION 3 INDICATES THAT GOODW ILL WILL FALL UNDER THE EXPRESSION ANY OTHER BUSINESS OR COMMERCIAL RI GHTS OF SIMILAR NATURE. IN VIEW OF THE ABOVE JUDGMENT OF APEX COU RT IN SMIFS SECURITIES LTD., WE ARE UNABLE TO UPHOLD THE ORDERS OF THE LOWER AUTHORITIES. ACCORDINGLY, WE SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES. THE ASSESSING OFFICER IS DIRECTED TO ALLOW DEPRECIATION AT THE APPLICABLE RATE ON THE PAYMENT RELATABLE TO GOODWILL. 7. THE NEXT ISSUE ARISES FOR CONSIDERATION IS WITH REGARD TO DISALLOWANCE OF EXPENDITURE WHICH WAS CAPITALIZED I N THE BOOKS OF ACCOUNT. 8. SH. R. VIJAYARAGHAVAN, THE LD.COUNSEL FOR THE AS SESSEE, SUBMITTED THAT THE ASSESSEE INCURRED EXPENDITURE IN CONNECTION WITH SET UP OF UNIT FOR EXPANDING ITS BUSINESS. THE EXP ENDITURE WAS CAPITALIZED IN THE BOOKS OF ACCOUNT. HOWEVER, THE ASSESSEE CLAIMED THE EXPENDITURE AS REVENUE EXPENDITURE WHIL E COMPUTING THE TAXABLE INCOME. ACCORDING TO THE LD. COUNSEL, THE EXPENDITURE INCURRED BY THE ASSESSEE WAS TOWARDS SALARY, WAGES, PROFESSIONAL 7 I.T.A. NOS.1590 TO 1593/MDS/15 AND CONSULTANCY CHARGES, TRAVELLING AND CONVEYANCE EXPENSES AND LOAN PROCESSING FEE. ACCORDING TO THE LD. COUNSEL, THE NEW UNIT SET UP BY THE ASSESSEE ALSO ENGAGED IN THE SAME BUSINES S OF IRON CASTINGS. THEREFORE, THE NEW UNIT SET UP BY THE AS SESSEE IS ONLY AN EXPANSION OF EXISTING BUSINESS. THE NEW UNIT IS AL SO UNDER THE SAME MANAGEMENT. THEREFORE, THE EXPENDITURE CLAIME D BY THE ASSESSEE HAS TO BE ALLOWED AS REVENUE EXPENDITURE. THE LD.COUNSEL PLACED HIS RELIANCE ON THE JUDGMENTS OF MADRAS HIGH COURT IN CIT V. RANE (MADRAS) LTD. (2007) 293 ITR 4 59 AND IN CIT V. SAKTHI SUGARS LTD. (2011) 339 ITR 400. 9. ON THE CONTRARY, SH. PATHLAVATH PEERYA, THE LD. DEPARTMENTAL REPRESENTATIVE, SUBMITTED THAT THE ASS ESSEES BALANCE SHEET SHOWED THE CAPITAL WORK-IN-PROGRESS A T ` 1543/- LAKHS WHICH INCLUDED THE FIXED ASSETS SCHEDULE. ACCORDIN G TO THE LD. D.R., THE NEW UNITS ESTABLISHED BY THE ASSESSEE AT SRIPERUMBUDUR AND HYDERABAD ARE NEW INDUSTRIAL UNDERTAKINGS INDEP ENDENT FROM THE EXISTING UNDERTAKING. THE LD. D.R. FURTHER CLA RIFIED THAT THE BUSINESS OF THE EXISTING UNIT OF THE ASSESSEE MAY B E IN THE SAME LINE OF BUSINESS / MANUFACTURING ACTIVITY. HOWEVER , THE EXISTING UNIT AND NEW UNITS ARE TOTALLY INDEPENDENT FROM EACH OTH ER. ONCE THE 8 I.T.A. NOS.1590 TO 1593/MDS/15 NEW UNITS AT SRIPERUMBUDUR AND HYDERABAD CAME INTO OPERATION, THEY WILL OPERATE DIFFERENTLY AND THEIR INCOME WILL BE A SEPARATE SOURCE OF INCOME BEING INDEPENDENT UNDERTAKINGS. T HE LD. D.R. FURTHER SUBMITTED THAT THE NEW UNITS AT SRIPERUMBUD UR AND HYDERABAD WERE ONLY IN A FORMATIVE STAGE AND YET TO BECOME OPERATIONAL, THEREFORE, THE EXPENDITURE INCURRED BY THE ASSESSEE IN THE NATURE OF SALARY, WAGES, PROFESSIONAL AND CONSU LTANCY CHARGES, TRAVELLING AND CONVEYANCE EXPENDITURE WILL BE IN TH E NATURE OF CAPITAL EXPENDITURE OR PRE-OPERATIVE EXPENDITURE WH ICH WILL BE CAPITALIZED. AT THE BEST, THE ASSESSEE MAY CLAIM T HE SAME OVER A PERIOD OF FIVE YEARS AT THE RATE OF 1/5 TH PER YEAR UNDER SECTION 35D OF THE ACT. ACCORDING TO THE LD. D.R., THE EXPENDITUR E SAID TO BE INCURRED BY THE ASSESSEE IS NOT FOR THE BUSINESS OF THE ASSESSEE. IT IS FOR SETTING UP OF NEW INDUSTRIAL UNDERTAKINGS. THE NEW UNITS ESTABLISHED BY THE ASSESSEE MAY EARN PROFIT IN THE FUTURE. THEREFORE, THERE IS NO PROVISION IN THE INCOME-TAX ACT TO ALLOW THE EXPENDITURE INCURRED BY THE ASSESSEE IN CONNECTION WITH SETTING UP OF NEW INDUSTRIAL UNDERTAKING. ACCORDING TO THE LD . D.R., THE EXPENDITURE INCURRED BY THE ASSESSEE IN SETTING UP OF NEW INDUSTRIAL UNDERTAKINGS SHOULD NOT BE ALLOWED AS EXPENDITURE I N THE YEAR IN WHICH THE BUSINESS ACTIVITY OR THE NEW INDUSTRIAL U NDERTAKING IS YET 9 I.T.A. NOS.1590 TO 1593/MDS/15 TO BECOME OPERATIONAL. THEREFORE, ACCORDING TO THE LD. D.R., THE CIT(APPEALS) HAS RIGHTLY CONFIRMED THE ORDER OF THE ASSESSING OFFICER. 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS NOT IN DISPUTE THAT THE ASSESSEE ADMITTEDLY MANUFACTURING IRON CASTINGS. THE NEW UNIT SAID TO BE ESTABLISHED BY THE ASSESSEE IS ALSO ADMITTEDLY MANUFACTURING IRON CASTINGS. WHEN THE A SSESSEE SET UP A NEW UNIT FOR MANUFACTURING THE SAME PRODUCTION, W HETHER THE EXPENDITURE INCURRED BY THE ASSESSEE IS FOR EXPANSI ON OF THE EXISTING BUSINESS OR NOT? THIS QUESTION WAS CONSID ERED BY THE MADRAS HIGH COURT IN RANE (MADRAS) LTD. (SUPRA). I N THE CASE BEFORE THE MADRAS HIGH COURT, THE ASSESSEE WAS ENGA GED IN THE PRODUCTION OF RECIRCULATING BALL TYPE STEERING GEAR S IN THE UNITS SITUATED AT VELACHERY AND MYSORE. THE ASSESSEE STA RTED A NEW UNIT AT PONDICHERRY FOR MANUFACTURING RACK AND PINION ST EERING GEARS AND INCURRED EXPENDITURE. THE EXPENDITURE INCURRED IN THE NEW INDUSTRY WAS CLAIMED AS REVENUE EXPENDITURE. THE ASSESSING OFFICER TREATED THE SAME AS CAPITAL IN NATURE HOLDING THAT THE PONDICHERRY UNIS IS ENTIRELY A NEW UNIT. THE COMMISSIONER AND THE TRIBUNAL, 10 I.T.A. NOS.1590 TO 1593/MDS/15 HOWEVER, FOUND THAT THE EXPENSES AS REVENUE IN NATU RE. ON APPEAL BEFORE THE HIGH COURT, THE HIGH COURT FOUND THAT TH E PRODUCTION AND MANUFACTURING IN THE NEW UNIT WAS ONE AND THE SAME. THE INDUSTRY SET UP AT PONDICHERRY IS NOTHING BUT EXTENSION OF E XISTING BUSINESS AT VELACHERRY AND MYSORE. THEREFORE, EVEN THOUGH I T IS INDEPENDENT, BECAUSE OF THE INTERCONNECTION OF MANA GEMENT, FINANCIAL, ADMINISTRATIVE AND PRODUCTION ASPECTS OF EACH EXPENDITURE HAS TO BE CONSTRUED AS REVENUE IN NATURE AND THEREF ORE, DEDUCTIBLE WHILE COMPUTING THE TAXABLE INCOME. THIS JUDGMENT OF MADRAS HIGH COURT WAS FOLLOWED IN CIT V. SAKTHI SUGARS LTD. (SU PRA). IN VIEW OF THE ABOVE JUDGMENT OF MADRAS HIGH COURT, THIS TRIBU NAL IS OF THE CONSIDERED OPINION THAT THE EXPENDITURE CLAIMED BY THE ASSESSEE HAS TO BE ALLOWED AS REVENUE EXPENDITURE. BY RESPE CTFULLY FOLLOWING THE JUDGMENTS OF MADRAS HIGH COURT IN RANE (MADRAS) LTD. (SUPRA) AND IN SAKTHI SUGARS LTD. (SUPRA), THE ORDERS OF TH E LOWER AUTHORITIES ARE SET ASIDE AND THE ASSESSING OFFICER IS DIRECTED TO ALLOW THE EXPENDITURE INCURRED BY THE ASSESSEE IN CONNECTION WITH THE EXPANSION OF THE UNITS AT SRIPERUMBUDUR AND HYDERAB AD AS REVENUE EXPENDITURE. 11 I.T.A. NOS.1590 TO 1593/MDS/15 11. FOR THE ASSESSMENT YEARS 2007-08, 2009-10 AND 2 010-11, THE ASSESSEE HAS RAISED ONE MORE GROUND WITH REGARD TO ADDITIONAL DEPRECIATION. 12. WE HAVE HEARD LD.COUNSEL FOR THE ASSESSEE AND T HE LD. DEPARTMENTAL REPRESENTATIVE. IT IS NOT IN DISPUTE THAT NEW MACHINERY WAS INSTALLED DURING THE YEAR UNDER CONSI DERATION AND THE ASSESSING OFFICER HAS ALLOWED 10% OF DEPRECIATI ON SINCE THE MACHINERY WAS PUT IN USE FOR LESS THAN SIX MONTHS. THE ASSESSEE IS CLAIMING BALANCE OF 20% AS DEPRECIATION IN THE YEAR UNDER CONSIDERATION. NOW THE QUESTION ARISES FOR CONSIDE RATION IS WHETHER THE ADDITIONAL DEPRECIATION WHICH COULD NOT BE ALLO WED IN THE EARLIER YEAR CAN BE ALLOWED DURING THE YEAR UNDER CONSIDERA TION OR NOT? THIS ISSUE WAS EXAMINED BY THE COCHIN BENCH OF THIS TRIBUNAL IN APOLLO TYRES LTD. V. ACIT (2014) 64 SOT 203. THE C OCHIN BENCH FOUND THAT THE ADDITIONAL DEPRECIATION CAN BE ALLOW ED IN THE NEXT YEAR IN CASE THE SAME CANNOT BE ALLOWED IN THE EARL IER YEAR. IN FACT, THE COCHIN BENCH HAS OBSERVED AS FOLLOWS:- 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITHE R SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. SECTION 32(1)(IIA) READS AS FOLLOWS: '32(1)(IIA) IN THE CASE OF ANY NEW MACHINERY OR PLANT (OTHER THAN SHIPS AND AIRCRAFT), WHICH HAS BEEN ACQUIRED A ND INSTALLED 12 I.T.A. NOS.1590 TO 1593/MDS/15 AFTER THE 31ST DAY OF MARCH, 2005, BY AN ASSESSEE ENGAGE D IN THE BUSINESS OF MANUFACTURE OR PRODUCTION OF ANY AR TICLE OR THING, A FURTHER SUM EQUAL TO TWENTY PER CENT OF TH E ACTUAL COST OF SUCH MACHINERY OR PLANT SHALL BE ALLOWED AS DEDUCTION UNDER CLAUSE (II): PROVIDED THAT NO DEDUCTION SHALL BE ALLOWED IN RESP ECT OF (A ANY MACHINERY OR PLANT WHICH, BEFORE ITS INSTALLATION BY THE ASSESSEE, WAS USED EITHER WITHIN OR OUTSIDE INDIA BY ANY OTHER PERSON; OR (B) ANY MACHINERY OR PLANT INSTALLED IN ANY OFFICE PREMISES OR ANY RESIDENTIAL ACCOMMODATION, INCLUDING ACCOMMODATION IN THE NATURE OF A GUEST-HOUSE; OR (C) ANY OFFICE APPLIANCES OR ROAD TRANSPORT VEHICLES; OR (D) ANY MACHINERY OR PLANT, THE WHOLE OF THE ACTUAL COST OF WHICH IS ALLOWED AS A DEDUCTION (WHETHER BY WAY OF DEPRECIATION OR OTHERWISE) IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION' OF ANY ONE PREVIOUS YEAR.' 10. WE HAVE ALSO CAREFULLY GONE THROUGH THE SECOND PROVISO TO SECTION 32(1)(II) OF THE ACT, WHICH READS AS FOLLOWS: 'PROVIDED FURTHER THAT WHERE AN ASSET REFERRED TO C LAUSE (I) OR CLAUSE (II) OR CLAUSE (IIA), AS THE CASE MAY BE, IS ACQUIRED BY THE ASSESSEE DURING THE PREVIOUS YEAR AND IS PUT TO USE FOR THE 13 I.T.A. NOS.1590 TO 1593/MDS/15 PURPOSE OF BUSINESS OR PROFESSION FOR A PERIOD OF L ESS THAN ONE HUNDRED AND EIGHTY DAYS IN THAT PREVIOUS YEAR, THE DEDUCTION UNDER THIS SUB-SECTION IN RESPECT OF SUCH ASSET SHA LL BE RESTRICTED TO FIFTY PER CENT OF THE AMOUNT CALCULAT ED AT THE PERCENTAGE PRESCRIBED FOR AN ASSET UNDER CLAUSE (I) OR CLAUSE (II) OR CLAUSE (IIA) AS THE CASE MAY BE.' 11. A BARE READING OF THIS SECTION 32(1)(IIA) CLEARLY SAYS THAT IN CASE A NEW MACHINERY OR PLANT WAS ACQUIRED AND INST ALLED AFTER 31-03-2005 BY AN ASSESSEE, WHO IS ENGAGED IN THE BUSINESS OF MANUFACTURE OR PRODUCE OF ARTICLE OR THING, THEN, A SUM EQUAL TO 20% OF THE ACTUAL COST OF THE MACHINERY AND PLANT SHALL BE ALLOWED AS A DEDUCTION. IT IS NOT IN DISPUTE THAT T HE ASSESSEE HAS ACQUIRED AND INSTALLED THE MACHINERY AFTER 31-03- 2005. IT IS ALSO NOT IN DISPUTE THAT THE ASSESSEE IS ENGAGED IN THE MANUFACTURE OF ARTICLE OR THING. THEREFORE, THE ASS ESSEE IS ELIGIBLE FOR ADDITIONAL DEPRECIATION WHICH IS EQUIV ALENT TO 20% OF THE ACTUAL COST OF SUCH MACHINERY. THE DISPUTE I S THE YEAR IN WHICH THE DEPRECIATION HAS TO BE ALLOWED. THE AS SESSEE HAS ALREADY CLAIMED 10% OF THE DEPRECIATION IN THE EARL IER ASSESSMENT YEAR SINCE THE MACHINERY WAS USED FOR LE SS THAN 180 DAYS AND CLAIMING THE BALANCE 10% IN THE YEAR UNDE R CONSIDERATION. SECTION 32(1)(IIA) DOES NOT SAY THAT T HE YEAR IN WHICH THE ADDITIONAL DEPRECIATION HAS TO BE ALLOWED . IT SIMPLY SAYS THAT THE ASSESSEE IS ELIGIBLE FOR ADDITIONAL D EPRECIATION EQUAL TO 20% OF THE COST OF THE MACHINERY PROVIDED TH E MACHINERY OR PLANT IS ACQUIRED AND INSTALLED AFTER 31-03-2005. PROVISO TO SECTION 32(1)(IIA) SAYS THAT IF THE MACHI NERY WAS ACQUIRED BY THE ASSESSING DURING THE PREVIOUS YEAR AND HAS PUT TO USE FOR THE PURPOSE OF BUSINESS LESS THAN 180 DAYS , THE DEDUCTION SHALL BE RESTRICTED TO 50% OF THE AMOUNT CA LCULATED AT THE PRESCRIBED RATE. THEREFORE, IF THE MACHINERY IS PUT TO USE IN ANY PARTICULAR YEAR, THE ASSESSEE IS ENTITLE D FOR 50% OF THE PRESCRIBED RATE OF ADDITIONAL DEPRECIATION. THE INCOME- TAX ACT IS SILENT ABOUT THE ALLOWANCE OF THE BALANCE 10% ADDITIONAL DEPRECIATION IN THE SUBSEQUENT YEAR. TAK ING ADVANTAGE OF THIS POSITION, THE ASSESSEE NOW CLAIMS THAT THE YEAR IN WHICH THE MACHINERY WAS PUT TO USE THE ASSE SSEE IS ENTITLED FOR 50% ADDITIONAL DEPRECIATION SINCE THE MA CHINERY WAS PUT TO USE FOR LESS THAN 180 DAYS AND THE BALANCE 50% 14 I.T.A. NOS.1590 TO 1593/MDS/15 SHALL BE ALLOWED IN THE NEXT YEAR SINCE THE ELIGIBIL ITY OF THE ASSESSEE FOR CLAIMING 20% OF THE ADDITIONAL DEPRECIAT ION CANNOT BE DENIED BY INVOKING SECOND PROVISO TO SECT ION 32(1)(II) OF THE ACT. 12. THIS ISSUE WAS CONSIDERED BY THE DELHI BENCH OF T HIS TRIBUNAL IN THE CASE OF COSMO FILMS LTD (SUPRA). TH E REVENUE HAS TAKEN A SIMILAR GROUND AS TAKEN BEFORE THIS TRI BUNAL THAT THE ASSESSEE CANNOT CARRY FORWARD THE ADDITIONAL DE PRECIATION TO BE ALLOWED IN THE SUBSEQUENT ASSESSMENT YEAR. TH E DELHI BENCH OF THIS TRIBUNAL AFTER CONSIDERING THE PROVISI ONS OF SECTION 32(1)(IIA) AND PROVISO TO SECTION 321)(II) OF T HE ACT FOUND THAT WHEN THERE IS NO RESTRICTION IN THE ACT TO DENY THE BENEFIT OF BALANCE 50%, THE ASSESSEE IS ENTITLED FOR THE BALANCE ADDITIONAL DEPRECIATION IN THE SUBSEQUENT A SSESSMENT YEAR. IN FACT, THE DELHI BENCH OF THIS TRIBUNAL HAS OBSERVED AS FOLLOWS AT PAGES 641 AND 642 OF THE ITD: ' THUS, THE INTENTION WAS NOT TO DENY THE BENEFIT T O THE ASSESSEES WHO HAVE ACQUIRED OR INSTALLED NEW MACHIN ERY OR PLANT. THE SECOND PROVISO TO SECTION 32(1)(II) RESTR ICTS THE ALLOWANCES ONLY TO 50% WHERE THE ASSETS HAVE BEEN AC QUIRED AND PUT TO USE FOR A PERIOD LESS THAN 180 DAYS IN THE YEAR OF ACQUISITION. THIS RESTRICTION IS ONLY ON THE BASIS OF PERIOD OF USE. THERE I NO RESTRICTION THAT BALANCE OF ONE TIM E INCENTIVE IN THE FORM OF ADDITIONAL SUM OF DEPRECIATION SHALL NOT BE AVAILABLE IN THE SUBSEQUENT YEAR. SECTION 32(2) PROVID ES FOR A CARRY FORWARD SET UP OF UNABSORBED DEPRECIATION. TH IS ADDITIONAL BENEFIT IN THE FORM OF ADDITIONAL ALLOWA NCE U/S 32(1)(IIA) IS ONE TIME BENEFIT TO ENCOURAGE THE INDUS TRIALIZATION AND IN VIEW OF THE DECISION OF HON'BLE SUPREME COUR T IN THE CASE OF BAJAJ TEMPO LTD. V. CIT [1992] 196 ITR 188 , THE PROVISIONS RELATED TO IT HAVE TO BE CONSTRUED REASO NABLY, LIBERALLY AND PURPOSIVE TO MAKE THE PROVISION MEANI NGFUL WHILE GRANTING THE ADDITIONAL ALLOWANCE. THIS ADDITIONAL BENEFIT IS TO GIVE IMPETUS TO INDUSTRIALIZATION AND THE BASIC INT ENTION AND PURPOSE OF THESE PROVISIONS CAN BE REASONABLY AND L IBERALLY HELD THAT THE ASSESSEE DESERVES TO GET THE BENEFIT IN FULL WHEN THERE IS NO RESTRICTION IN THE STATUTE TO DENY THE BENEFIT OF BALANCE OF 50% WHEN THE NEW MACHINERY AND PLANT WERE 15 I.T.A. NOS.1590 TO 1593/MDS/15 ACQUIRED AND USED FOR LESS THAN 180 DAYS. ONE TIME BE NEFIT EXTENDED TO ASSESSEE HAS BEEN EARNED IN THE YEAR OF ACQUISITION OF NEW MACHINERY AND PLANT . IT HAS BEE N CALCULATED @15% BUT RESTRICTED TO 50% ONLY ON ACCOUNT OF USAGE OF THESE PLANT & MACHINERY IN THE YEAR OF ACQUISITION. IN SE CTION 32(1)(IIA), THE EXPRESSION USED I 'SHALL BE ALLOWED'. THUS, THE ASSESSEE HAD EARNED THE BENEFIT AS SOON AS HE HAD P URCHASED THE NEW MACHINERY AND PLANT IN FULL BUT IT IS RESTR ICTED TO 50% IN THAT PARTICULAR YEAR ON ACCOUNT OF PERIOD USAGES . SUCH RESTRICTIONS CANNOT DIVEST THE STATUTORY RIGHT. LAW DOES NOT PROHIBIT THAT BALANCE 50% WILL NOT BE ALLOWED IN SUCC EEDING YEAR. THE EXTRA DEPRECIATION ALLOWABLE U/S 32(1)(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 M ADE AVAILABLE IN THE SUBSEQUENT YEAR. THE OVERALL DEDUC TION OF DEPRECIATION U/S 32 SHALL DEFINITELY NOT EXCEED THE TO TAL COST OF MACHINERY AND PLANT . IN VIEW OF THIS MATTER, WE SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND DIRECT TO E XTEND THE BENEFIT. WE ALLOW GROUND NO.2 OF THE ASSESSEE'S APPE AL. SINCE WE HAVE DECIDED GROUND NO.2 IN FAVOUR OF ASSESSEE, T HERE IS NO NEED TO DECIDE THE ALTERNATE CLAIM RAISED IN GROUND NO.3. THE SAME IS DISMISSED.' 13. THIS ISSUE WAS ALSO CONSIDERED BY ANOTHER BENCH OF THIS TRIBUNAL AT DELHI IN SIL INVESTMENT LTD (SUPRA). AT PAGE 233 OF THE TTJ, THE TRIBUNAL HAS OBSERVED AS FOLLOWS: '40. THERE IS NOTHING ON RECORD TO SHOW THAT THE DIRE CTIONS GIVEN BY THE LEARNED CIT(A) ARE NOT PROPER. THE ELI GIBILITY FOR DEDUCTION OF ADDITIONAL DEPRECIATION STANDS ADMITTE D, SINCE 50 PER CENT THEREOF HAD ALREADY BEEN ALLOWED BY THE AO IN THE ASST.YR.2005-06, I.E. THE IMMEDIATELY PRECEDING ASSESSME NT YEAR. THEREFORE, OBVIOUSLY, THE BALANCE 50 PER CENT O F THE DEDUCTION IS TO BE ALLOWED IN THE CURRENT YEAR, I.E . ASST. YR. 2006-07. THE LEARNED CIT(A) HAS MERELY DIRECTED THE VERIFICATION OF THE CONTENTIONS OF THE ASSESSEE AND TO ALLOW THE BALANCE ADDITIONAL DEPRECIATION AFTER SUCH FACT UAL VERIFICATION. ACCORDINGLY, FINDING NO MERIT THEREIN , GROUND NO.3 RAISED BY THE DEPARTMENT IS REJECTED.' 16 I.T.A. NOS.1590 TO 1593/MDS/15 14. A SIMILAR VIEW WAS TAKEN BY MUMBAI BENCH OF THIS TRIBUNAL IN MITC ROLLING MILLS (P.) LTD. (SUPRA). IN VIEW OF THE ABOVE DECISIONS OF THE CO-ORDINATE BENCHES OF THIS TRIBUN AL ON IDENTICAL SET OF FACTS THIS TRIBUNAL IS OF THE CONS IDERED OPINION THAT THE BALANCE 50% OF THE DEPRECIATION HAS TO BE AL LOWED IN THE SUBSEQUENT YEAR, THEREFORE, THE ORDERS OF THE L OWER AUTHORITIES ON THIS ISSUE ARE SET SIDE AND THE ASSE SSING OFFICER IS DIRECTED TO ALLOW THE CLAIM OF BALANCE 50% ADDITIO NAL DEPRECIATION IN THE YEAR UNDER CONSIDERATION. IN VIEW OF THE ABOVE, THIS TRIBUNAL IS OF THE CONSI DERED OPINION THAT THE ASSESSEE IS ELIGIBLE FOR ADDITIONAL DEPRECIATIO N. ACCORDINGLY, THE ORDERS OF THE LOWER AUTHORITIES ARE SET ASIDE AND T HE ASSESSING OFFICER IS DIRECTED TO ALLOW THE ADDITIONAL DEPRECI ATION. 13. THE NEXT ISSUE ARISES FOR CONSIDERATION IS WITH REGARD TO DEPRECIATION ON THE AMOUNT PAID TO SIPCOT TOWARDS D EVELOPMENT OF INFRASTRUCTURE. THIS ISSUE ARISES FOR CONSIDERA TION FOR THE ASSESSMENT YEARS 2009-10 AND 2010-11. 14. SH. R. VIJAYARAGHAVAN, THE LD.COUNSEL FOR THE A SSESSEE, SUBMITTED THAT THE ASSESSEE HAS PAID ` 6.2 CRORES TO SIPCOT FOR LAND DEVELOPMENT. THE ASSESSEE CLAIMED DEPRECIATIO N AT THE RATE OF 10%. HOWEVER, THE ASSESSING OFFICER DISALLOWED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT THE ASSETS OBTAINED BY THE ASSESSEE AS A RESULT OF PAYMENT IS ONLY A LAND. THE ASSESS ING OFFICER ALLOWED THE CLAIM IN RESPECT OF THE BUILDING. THE ASSESSING 17 I.T.A. NOS.1590 TO 1593/MDS/15 OFFICER DISALLOWED THE CLAIM OF DEPRECIATION ON THE LAND. ACCORDING TO THE LD. COUNSEL, THE LAND DEVELOPMENT CHARGES WE RE PAID FOR DEVELOPING THE AREA BY LAYING ROADS, CONSTRUCTING C ULVERTS, PROVIDING ELECTRICAL LINES AND OTHER AMENITIES REQUIRED FOR S ETTING UP OF INDUSTRIAL UNIT FOR WHICH THE LAND WAS ALLOTTED. A CCORDING TO THE LD. COUNSEL, THE ROADS, BRIDGES, ETC. ARE ON PAR WITH T HE FACTORY BUILDINGS, THEREFORE, THE ASSESSEE IS ELIGIBLE FOR DEPRECIATION AT 10%. THEREFORE, ACCORDING TO THE LD. COUNSEL, THE ASSESS EE IS ELIGIBLE FOR DEPRECIATION AT THE RATE OF 10% WHICH IS APPLICABLE FOR BUILDING. 15. ON THE CONTRARY, SH. PATHLAVATH PEERYA, THE LD. DEPARTMENTAL REPRESENTATIVE, SUBMITTED THAT FOR CLA IMING DEPRECIATION, THE ASSESSEE SHOULD BE THE OWNER OF T HE LAND AND THE BUILDING. IN THIS CASE, THE ASSETS SAID TO BE ESTA BLISHED BY SIPCOT ARE NOT OWNED BY THE ASSESSEE. THE ASSESSEE HAS NE ITHER DEVELOPED ASSET SUCH AS ROADS, BRIDGES, ETC. NOR OW NED THEM. THE AMOUNT COLLECTED FROM THE ASSESSEE WAS TO CREATE CE RTAIN INFRASTRUCTURAL FACILITIES FOR COMMON USE BY THE GO VERNMENT IN THE AREA SO THAT THE INDIVIDUAL PLOTS BECOME FIT FOR RE SIDENTIAL OR INDUSTRIAL USE, AS THE CASE MAY BE. THESE INFRASTR UCTURAL FACILITIES LIKE ROADS, ELECTRICAL LINES, DRAINAGE, ETC. WILL N OT FORM PART OF ANY 18 I.T.A. NOS.1590 TO 1593/MDS/15 TANGIBLE OR INTANGIBLE ASSETS IN THE HANDS OF THE A SSESSEE. THESE INFRASTRUCTURES CREATED BY THE SIPCOT MAY FACILITAT E THE SIPCOT OR OTHER GOVERNMENT AGENCY AND PROVIDE COMMON FACILITI ES TO THE ASSESSEE. THEREFORE, ACCORDING TO THE LD. D.R., TH E LAND DEVELOPMENT CHARGES PAID BY THE ASSESSEE CANNOT FOR M PART OF THE COST OF THE CAPITAL ASSET. 16. REFERRING TO THE ASSESSMENT ORDER, THE LD. D.R. SUBMITTED THAT THE ASSESSEE CLAIMS DEPRECIATION AT THE RATE O F 10%. THE ASSESSEE HAS INCLUDED ` 5,58,00,000/- IN THE BUILDING COMPONENT WHICH IS GETTING A DEPRECIATION BENEFIT OF 10%. WH AT WAS DISALLOWED BY THE ASSESSING OFFICER IS ONLY IN RESP ECT OF THE LAND PART OF THE SIPCOT PROJECT. THEREFORE, THE ASSESSE E CANNOT HAVE ANY GRIEVANCE AT ALL. 17. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE ASSESSEE HAS CONTRIBUTED TO SIPCOT FOR CREATION OF COMMON FA CILITIES SUCH AS ROADS, BRIDGES, ELECTRICAL LINES, DRAINAGE, ETC. T HESE FACILITIES ARE OWNED BY THE SIPCOT / GOVERNMENT AND NOT BY THE ASS ESSEE. MERELY BECAUSE THE ASSESSEE CONTRIBUTED FOR ESTABLI SHMENT OF COMMON INFRASTRUCTURAL FACILITIES, IT CANNOT BE CON STRUED THAT THE 19 I.T.A. NOS.1590 TO 1593/MDS/15 ASSESSEE OWNED THOSE FACILITIES. FOR CLAIMING DEPR ECIATION UNDER SECTION 32 OF THE ACT, THE ASSESSEE SHOULD BE THE O WNER OF THE PROPERTY / ASSET AND THE SAME SHOULD BE USED FOR BU SINESS OF THE ASSESSEE. IN THE CASE BEFORE US, THE COMMON INFRAS TRUCTURAL FACILITIES MAY BE ASSETS OF THE SIPCOT OR GOVERNMEN T AGENCY TO PROVIDE CERTAIN INFRASTRUCTURAL FACILITIES TO THE A SSESSEE. IT IS NOT THE CASE OF THE ASSESSEE THAT THOSE AMENITIES ARE TOOLS FOR CARRYING OUT THE BUSINESS OF THE ASSESSEE. UNLESS AND UNTIL THE CAPITAL ASSET IS USED AS A TOOL FOR CARRYING OUT THE BUSINESS OF THE ASSESSEE AND THE ASSESSEE BECOMES THE OWNER, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE ASSESSEE MAY NOT BE ELIGIBLE FOR D EPRECIATION. THEREFORE, THIS TRIBUNAL DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LOWER AUTHORITY. ACCORDINGLY, THE ORD ER OF THE CIT(APPEALS) IS CONFIRMED. 18. IN THE RESULT, I.T.A. NOS.1590 AND 1591/MDS/201 5 ARE ALLOWED AND I.T.A. NOS.1592 AND 1593/MDS/2015 ARE P ARTLY ALLOWED. ORDER PRONOUNCED ON 19 TH FEBRUARY, 2016 AT CHENNAI. SD/- SD/- (. !' ) ( . . . ) (A. MOHAN ALANKAMONY) (N.R.S. GANESAN) $ / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 4 /DATED, THE 19 TH FEBRUARY, 2016. KRI. 20 I.T.A. NOS.1590 TO 1593/MDS/15 . ,156 76(1 /COPY TO: 1. *+ /APPELLANT 2. ,-*+ /RESPONDENT 3. 0 81 () /CIT(A)-6, CHENNAI 4. 0 81 /CIT-II, CHENNAI 5. 69 ,1 /DR 6. :' ; /GF.