Samrakshana Electricals Limited, Hyderabad V. DCIT, Hyderabad

ITA 588/HYD/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 53861 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 8 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-12-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 27-06-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 23-04-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: B V PRASAD REDDY
• Assessee Lawyers: V SIVA KUMAR
• Keywords: Depreciation; Additional depreciation
• Section: 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD B BENCH, HYDERABAD BEFORE SHRI CHANDRA POOJARI, A.M. & SMT. ASHA VIJAYARAGHAVAN, J.M. ITA NO.588/HYD/2011 ASSESSMENT YEAR 2005-06 M/S SAMRAKSHA ELECTRICALS LTD., HYDERABAD. (PAN AAECS4268D) VS THE DC IT, CIRCLE 3(1), HYDERABAD APPELLANT RESPONDENT APPELLANT BY : SHRI V. SIVA KUMAR RESPONDENT BY : SHRI B.V. PRASAD REDDY DATE OF HEARING : 19.10.2011 DATE OF PRONOUNCEMENT : 27.12.2011 ORDER PER ASHA VIJAYARAGHAVAN, JM: THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER PASSED BY THE CIT(A) GUNTUR, DATED 29.1.2010 AND I T PERTAINS TO THE ASSESSMENT YEAR 2005-06. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAD CLAIMED ADDITIONAL DEPRECIATION TO THE TUNE OF RS.48,52,509/- ON THE PLANT & MACHINERY IN ITS THREE DIVISIONS. T HE ASSESSING OFFICER FOUND THAT THIS ADDITIONAL DEPRECIATION REPRESENTED 50% O F THE ADDITIONAL DEPRECIATION AVAILABLE TO THE ASSESSEE ON PLANT & M ACHINERY WHICH WERE ACQUIRED IN THE ASSESSMENT YEAR 2004-05 BUT PUT TO USE FOR LESS THAN 180 DAYS IN THAT YEAR. THE ASSESSING OFFICER HELD THAT THE CLAIM MADE BY THE ASSESSEE WAS NOT TENABLE SINCE THE ADDITIONAL DEPRE CIATION HAD BEEN CLAIMED ON ASSETS ADDED DURING THE EARLIER YEAR AND NOT ON ASSETS ADDED IN THE YEAR UNDER CONSIDERATION. ITA NO.588 OF 2011-12-26 M/S SAMRAKSHA ELECTRICALS LTD. HYD. 2 3. ON APPEAL, THE CIT(A) HELD THAT THE ASSESSEES CLAIM FOR THE BALANCE ADDITIONAL DEPRECIATION NOT ALLOWED IN THE AY 2004-05 IS TO BE ALLOWED IN THE AY 2005-06 IS NOT TENABLE AND UPHELD THE ACTION OF THE ASSESSING OFFICER. 4. AGGRIEVED, THE ASSESSEE PREFERRED APPEAL BEFOR E US. THE EFFECTIVE GROUNDS OF APPEAL ARE AS FOLLOWS: B. THE COMMISSIONER OF INCOME TAX (APPEALS) OUGH T TO HAVE SEEN THAT SINCE PLANT AND MACHINERY ACQUIRED DURING THE ASSESSMENT YEAR 2004-05 WAS PUT TO USE FOR LESS THAN 180 DAYS THE A SSESSEE CLAIMED ONLY 50% OF THE ADDITIONAL DEPRECIATION I.E. RS 48, 52,509/- DURING THE ASSESSMENT YEAR 2004-05 AND THE BALANCE 50% OF THE ADDITIONAL DEPRECIATION OF RS 48,52,509/- WAS CLAIMED AS DEDUC TION DURING THIS ASSESSMENT YEAR I.E. 2005-06 AND HENCE IS ALLOWABLE AS DEDUCTION. THE COMMISSIONER OF INCOME TAX (APPEALS) OUGHT TO H AVE SEEN THAT SUB SECTION (2) OF SECTION 32 STATES THAT IF FULL DEDUC TION CANNOT BE GIVEN TO ANY ALLOWANCE UNDER SUB SECTION (1)OF SECTION 32 IN ANY PREVIOUS YEAR, SUCH ALLOWANCE OR PART OF ALLOWANCE WHICH WAS NOT ALLOWED AS DEDUCTION SHALL BE ADDED TO THE AMOUNT OF DEPRECIAT ION OF THE FOLLOWING PREVIOUS YEAR AND SHALL BE DEEMED TO BE THE ALLOWA NCE FOR THAT ASSESSMENT YEAR. THEREFORE SINCE THESE BALANCE 50% OF ADDITIONAL DEPRECIATION AS PER CLAUSE(IIA) OF SECTION 32(1) WH ICH WAS NOT ALLOWED AS DEDUCTION DURING THE ASSESSMENT YEAR 2004-05 SHA LL BE DEEMED TO BE THE DEPRECIATION ALLOWANCE FOR THE ASSESSMENT YE AR 2005-06 AND IS ALLOWABLE AS DEDUCTION FOR THE ASSESSMENT YEAR 2005 -06. ITA NO.588 OF 2011-12-26 M/S SAMRAKSHA ELECTRICALS LTD. HYD. 3 5. BEFORE US, THE ASSESSEES LEARNED COUNSEL, V.SI VAKUMAR, ARGUED THAT THE ASSESSING OFFICER HAD ERRED IN DISALLOWING THE ADDITIONAL DEPRECIATION OF RS.48,52,509/- ON PLANT AND MACHINERY WHILE COMPLET ING THE REASSESSMENT. HE SUBMITTED THAT SINCE THE PLANT AND MACHINERY ACQ UIRED DURING THE ASSESSMENT YEAR 2004-05 WAS PUT TO USE FOR LESS THA N 180 DAYS, THE ASSESSEE HAD CLAIMED ONLY 50% OF THE ELIGIBLE ADDIT IONAL DEPRECIATION DURING THE ASSESSMENT YEAR 2004-05 AND THE BALANCE 50% ADD ITIONAL DEPRECIATION WAS BEING CLAIMED IN THE ASSESSMENT YEAR 2005-06. THE LEARNED COUNSEL V.SIVAKUMAR RELIED ON THE PROVISIONS OF SEC 32(2) O F THE ACT WHICH STATES THAT IF FULL DEDUCTION CANNOT BE GIVEN TO ANY ALLOW ANCE UNDER SUB SEC 1 OF SEC 32 IN ANY PREVIOUS YEAR, SUCH ALLOWANCE OR PART OF ALLOWANCE WHICH WAS NOT ALLOWED AS DEDUCTION, SHALL BE ADDED TO THE AMO UNT OF DEPRECIATION OF THE FOLLOWING PREVIOUS YEAR AND SHALL BE DEEMED TO BE THE ALLOWANCE FOR THAT ASSESSMENT YEAR. THE LEARNED COUNSEL SUBMITTED THA T THEREFORE THE BALANCE 50% OF THE ADDITIONAL DEPRECIATION AVAILABL E AS PER CLAUSE (IIA) OF SEC 32(1) WHICH WAS NOT ALLOWED DURING THE ASSESSMENT Y EAR 2004-05 SHOULD BE DEEMED TO THE DEPRECIATION ALLOWANCE FOR THE ASSESS MENT YEAR 2005-06 AND IS TO BE ALLOWED AS DEDUCTION FOR THE ASSESSMENT YE AR 2005-06. IT WAS FURTHER SUBMITTED THAT IF DEDUCTION IS TO BE ALLOWE D AT 50% ONLY WHERE THE ASSETS ARE PUT TO USE FOR LESS THAN 180 DAYS, FULL EFFECT CANNOT BE GIVEN TO THE PROVISIONS OF CLAUSE(IIA) OF SEC 32(1) AND WILL BE DEFEATING THE VERY PURPOSE OF GRANTING ADDITIONAL DEPRECIATION AT A SP ECIFIED PERCENTAGE. THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED ON THE O RDER OF THE LOWER AUTHORITIES. 6. WE HEARD BOTH PARTIES AND PERUSED THE MATERIA LS AVAILABLE ON RECORD. THE PROVISIONS OF CLAUSE(IIA) OF SEC 32(1) AS IT ST OOD IN THE RELEVANT ASSESSMENT YEAR READS AS UNDER:- ITA NO.588 OF 2011-12-26 M/S SAMRAKSHA ELECTRICALS LTD. HYD. 4 IN THE CASE OF ANY NEW MACHINERY OR PLANT (OTHER T HAN SHIPS AND AIRCRAFT) WHICH HAS BEEN ACQUIRED AND INSTALLED AFT ER THE 31 ST DAY OF MARCH, 2002 BY AN ASSESSEE ENGAGED IN THE BUSINESS OF MANUFACTURE OR PRODUCTION OF ANY ARTICLE OR THING, A FURTHER SUM E QUAL TO FIFTEEN PERCENT OF THE ACTUAL COST OF SUCH MACHINERY OR PLANT SHALL BE ALLOWED AS DEDUCTION UNDER CLAUSE (II): PROVIDED THAT SUCH FURTHER DEDUCTION OF FIFTEEN PE RCENT SHALL BE ALLOWED TO- (A) A NEW INDUSTRIAL UNDERTAKING DURING ANY PREVIOUS YE AR IN WHICH SUCH UNDERTAKING BEGINS TO MANUFACTURE OR PRODUCE ANY AR TICLE OR THING ON OR AFTER THE 1 ST DAY OF APRIL, 2002; OR (B) ANY INDUSTRIAL UNDERTAKING EXISTING BEFORE THE 1 ST DAY OF APRIL, 2002, DURING ANY PREVIOUS YEAR IN WHICH IT ACHIEVES THE SUBSTANTIAL EXPANSION BY WAY OF INCREASE IN INSTALLED CAPACITY BY NOT LESS THAN 20(TEN) PERCENT: PROVIDED FURTHER THAT NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF (A) ANY MACHINERY OR PLANT WHICH, BEFORE ITS INSTALLATI ON BY THE ASSESSEE WAS USED EITHER WITHIN OR OUTSIDE INDIA BY ANY OTHE R PERSON; OR (B) ANY MACHINERY OR PLANT INSTALLED IN ANY OFFICE PREM ISES OR ANY RESIDENTIAL ACCOMMODATION, INCLUDING ACCOMMODATION IN THE NATURE OF A GUEST HOUSE; OR (C) ANY OFFICE APPLIANCES OR ROAD TRANSPORT VEHICLES; O R (D) ANY MACHINERY OR PLANT, THE WHOLE OF THE ACTUAL COS T OF WHICH IS ALLOWED AS A DEDUCTION (WHETHER BY WAY OF DEPRECIATION OR O THER WISE) IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD PRO FITS AND GAINS OF BUSINESS OR PROFESSION OF ANY ONE PREVIOUS YEAR: PROVIDED ALSO THAT NO DEDUCTION SHALL BE ALLOWED UN DER CLAUSE (A) OR, AS THE CASE MAY BE CLAUSE (B) OF THE FIRST PROVISO UNL ESS THE ASSESSEE FURNISHES THE DETAILS OF MACHINERY OR PLANT AND INC REASE IN THE INSTALLED ITA NO.588 OF 2011-12-26 M/S SAMRAKSHA ELECTRICALS LTD. HYD. 5 CAPACITY OF PRODUCTION IN SUCH FORM, AS MAY BE PRES CRIBED ALONG WITH THE RETURN OF INCOME, AND THE REPORT OF AN ACCOUNTANT, AS DEFINED IN THE EXPLANATION BELOW SUB SECTION (2) OF SECTION 288 CE RTIFYING THAT THE DEDUCTION HAS BEEN CORRECTLY CLAIMED IN ACCORDANCE WITH THE PROVISIONS OF THIS CLAUSE. EXPLANATION FOR THE PURPOSES OF THIS CLAUSE,- (1) NEW INDUSTRIAL UNDERTAKING MEANS AS UNDERTAKING W HICH IS NOT FORMED- (A) BY THE SPLITTING UP, OR THE RECONSTRUCTION, OF A BU SINESS ALREADY IN EXISTENCE OR (B) BY THE TRANSFER TO A NEW BUSINESS OF MACHINERY OR P LANT PREVIOUSLY USED FOR ANY PURPOSE. (2) INSTALLED CAPACITY MEANS THE CAPACITY OF PRODUCT ION AS EXISTING ON THE 31 ST DAY OF MARCH 2002. 7. IN THE CASE OF THE ASSESSEE IT HAS BEEN SUBMITT ED THAT DURING THE ASSESSMENT YEAR 2004-05 THE ASSESSEE MADE SUBSTANTI AL EXPANSION TO ITS PLANT AND MACHINERY BY SETTING UP THREE NEW DIVISIO NS. 8. WE ARE OF THE OPINION THAT THE ASSESSEES CLAIM FOR 50% OF THE ADDITIONAL DEPRECIATION ON PLANT AND MACHINERY ACQU IRED IN THE ASSESSMENT YEAR 2004-05 TO BE ALLOWED IN THE YEAR UNDER APPEA L (A.Y 2005-06) IS NOT ACCEPTABLE FOR THE FOLLOWING REASONS:- I) SEC 32(1)(IIA) WAS INTRODUCED AS A BENEFICIAL SECTI ON FOR GRANTING ADDITIONAL DEPRECIATION IN THE FIRST YEAR OF INSTAL LATION OF NEW PLANT AND MACHINERY. THE PROVISO TO CLAUSE (IIA) OF SEC 3 2(1) CLEARLY SHOWS THAT THE ADDITIONAL DEPRECIATION IS TO BE ALLOWED D URING THE PREVIOUS YEAR IN WHICH THE UNDERTAKING BEGINS TO MANUFACTURE ANY ARTICLE OR THING OR DURING THE PREVIOUS YEAR IN WHICH SUBSTANT IAL EXPANSION TOOK PLACE. IN THIS CASE, THE SUBSTANTIAL EXPANSION TOOK PLACE IN THE ITA NO.588 OF 2011-12-26 M/S SAMRAKSHA ELECTRICALS LTD. HYD. 6 ASSESSMENT YEAR 2004-05 AND NOT IN THE YEAR UNDER A PPEAL (AY 2005- 06). II) THE ASSESSEE RELIED ON THE PROVISIONS OF SEC 32(2) TO CLAIM THE BALANCE DEPRECIATION NOT ALLOWED IN THE ASSESSMENT YEAR 200 4-05. SEC 32(2) DEALS WITH A SITUATION WHERE FULL EFFECT TO THE DEP RECIATION CLAIMED BY AN ASSESSEE COULD NOT BE GIVEN OWING TO THERE BEING NO PROFITS OR GAINS CHARGEABLE FOR THAT PREVIOUS YEAR OR OWING TO THE P ROFITS OR GAINS CHARGEABLE BEING LESS THAN THE ALLOWANCE. IN SUCH A SITUATION, THE DEPRECIATION WHICH COULD NOT BE ALLOWED IN THAT YEA R IS TO BE CARRIED FORWARD AND ADDED TO THE AMOUNT OF DEPRECIATION TO BE ALLOWED IN THE FOLLOWING PREVIOUS YEAR. IN THE CASE OF THE ASSESSE E, THE FULL DEPRECIATION COULD NOT BE CLAIMED NOT BECAUSE THE A SSESSEE DID NOT HAVE THE PROFITS IN THAT YEAR BUT BECAUSE THE ELIGI BLE ASSETS HAD BEEN UTILIZED FOR LESS THAN 180 DAYS DURING THAT YEAR. III) CONTRARY TO THE ASSESSEES CLAIM THE PROVISIONS OF SEC 32(2) DO NOT COME TO AID THE ASSESSEES CASE. HAVING HELD SO, T HERE IS NO PROVISION WHICH ALLOWS THE CARRY FORWARD OF ADDITIONAL DEPREC IATION WHICH COULD NOT BE CLAIMED DUE TO THE ASSETS BEING UTILIZED FOR LESS THAN 180 DAYS IN THE ELIGIBLE PREVIOUS YEAR. IV) FURTHER, THE ADDITIONAL DEPRECIATION ALLOWABLE UNDE R CLAUSE(IIA) OF 32(1) CONTEMPLATES THAT THIS ADDITIONAL DEPRECIATIO N IS TO BE ALLOWED AGAINST THE ACTUAL COST OF THE PLANT AND MACHINERY AS AGAINST THE NORMAL DEPRECIATION WHICH IS ALLOWED AS A PERCENTAG E OF THE WRITTEN DOWN VALUE. V) IT IS ANOTHER THING THAT THE SUBSECTION HAS BEEN AM ENDED W.E.F 1.4.2006, WHERE THE YEAR IN WHICH THE ADDITIONAL DE PRECIATION IS ALLOWABLE IS NOT RESTRICTED TO THE YEAR OF COMMENCE MENT OF MANUFACTURE BUT SUCH AMENDMENT IS NOT APPLICABLE TO THE YEAR UNDER APPEAL. ITA NO.588 OF 2011-12-26 M/S SAMRAKSHA ELECTRICALS LTD. HYD. 7 9. FOR THE REASONS GIVEN ABOVE, WE HOLD THAT THE ASSESSEES CLAIM FOR BALANCE ADDITIONAL DEPRECIATION NOT ALLOWED IN THE ASSESSMENT YEAR 2004-05 IS TO BE ALLOWED IN THE A.Y. 2005-06 IS NOT TENABLE. THE ACTION OF THE ASSESSING OFFICER IS UPHELD AND THE ASSESSEES APPEAL IS DISMISSED. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE STAN DS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT 27. 12.20 11 SD/- SD/- (CHANDRA POOJARI) ( (ASHA VIJAYA RAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 27 TH DECEMBER, 2011 COPY FORWARDED TO: 1. M/S SAMRAKSHA ELECTRICALS LTD., 127, HYDERNAGAR, KU KATPALLY, HYDERABAD 2. THE DY. CIT, CIRCLE 3(1), HYDERABAD. 3. THE CIT(A)-GUNTUR 4. THE CIT, HYDERABAD 5. THE DR, ITAT, HYDERABAD NP/