2013 (5) TMI 856 - AT - Income Tax

Additional depreciation u/s. 32(1)(iia) in respect of machinery which was acquired in the previous year - Held that - The assessee is entitled to depreciation in the subsequent year if the entire depreciation is not allowed in the first year of installation. With this observation the appeal filed by the assessee company is treated as allowed for statistical purpose.

Summary

Issues: Claim for balance additional depreciation under section 32(1)(iia) of the Income Tax Act, 1961 for machinery acquired in the previous year relevant to A.Y. 2008-09 but claimed in A.Y. 2009-10.

Analysis:
The appeal was filed by the assessee against the order of the CIT(A)-22, Mumbai pertaining to A.Y. 2009-10. The main issue raised by the assessee was the disallowance of the claim for balance additional depreciation of Rs. 7,41,231 under section 32(1)(iia) for machinery acquired in the previous year but claimed in the subsequent year. The AO and CIT(A) disallowed the claim, stating that the assessee cannot claim the balance 50% depreciation in the subsequent year as per the proviso to section 32(1)(iia) of the Act.

The assessee, engaged in the business of manufacture and sale of iron and steel, had installed new plant and machinery after September 2007. Due to the machinery being put to operation for less than 180 days in the previous year relevant to A.Y. 2008-09, the company claimed only 50% of the additional depreciation rate, with the balance 50% claimed in A.Y. 2009-10. The CIT(A) held that the assessee cannot claim the balance depreciation in the subsequent year as per the proviso to section 32(1)(iia).

In the appeal before the ITAT, the assessee relied on decisions of the ITAT Delhi Bench to support the contention that there is no restriction on claiming deduction in the second year if complete depreciation was not allowed in the first year. The Delhi Bench observed that the intention behind the additional benefit was to promote industrialization, and the assessee should receive the benefit in full when there is no statutory restriction to deny the balance depreciation. It was noted that the overall deduction of depreciation under section 32 should not exceed the total cost of plant and machinery.

After considering the submissions and precedents, the ITAT held that the assessee is entitled to depreciation in the subsequent year if the full depreciation was not allowed in the first year of installation. The appeal filed by the assessee was treated as allowed for statistical purposes.

In conclusion, the ITAT Mumbai allowed the appeal, granting the assessee the claim for balance additional depreciation for machinery acquired in the previous year but claimed in the subsequent year, based on the interpretation of the provisions and precedents cited during the proceedings.