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TMI Blog2012 (12) TMI 560X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee had not filed along with the return of income audit report in Form 3AA, as prescribed in third proviso to Section 32(1)(iia) of the Act as it stood at the relevant point of time. When put on notice, assessee claimed that there was an addition of 40 looms in its weaving division resulting in an increase in the capacity by 83.33%. While calculating increased capacity, assessee considered only its weaving division. Assessing Officer was of the opinion that the claim could not allowed for two reasons. First was that assessee had not filed required audit report for claiming additional depreciation, along with return of income. Second was that increase in capacity was considered by the assessee in a restrictive manner limited to a division, whereas, the term "industrial undertaking" mentioned in Section 32(1)(iia) had a wide meaning. According to A.O., the claim of additional depreciation could be allowed only if the industrial undertaking itself achieved substantial expansion by way of increase in installed capacity of not less than 10%. As per the A.O., installed capacity of the entire company had to be taken into account and not that of a particular unit or plant. If th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pacity, rotor capacity and loom capacity separately. Loom capacity pertained to weaving division alone. Cloth produced with 48 looms was 7776 meters, whereas, with 88 looms, the production capacity increased was 14656 meters and therefore, there was a capacity increase of 80%. In this view of the matter, he was of the opinion that the claim of additional depreciation had to be allowed. 5. Now before us, learned D.R., strongly assailing the order of CIT(Appeals), submitted that the undertaking had to be considered as a whole and not division wise. According to him, only the loom capacity had increased, whereas, capacities in other divisions remained same. Therefore, according to him, assessee could not satisfy the conditions specified under Section 32(1)(iia) for justifying the claim of additional depreciation. According to learned D.R., CIT(Appeals) fell in error when he allowed the claim of the assessee. 6. Per contra, learned A.R. supported the order of CIT(Appeals). 7. We have perused the orders and heard the rival submissions. In the first place, we find that the issue is not regarding additional depreciation on windmill but, additional depreciation on machinery installed i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s defined in the Explanation below sub-section (2) of section 288 certifying 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 a undertaking which is not formed,- (a) By the splitting up, or the reconstruction, of a business already in existence; or (b) By the transfer to a new business of machinery or plant previously used for any purpose; (2) "installed capacity" means the capacity of production as existing on the 31st day of March 2002" Clause (B) in first proviso above clearly mentions that in the case of existing industrial undertaking there has to be an increase of installed capacity by not less than 10%. Assessing Officer was of the opinion that the number of machines used by assessee should go up by 10% for satisfying this proviso. Explanation (2) clearly mentions that "installed capacity' means capacity of production. The nature of the processing and manufacture and composition of a textile mill was clearly analysed by Hon'ble Apex Court in the case of CIT v Saravana Spinning Mills P. Ltd. (2007) 293 ITR 201 (SC) though, it was in relati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /divisions perform different functions and the functioning of each Department/division produces a different output which is carried forward to the next Department/division having different machines therein. For example, in the blow room there are different beaters (machines) which open the raw cotton and remove the dirt therefrom. That cotton is forwarded to the Carding Department in which there are carding machines equipped with autolevelers which produces silver which is then carried forward to the combing Department. It is important to note that each Department has different items of machines, for example, in the blow room we have machines called as beaters. Similarly, in the Carding Department we have carding machines with autolevelers. If the autoleveler fails, the carding machine becomes non-functional. If an autoleveler is to be repaired then that repair would come within the connotation of the word "current repairs" because it is a part of the carding machine. Even if in a given case, replacement of an autoleveler could come within the connotation of the word "current repairs" if the old part is not available in the market. It is a "current repair" because the carding mach ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lant with continuous process of manufacture. Different outputs come from different segments of production or in other words, each of segment can be considered as independent and production from each segment becomes input of the next segment for further processing. Each of the segment is having separate capacities. Therefore, giving a very narrow interpretation to the term "industrial undertaking" for the purpose of interpretation of Section 32(1)(iia), in our opinion, would not be desirable, in the case of textile mills. If the weaving division is considered independently, undisputedly, the capacity had increased by almost 80%. In the nature of business of the assessee, as mentioned above, we are of the opinion that the weaving division can be considered as a separate undertaking. Its expansion having resulted in installed capacity by going up more than 10%, additional depreciation was indeed allowable. As for the view of the A.O. that non filing of audit report in Form 3AA fatally effected the claim of the assessee, we are unable to appreciate. It is for the reason that admittedly it was filed during the course of assessment proceedings though belatedly. As held by Hon'ble Kerala ..... X X X X Extracts X X X X X X X X Extracts X X X X
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