TMI Blog2010 (7) TMI 953X X X X Extracts X X X X X X X X Extracts X X X X ..... . Accordingly, we reverse the order of lower authorities on this issue. This issue of the assessee s appeal is allowed. CIT(A) in confirming the disallowance of additional depreciation on plant and machinery - The facts in the present case before us are on better footing that the assessee-company s installed capacity in made-ups has increased substantially i.e. more than 25%. From the facts, We also find that the assessee has filed audit report in Form No.3AA under rule 5A as prescribed in respect of made-ups division of the assessee-company, whereby the assessee has increased the capacity of bed sheets from 15.60 lakh to 20 lakh in the present year. The capacity is based on number of sewing machines installed in the year under consideration and according to the auditor there has been substantial addition in the number of sewing machines that resulted into increase in the installed capacity substantially. Respectfully following the decision in the case of Hindustan Newsprint Ltd. [ 2009 (3) TMI 1006 - KERALA HIGH COURT] , we allow the claim of the assessee. - Shri G.D. Agarwal And Shri Mahavir Singh, JJ. For The Revenue : Shri Gaurav Batham, DR For The Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... switches, sockets, other fittings and fans etc. Therefore, the Assessing Officer has rightly allowed depreciation @ 15% and disallowed the excess depreciation This ground is accordingly dismissed. We find from the arguments of both the sides as well as the orders of the lower authorities that the nature of assets i.e. electrical installation that consists of electrical wires, switches, plugs, cables, MCB box and electrical items, which cannot function independently, rather, this is a part of plant machinery and it cannot be classified under furniture and fittings. Accordingly, we are of the view that assessee is eligible for depreciation under the block of plant machinery @ 25%. We allow the claim of the assessee and this issue of the assessee s appeal is allowed. 4. The next issue in this appeal of assessee is against the order of CIT(A) confirming the disallowance of interest. For this, assessee has raised the following ground No.2:- The learned C.I.T. (Appeals) also erred in confirming the disallowance of ₹ 1,97,226/- ion respect of interest expenses. On the facts of the case advances given to the Suppliers of purchase were for the purpose of business and h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and installed during the curse of substantial expansion of business by way of increase in installed capacity of the Industrial Undertaking which existed before 01-04-2002 but the AO observed that the working furnished by the assessee showed that the installed capacity on 31-03-2002 of 15,60,000 bed sheets had increased on the basis of sewing machines installed to 20,00,000 but the capacity of towel division has not been altered. Further, the assessee had not furnished the report in form No.3AA from chartered accountant along with the return of income but assessee furnished during the assessment proceedings. In view of the above facts, AO disallowed the claim of additional depreciation. Aggrieved, assessee preferred appeal before CIT(A). 8. The CIT(A) confirmed the action of the Assessing Officer by giving in para-6.1 of his appellate order:- 6.1 Disputing the said issue, the Ld. Authorized Representative submitted before me that the installed capacity of Made-Ups has increased from 15,60,000 to 20,00,000 sets i.e. more than 25%, the differentiation between bed sheets and towel division made by the Assessing Officer was not correct and that the capacity as a whole was to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 32 (1) (iia) as inserted by the Finance (No.2) Act, 2002, w.e.f. 1-4- 2003 in the case of any new machinery or plant (other than ships and aircraft), which has been acquired and installed after the 321st day of March, 2002, by an assessee engaged in the business of manufacture or production of any article or thing, a further sum equal to fifteen per cent, of the actual cost of such machinery or plant shall be allowed as deduction under clause (ii): Provided that such further deduction of fifteen per cent shall be allowed to (A) a new industrial undertaking during any previous year in which such undertaking begins to manufacture or produce any article or thing on or after the 1st day of April, 2002; or (B) any industrial undertaking existing before the 1st day April, 2002, during any previous year in which it achieves the substantial expansion by way of increase in installed capacity by not less than twenty-five per cent: Provided further that no deduction shall be allowed in respect of (a) any machinery or plant which, before its installation by the assessee, was used either within or outside India by any other persons ; or (b) any machinery or pla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pacity substantially. We find that the assessee has field complete bills vouchers for purchase of sewing machines from various suppliers before the lower authorities and even before us. Now the question arises, whether increase in substantial capacity of one unit of the Industrial Undertaking constitute increase in substantial capacity in terms of Section 32(1)(iia) of the Act or not. This issue has been answered by the Hon ble Kerala High Court in the case of CIT v. Hindustan Newsprint Ltd. (2009) 227 CTR 571 (Ker), herein Hon ble High Court has considered the facts as, there is nothing to indicate that the assessee cannot sell pulp as a product and the fact that pulp is an intermediary product and is generally consumed captive in the manufacture of newsprint does not mean that pulp is not a product that cannot be marketed by the assessee as and when they desire. Hon ble High Court further considered that there is no dispute that pulp is a marketable commodity and if there is reduction in the manufacture of final product on account of any reason, necessarily assessee will have to market the excess pulp produced. Thus, pulp being a marketable commodity produced by the assessee, t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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