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2016 (2) TMI 706

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..... ower authorities. The Assessing Officer is directed to allow depreciation at the applicable rate on the payment relatable to goodwill. - Decided in favour of assessee Disallowance of expenditure which was capitalized in the books of account - expansion of the units - Held that:- Even though it is independent, because of the interconnection of management, financial, administrative and production aspects of each expenditure has to be construed as revenue in nature and therefore, deductible while computing the taxable income.By respectfully following the judgments of Madras High Court in Rane (Madras) Ltd. (2007 (6) TMI 25 - HIGH COURT, MADRAS ) and in Sakthi Sugars Ltd. (2010 (8) TMI 456 - MADRAS HIGH COURT), the orders of the 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 Hyderabad as revenue expenditure.- Decided in favour of assessee Assessee is eligible for additional depreciation Depreciation on the amount paid to SIPCOT towards development of infrastructure - Held that:- The assessee has contributed to SIPCOT for creation of common .....

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..... ee. 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, entitled for depreciation at the rate of 25%. 4. On the contrary, Sh. Pathlavath Peerya, the Ld. Departmental Representative, submitted that the assessee purchased the unit called Ductron Castings Unit during the financial year 2005-06 relevant to assessment year 2006-07, as going concern from Ashok Leyland Limited, for a total consideration of ₹ 62 Crores. The assessee-company apportioned the said 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 assessee. Referring to the order of the CIT(Appeals), more particularly, pages 9 and 10, the Ld. D.R. submitted that the assessee itself recognized two types of intangible assets acquired from the purchase of the Ductron Castings Unit of M/s Ashok Leyland Ltd. The assessee claimed before the lower authorities that techn .....

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..... the assessee is entitled for depreciation on the goodwill which is in the nature of commercial asset. In the case before us, it is not in dispute that the assessee has purchased Ductron Castings 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 Officer disallowed the claim of the assessee on the ground that the payment does not fall within the meaning of know-how, patent or copyright. The Assessing Officer has not considered the judgment of Apex Court in SMIFS Securities Ltd. (supra). The Apex Court, after considering the provisions of Explanation 3 to Section 32(1) of the Act found that the word any other business or commercial rights of similar nature in clause (b) of Explanation 3 indicates that goodwill will fall under the expression any other business or commercial rights of similar nature . In view of the above judgment of Apex Court 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 .....

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..... of capital expenditure or pre-operative expenditure which will be capitalized. At the best, the assessee may claim the same over a period of five years at the rate of 1/5th per year under Section 35D of the Act. According to the Ld. D.R., the expenditure 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 in the year in which the business activity or the new industrial undertaking is yet 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 either side and perused the relevant material available on record. It is not in dispute that the assessee admittedly manufacturing iron castings. The new u .....

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..... sing Officer has allowed 10% of depreciation 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 consideration is whether the additional depreciation which could not be allowed in the earlier year can be allowed during the year under consideration or not? This issue was examined by the Cochin Bench of this Tribunal in Apollo Tyres Ltd. v. ACIT (2014) 64 SOT 203. The Cochin Bench found that the additional depreciation can be allowed in the next year in case the same cannot be allowed in the earlier year. In fact, the Cochin Bench has observed as follows:- 9. We have considered the rival submissions on either 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 and installed after the 31st day of March, 2005, by an assessee engaged in the business of manufacture or production of any article or thing, a further sum equal to twenty per cent of the actual cost of such machinery or plant shall be allowed .....

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..... ional depreciation has to be allowed. It simply says that the assessee is eligible for additional depreciation equal to 20% of the cost of the machinery provided the machinery or plant is acquired and installed after 31-03-2005. Proviso to section 32(1)(iia) says that if the machinery 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 calculated at the prescribed rate. Therefore, if the machinery is put to use in any particular year, the assessee is entitled for 50% of the prescribed rate of additional depreciation. The Incometax Act is silent about the allowance of the balance 10% additional depreciation in the subsequent year. Taking advantage of this position, the assessee now claims that the year in which the machinery was put to use the assessee is entitled for 50% additional depreciation since the machinery was put to use for less than 180 days and the balance 50% shall be allowed in the next year since the eligibility of the assessee for claiming 20% of the additional depreciation cannot be denied by invoking Second Proviso to section 32(1)(ii) of the .....

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..... ed . Thus, the assessee had earned the benefit as soon as he had purchased the new machinery and plant in full but it is restricted 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 succeeding 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 made available in the subsequent year. The overall deduction of depreciation u/s 32 shall definitely not exceed the total cost of machinery and plant . In view of this matter, we set aside the orders of the authorities below and direct to extend the benefit. We allow ground no.2 of the assessee's appeal. Since we have decided ground no.2 in favour of assessee, there 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. Ther .....

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..... er amenities required for setting up of industrial unit for which the land was allotted. According to the Ld. counsel, the roads, bridges, etc. are on par with the factory buildings, therefore, the assessee is eligible for depreciation at 10%. Therefore, according to the Ld. counsel, the assessee 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 claiming depreciation, the assessee should be the owner of the land and the building. In this case, the assets said to be established by SIPCOT are not owned by the assessee. The assessee has neither developed asset such as roads, bridges, etc. nor owned them. The amount collected from the assessee was to create certain infrastructural facilities for common use by the Government in the area so that the individual plots become fit for residential or industrial use, as the case may be. These infrastructural facilities like roads, electrical lines, drainage, etc. will not form part of any tangible or intangible assets in the hands of the assessee. These infrastructures created by the SIPCOT may facilitate the S .....

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