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Jt. CIT Cir. 8 (2) , Mumbai Versus M/s Lotus Energy (India) Ltd.

2016 (5) TMI 630 - ITAT MUMBAI

Entitlement to additional depreciation on plant and machinery - Held that:- Acquisition of the entire set of new machineries and plant whether acquired prior to or post 31-03-2005 was an integrated event in the chain of activity undertaken with common and sole goal of setting up new coke production plant by the assessee company which process got completed in April 2005 i.e. financial year 2005-06 with the completion of installation of the entire new machinery and plant as composite , so acquired .....

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uisition of new plant and machinery was an integrated and composite activity in the chain of events with the common and sole objective of setting up new coke production plant by the assessee company, as the installation of new machinery and plant which started in financial year 2004-05 got completed after 31-3-2005 with the commencement of commercial production starting in financial year 2005-06 i.e. post 31-03- 2005 with the plant becoming operational. Thus, in our considered view, the assessee .....

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011 passed by learned Commissioner of Income Tax (Appeals)- 17, Mumbai (hereinafter called the CIT(A) ), for the assessment year 2006-07. 2. The grounds raised by the Revenue in the memo of appeal filed with the Tribunal read as under:- On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing additional depreciation amounting to ₹ 83,55,387/- to the assessee without appreciating the facts of the case that the plant and machinery was not eligible for ad .....

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einafter called the A.O. ) observed that the assessee company has made a claim for allowability of additional depreciation for which the machinery or plant should have been acquired and installed after 31-3-2005. However, from the accounts of the assessee company, the AO noted that even though the plant and machinery in question was installed after 31-3-2005, but a large part of the acquisitions of the machineries were made before 31st March 2005. The assessee company did not respond to the show .....

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financial year 2005-06. In the Balance sheet for the financial year 2004-05, the plant and machinery in question was shown under the head capital work-in-progress which was evidenced by the Balance Sheet s of the assessee company for the two years. It was further submitted by the assessee company before the CIT(A) that the AO has misinterpreted the provisions of the section 32(1)(iia) of the Act by holding that both the acquisition and installation of plant and machinery should have taken place .....

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and install the plant and machinery after 31.3.2002. If the plant and machinery are acquired and installed after 31.3.2002, the assessee will be entitled for the additional depreciation subject to the fulfillment of the conditions regarding the substantial expansion in the installed capacity. Since the words used are "acquired and installed", therefore, both the conditions must be satisfied for the claim of additional depreciation. The machineries must have been acquired as well as in .....

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d with only after 31.3.2002 and, therefore, in our opinion, the assessee will be entitled for the additional depreciation." Since the facts and circumstances in the instant case are similar, following the decision of the Tribunal in the case of Kadillac Chemicals Pvt. Ltd. (supra), the CIT(A) directed the A.O. to allow claim of additional depreciation of the assessee company amounting to ₹ 83,55,387/- u/s 32(1) (iia) of the Act. The CIT(A) held that the provisions of Section 32(iia) o .....

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dated 29-08-2011 of the CIT(A), the Revenue is in appeal before the Tribunal. 8. The ld. D.R. submitted that as per provisions of Section 32(1)(iia) of the Act, the new plant and machinery are required to be acquired and installed after 31-3-2005 , as in the instant the same was also acquired prior to 31-03- 2005 but installed after 31-3-2005, hence, additional depreciation was not allowable because the conditions stipulated u/s 32(1)(iia) of the Act with respect to acquisition of new plant and .....

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A.O. has rightly disallowed the additional depreciation claimed by the assessee company. Ld. DR relied upon decision of Delhi benches of Tribunal in the case of International Cars and Motors Limited v. ITO in ITA No. 860/Del/2012 , orders dated 21-12-2012 9. The ld. counsel for the assessee company, on the other hand, submitted that the Finance Bill 2005 clearly stipulates that section 32(1)(iia) of the Act is amended in order to encourage investment , the initial depreciation on new machinery .....

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of section 32 of the Act. The requirement of creating a minimum increase of 10% in installed capacity for availing the initial depreciation was proposed to be eliminated. The ld. Counsel also submitted that the new plant and machineries were purchased prior to 31-03-2005 as also after 31-03-2005 for which details such as audited accounts, copies of ledger accounts are placed in the paper book filed with the Tribunal to substantiate the same. It is submitted by the ld counsel that the installatio .....

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03-2005 but the installation of new plant and machineries which commenced in financial year 2004-05 was completed after 31-3-2005 and commercial production started post 31-03-2005 . The Ld counsel prayed that the claim of additional depreciation should be allowed. The ld counsel relied upon decision of Mumbai Benches of the Tribunal in the case of Euro Pratik Ispat Private Limited v. ACIT in ITA no 1682/Mum/2011 , vide orders dated 02-04-2014. 10. We have heard the rival contentions and also per .....

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to in the proviso to the clause (iia) of section 32 of the Act. The requirement of creating a minimum increase of 10 percent in installed capacity for availing the initial depreciation is also proposed to be eliminated. We have also observed that section 32(1)(iia) of the Act stipulates that new machinery and plant should be acquired and installed after 31-3-2005 by an tax-payer and a further sum equal to twenty percent of the actual cost of such machinery or plant shall be allowed as deduction .....

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awn to the following observations of Hon ble Supreme Court in the case of Bajaj Tempo Limited v. CIT (1992) 196 ITR 188(SC) : The provision in a taxing statute granting incentives for promoting growth and development should be construed liberally; since the provision for promoting economic growth has to be interpreted liberally , restrictions on it too has to be construed so as to advance the objective of the provisions and not to frustrate it. The words used u/s 32(1)(iia) of the Act are acquir .....

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ing set up by the assessee company started in April 2005 i.e. in financial year 2005-06 when the new coke production plant set up by the assessee company became operational , which is an admitted position by the Revenue. The assessee company was incorporated on 2nd September 2004 i.e. in the financial year 2004-05 , and was engaged in setting up new industrial unit being coke production plant for the setting up of which new plant and machineries were acquired by the assessee company starting fro .....

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l. Once a new industrial project is initiated by an enterprise to be set up, then the entire composite plant and machineries which are acquired and installed are an integrated activities as the said plant and machineries can only function when they are integrated together as per technical requirements and specifications which can there-after lead to successful commissioning of the project to produce or manufacture the desired products/articles. The plant and machineries so acquired cannot be vis .....

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financial year 2005-06, the entire set of new machineries and plant were acquired by the assessee company as an integrated activity with the sole and common objective towards the setting up of new coke production plant which was carried out in financial year 2004-05 and in financial year 2005-06 , with the installation of said new plant and machineries getting completed in April 2005 with the commencement of commercial production of LAM coke in April 2005 when the said new plant became operation .....

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w machineries and plant which were acquired before 31-03-2005 and also post 31-03-2005 were all purchased as an integrated activity connected with the common and sole objective directed towards activity of the assessee company to set up new coke production plant which become operational in financial year 2005-06 with completion of installation of these new plant and machineries in April 2005 when all these machineries and plant were put to use after installation with start of commencement of com .....

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that the assessee company has purchased new plant and machinery in financial year 2004-05 which is undisputed and the same was shown in the Balance Sheet as at 31-03-2005 under the head Capital Work in Progress and the same was capitalized in financial year 2005-06 along with those new plant and machineries which were acquired in financial year 2005-06 and the assessee company has not claimed any depreciation in the financial year 2004-05 on these new plant and machineries so acquired in financi .....

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-2005 with the commencement of the production of coke production plant becoming operational in April 2005. We find that the conditions as stipulated u/s 32(1)(iia) of the Act are duly complied with by the assessee company and the assessee company cannot be denied the benefit of the claim of additional depreciation merely because new plant and machinery was acquired partly prior to 31-3-2005 and partly post 31-03-2005 as the entire activity of acquisition of new plant and machinery was an integra .....

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ciation u/s 32(1)(iia) of the Act amounting to ₹ 83,55,387/- during the assessment year 2006-07. Our view is fortified by the decision of Ahmedabad Bench of the Tribunal in the case of Kadillac Chemicals Pvt. Ltd. (supra) which observed as under:- "We noted that as per the provisions of this section the assessee has to acquire and install the plant and machinery after 31.3.2002. If the plant and machinery are acquired and installed after 31.3.2002, the assessee will be entitled for th .....

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as the machinery worth ₹ 98,67,031/ are concerned. The machinery has been purchased by the assessee after 31.3.2002 and installed after 31.3.2002. The machinery of ₹ 75,44,577/- though purchased by the assessee before 31.3.2002 but since installed after 31.3.2002, the last condition of installation of the machinery is complied with only after 31.3.2002 and, therefore, in our opinion, the assessee will be entitled for the additional depreciation." Reliance was placed by the asses .....

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t manufacturing or producing any article or thing on or after the 01.04.2002 or to any industrial undertaking existing before that date if it achieved substantial expansion during the previous year by way of increase in its installed capacity by not less than ten per cent. However, in order to encourage investment, by inserting a new section, AD was allowed to the industry on the condition that the assets should have been acquired and installed after 31.3.2005. In our opinion, provisions of sect .....

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evant year for the grant of allowance would be the year in which the installation is completed.As in the case of investment allowance, so also in the case of AD,the material date is the date of installation and not the year of acquisition.Our views are based on the judgment of the Hon ble Calcutta High Court,delivered in the case of Surama Tubes(P.)Ltd. (201ITR124).In the case under consideration, AD has been disallowed by the FAA on the ground that P&M were acquired before 31.03.2008.In our .....

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ecause of the sheer volume of the work to be carried out.If an assessee is not successful in installing P&M in one year and carries forward the installation work in subsequent year/years it cannot be denied any benefit on the ground that it had acquired the P &M in earlier year.The intent of the legislature was to attract investment,so in our opinion the section can be termed as benevolent provision.In the case under consideration production started from 01.01.2006.Before that fabricatio .....

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Tubes(P.)Ltd. 201 ITR 124(Cal. HC.), whereby Hon ble Calcutta High Court while dealing with the allowability of benefits of investment allowance and additional depreciation held as under : If the installation of a plant is spread over more than a year, the relevant year for the grant of allowance would be the year in which the installation is completed. As in the case of investment allowance, so also in the case of additional depreciation, the material date is the date of installation and not th .....

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chines and depreciation was only claimed on the machines which were shown as machines of the assessee in the fixed assets schedule. Two things would, therefore, be clear ; firstly, these machines were new and they were under installation and the installation was completed during the year under reference ; and secondly, no depreciation was ever claimed by the assessee prior to this assessment year on these machines. This finding of the Tribunal has not been challenged. The Tribunal also found tha .....

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