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M/s Meenakshi (India) Limited Versus The Assistant Commissioner of Income Tax, Corporate Circle 4 (1) , Chennai

Disallowance of additional depreciation - asset put to use - Held that:- The Parliament by Finance Act, 2015 introduced third proviso to Section 32(1)(ii) of the Act providing for carry forward of the balance 50% of depreciation in the immediately succeeding previous year in respect of the asset. Probably, the Parliament might have taken the decision to incorporate third proviso to Section 32(1)(ii) after considering the conflicting judicial opinions on the subject. Whatever may be the reasons, .....

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ided in favour of assessee - ITA No.206/Mds/2016 - Dated:- 7-4-2016 - SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER For The Appellant by : Shri R. Kumar, Advocate For The Respondent : Sh. A.B. Koli, JCIT ORDER PER N.R.S. GANESAN, JUDICIAL MEMBER: This appeal of the assessee is directed against the order of the Commissioner of Income Tax (Appeals) - 8, Chennai, dated 03.11.2015 and pertains to assessment year 2012-13. 2. Shri R. Kumar, the Ld.counsel for the .....

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lance was claimed during the year under consideration. However, both the authorities below disallowed the claim of the assessee on the ground that there was no provision to carry forward the depreciation to the subsequent year. 3. On the contrary, Sh. A.B. Koli, the Ld. Departmental Representative, submitted that the CIT(Appeals) by placing reliance on the decision of this Tribunal in I.T.A. No.1069/Mds/2010 dated 06.01.2012, found that each assessment year is separate and independent, therefore .....

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epreciation under Section 32(1)(iia) of the Act. The balance 10% is now claimed during the year under consideration. The same was disallowed by the Assessing Officer on the ground that there is no provision in the Income-tax Act to carry forward the depreciation to subsequent year. 5. An identical claim was considered by this Tribunal in M/s Automotive Coaches & Components Ltd. v. DCIT in I.T.A. No.1789/Mds/2014 dated 12.02.2016. This Tribunal, after referring to the decision of Cochin Bench .....

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preciation at the rate of 20%. The Assessing Officer allowed 10% of additional depreciation in respect of the plant and machinery purchased during the year under consideration. The Assessing Officer found that the additions to fixed assets were made in the second half of the financial year, therefore, 50% of additional depreciation has been claimed. The balance 50% was carried forward in the next year. The Assessing Officer found that the additional depreciation is allowable only during the year .....

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uent year. In fact, the Cochin Bench of this Tribunal 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 e .....

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ad transport vehicles; or (D) Any machinery or plant, the whole of the actual cost of which is allowed as a deduction (whether by way of depreciation or otherwise) in computing the income chargeable under the head "Profits and gains of business or profession" of any one previous year." 10. We have also carefully gone through the Second Proviso to section 32(1)(ii) of the Act, which reads as follows: "Provided further that where an asset referred to clause (i) or clause (ii) o .....

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n 32(1)(iia) clearly says that in case a new machinery or plant was acquired and installed after 31-03-2005 by an assessee, who is engaged in the business of manufacture or produce of article or thing, then, a sum equal to 20% of the actual cost of the machinery and plant shall be allowed as a deduction. It is not in dispute that the assessee has acquired and installed the machinery after 31-03- 2005. It is also not in dispute that the assessee is engaged in the manufacture of article or thing. .....

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. 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 .....

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ext 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 Act. 12. This issue was considered by the Delhi Bench of this Tribunal in the case of Cosmo Films Ltd (supra). The revenue has taken a similar ground as taken before this Tribunal that the assessee cannot carry forward the additional depreciation to be allowed in the subsequent assessment year. The Delhi Bench of this Tribunal afte .....

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plant. The second proviso to section 32(1)(ii) restricts the allowances only to 50% where the assets have been acquired and put to use for a period less than 180 days in the year of acquisition. This restriction is only on the basis of period of use. There I no restriction that balance of one time incentive in the form of additional sum of depreciation shall not be available in the subsequent year. Section 32(2) provides for a carry forward set up of unabsorbed depreciation. This additional bene .....

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sions can be reasonably and liberally held that the assessee deserves to get the benefit in full when there is no restriction in the statute to deny the benefit of balance of 50% when the new machinery and plant were acquired and used for less than 180 days. One time benefit extended to assessee has been earned in the year of acquisition of new machinery and plant . It has been calculated @15% but restricted to 50% only on account of usage of these plant & machinery in the year of acquisitio .....

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ted 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 n .....

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in the asst.yr.2005-06, i.e. the immediately preceding assessment year. Therefore, obviously, the balance 50 per cent of the deduction is to be allowed in the current year, i.e. asst. yr. 2006-07. The learned CIT(A) has merely directed the verification of the contentions of the assessee and to allow the balance additional depreciation after such factual verification. Accordingly, finding no merit therein, ground No.3 raised by the Department is rejected." 14. A similar view was taken by Mu .....

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We have also carefully gone through the judgment of Karnataka High Court in Rittal India Pvt. Ltd. (supra). The Karnataka High Court, after extracting the provisions of Section 32(1)(iia) of the Act, found that beneficial legislation has to be interpreted liberally so as to benefit the assessee. Karnataka High Court has also found that the intention of the legislation is to allow additional benefit. The Karnataka High Court opined that the proviso would not restrain the assessee from claiming th .....

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, or only where a new industrial undertaking begins to manufacture or produce during any year previous to the relevant assessment year. 8. The aforesaid two conditions, i.e., the undertaking acquiring new plant and machinery should be a new industrial undertaking, OF that it should be claimed in one year, have been done away by substituting clause (iia) with effect from 01.0.2006. The grant of additional depreciation, under the aforesaid provision, is for the benefit of the assessee and with the .....

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imed by the assessee in the next assessement year. 9. The language used in Clause (iia) of the said Section clearly provides that "a further sum equal to 20% of the actual cost of such machinery or plant shall be allowed as deduction under Clause (ii)". The word "shall" used in the said Clause is very significant. The benefit which is to be granted is 20% additional depreciation. By virtue of the proviso referred to above, only 10% can. be claimed in one year, if plant and ma .....

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ll be allowed certain additional benefit, which was restricted by the proviso to only half of the same being granted in one assessment year, if certain condition was not fulfilled. But, that, in our considered view, would not restrain the assessee from claiming the balance of the benefit in the subsequent assessment year. The Tribunal, in our view, has righly held, that additional depreciation allowed under Section 32(1)(iia) of the Act is a one time benefit to encourage industrialization, and p .....

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