Additional depreciation us 32(1)(iia)-There is no provision for postponement or carry forward to next financial year

In a recent judgment, ITAT Chennai has held that the assessee is not entitled to additional depreciation u/s.32(1)(iia) of the Income Tax Act, 1961 on the machineries acquired in earlier year than the relevant financial year as there is no provision for postponement or carry forward of the residual additional depreciation.

Case Details:
ITA No. 1932/Mds./2015 Assessment Year :2011-12
Deputy Commissioner of Income Tax vs. M/s.Sree Jayajothi Cements Ltd.
Date of Judgment/Order: 06/04/2016

Brief facts of the Case:
The assessee-company was engaged in the business of cement manufacturing at Andhra Pradesh.  The assessee had commenced business only during Financial Year 2010-11. For the relevant ay, the assessee revised its return of income claiming additional 20% depreciation u/s.32(1)(iia). The Assessing Officer allowed the normal depreciation but disallowed the additional depreciation as the revised return was filed belatedly.

Assessing Officer opined that the claim of additional depreciation in revised return filed not allowable as return filed was invalid return. The AO also observed that the machineries were not acquired and installed in same Financial Year 2010-11 relevant to assessment year 2011-12 but they already existed in block of plant and machinery as on 31.03.2010 and at best the additional depreciation for the Financial Year 2010-11 can at best be restricted to the plant and machinery acquired after 31.03.2010. According to the AO, the machineries were acquired and installed during the Financial Year 2009-10 was ready to use and the assessee was eligible for normal additional depreciation only during the financial year 2009-10.

The assessee went in appeal before CIT(A) who observed that the assessee claimed depreciation for the first time and had not claimed any depreciation on plant and machinery in the earlier years. He aslso noted the AO granted the normal depreciation on plant and machinery purchased in the earlier also but only for the purpose of granting additional depreciation, he did not treated the plant and machinery as new one. Accordingly CIT(A) allowed the appeal.

ITAT held :

(a) if the claim of assessee is in accordance with law, it should be allowed by AO, even if it was not claimed or claimed in a revised return filed belatedly.

(b) The legislature intent was to give additional depreciation benefit in the year assets were put to use and not for any succeeding assessment year.

Excerpts from ITAT Judgment:

The primary contention of the ld.D.R is that the revised return is belated and the claim made in that return cannot be entertained by the AO. In our opinion, if the claim of assessee is in accordance with law, it should be allowed by AO, though there is no claim by the assessee also in respect of depreciation or additional depreciation. This was made clearly by CBDT Circular No.14(X4-35) dated 11.04.1955.

The provisions of the section 32(1)(iia) stipulates the granting of additional depreciation on new plant and machinery which has been acquired and installed after 31st day of March, 2005 by assessee engaged in the business of manufacture or production of any article or thing……..The first requirement for claiming additional depreciation is that it should be a new plant and machinery. The machinery was new only when it is first put to use. When it is already installed in earlier assessment year, it was no more new machinery or plant. Once it was not a new machinery or plant, the additional depreciation u/s.32(1)(iia) cannot be allowed.

….. cannot be any presumption that unless a claim is specifically denied, it has to be allowed. In our opinion, each assessment year is separate and independent assessment year. The provisions of the section 32 of the Act do not provide for postponement or carry forward of the residual additional depreciation, if any, in subsequent assessment years. Further, it is to be noted that when an allowance, which is ordinarily not available under normal commercial principles of accounting, is made specifically allowable, through enactment for certain specific provisions of the Act, it is also a requirement that there should be similar specific provisions, which shows its applicability every year, unless the context strongly calls for such an interpretation.

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