Additional depreciation on small items engaged in manufacturing of food products allowed. It cannot be denied for installing items at retail outlets
ABCAUS Case Law Citation:
ABCAUS 3020 (2019) (06) ITAT
The appeal by the assessee was directed against the order passed by the Commissioner of Income-tax (Appeals) in denying the additional depreciation holding that the plant machinery in question were not involved in the actual process of manufacture.
The assessee company was engaged in the business of manufacturing and selling of “sweets” and “Namkins” through various restaurants or outlets.
The case of the assessee was selected for scrutiny and notice under section 143(2) of the Income-tax Act, 1961 ( ‘the Act’) was issued and complied with.
The Assessing Officer disallowed the claim of additional depreciation under section 32(1)(iia) of the Act on certain items of fixed assets.
On further appeal, the CIT(A) upheld the disallowance on the grounds that:
(i) those items of assets were not installed at the factory premises; and
(ii) those items were not involved in the actual process of manufacturing of food products/sweets/Namkins etc.
Aggrieved with the finding of the CIT(A), the assessee was in appeal before the Tribunal.
The Tribunal observed that as per the provisions of section 32 (1)(iia) of the Act, an assessee engaged in the business of manufacturing or production of any article or things is entitled to claim additional depreciation in respect of new plant or machinery (other than ships and aircrafts) acquired and installed after 31/03/2005, subject to fulfillment of specified conditions. The additional depreciation is allowable at the rate of 20% of the actual cost of such plant and machinery in the year in which same is required and put to use.
However, as per the proviso to section 32 (1)(iia), the additional depreciation will not be available for the followings:
(i) any machinery or plant which was used by any other person, before its installation by the assessee (ii) any machinery or plant, which was installed in any office premises or residential accommodation including a guesthouse (iii) any office appliance or road transport vehicles (iv) any plant and machinery, the whole of at the actual cost of which was allowed a deduction( whether is depreciation or otherwise) in anyone previous year.
It was noted that that in the year under consideration, the assessee had claimed additional depreciation on Top Sealer, generator canopy, Lassi Machine, Heavy mixi, Daal Grinder etc.
The Tribunal noted that in the preceding assessment year also the additional depreciation was claimed on similar items of fixed asset and the Tribunal had allowed the appeal of the assessee.
It was noted that the Tribunal had held the activity of the assessee as manufacturing and found the assessee eligible for claim of additional depreciation on plant and machinery. The Tribunal had held that the additional depreciation cannot be denied to the assessee for installing the items of the assets at retail outlets, because retail outlets are not either office promises or residential accommodation in the nature of the guesthouse as per the proviso to section 32(1)(iia) excluding the additional depreciation.
The Tribunal opined that the additional depreciation in the year under consideration also cannot be disallowed on the ground that those items were not installed at the factory premises of the assessee.
The Tribunal opined that “TOP sealer” without doubt are used for sealing containers for supply of food to the customers, which is part of the process of manufacturing and delivery of the products of the assessee and thus additional depreciation on the same is allowable.
Similarly, the Canopy of Generator is part of the entire plant and machinery engaged for manufacturing. And additional depreciation on canopy of the generator is also allowable.
Similarly, the Tribunal held that there was no doubt that the Big and small items were the items of assets items Mixi, Lassi machine, Grinder Machine, Charcoal Griller, Table top burner, Gas Plant Tandoor, “Kadahi” Table, Selves Barcket engaged in manufacturing of food products/sweets/namkins etc.
The Tribunal rejected the contention of the CIT(A) in upholding the disallowance. Respectfully following the finding of the Tribunal in the immediately preceding assessment year the Tribunal allowed the claim of the additional depreciation of the assessee in the year under consideration also.