Case Law Details
Indorama Industries Limited Vs ITO (ITAT Delhi)
ITAT Delhi held that as per definition of block of assets u/s. 43(6)(c) of the Income Tax Act there is no condition that the plant and machinery must have been put to use for claiming depreciation.
Facts- In course of assessment proceedings, the Assessing Officer, while examining assessee’s claim of deprecation, noticed that the assessee has capitalized investment made in plant and machinery in the second half of the year and claimed depreciation thereon.
AO was not fully convinced with the details furnished by the assessee. He was of the view that evidences furnished by the assessee do not conclusively prove that the plant and machinery were put to use before the end of the financial year and commercial production has commenced. Accordingly, he disallowed the claim of depreciation for an amount of Rs.64,76,819. Though, the assessee contested the aforesaid disallowance before learned Commissioner (Appeals), however, it was unsuccessful.
Conclusion- On a reading of section 43(6)(c) of the Income Tax Act, we find that as per the definition of block of assets therein, there is no condition that the plant and machinery must have been put to use. The only condition is that the assets must have been acquired during the relevant year.
FULL TEXT OF THE ORDER OF ITAT DELHI
This is an appeal by the assessee against order dated 24.06.2019 of learned Commissioner of Income-Tax(Appeals) -4, New Delhi, pertaining to assessment year 2016-17.
2. The dispute in the present appeal is confined to disallowance of depreciation of Rs.64,76,819.
3. Briefly, the facts are, the assessee is a resident corporate For the assessment year under dispute, assessee filed its return of income on 28.11.2016 declaring loss of Rs.22,25,48,952. As stated by the Assessing Officer, the assessee is engaged in the business of manufacturing spandex yarn in a factory located at Plot No. 10, Village Lodhi Majra, Tehsil Baddi, Himachal Pradesh.
4. In course of assessment proceedings, the Assessing Officer, while examining assessee’s claim of deprecation, noticed that the assessee has capitalized investment made in plant and machinery in the second half of the year and claimed depreciation thereon. Noticing this, the Assessing Officer called upon the assessee to furnish the following details:
“1. Date of issuance of electric meter and connection installation report:
2. Certificate of chartered Engineer;
3. Date of commencement of commercial production;
4. Details of salary wages register with bank statement showing payment;
5. Copies of securities bills; &
6. Service tax or sales tax registration adding the plant and machinery as assets.”
5. In response to the query raised, assessee furnished its reply stating that it has invested in a pilot project in the same factory premises with capacity of one MT per day as on 15.03.2016. Along with details of plant and machinery installed for the pilot project, the assessee also furnished a certificate from a chartered engineer regarding successful commissioning of the pilot project. The Assessing Officer, however, was not fully convinced with the details furnished by the assessee. He was of the view that evidences furnished by the assessee do not conclusively prove that the plant and machinery were put to use before the end of the financial year and commercial production has commenced. Accordingly, he disallowed the claim of depreciation for an amount of Rs.64,76,819. Though, the assessee contested the aforesaid disallowance before learned Commissioner (Appeals), however, it was unsuccessful.
6.Before us, learned counsel appearing for the assessee submitted that the assessee is having an existing manufacturing unit/factory with existing electricity connection and complied with all other regulatory measures. He submitted, the pilot project undertaken by the assessee is in the same factory premises and plant and machineries were added to the block of assets during the year and since the plant and machinery were put to use, the assessee claimed depreciation under Section 32 of the Act.
7. In this context, he drew our attention to the certificate dated 03.2016 issued by a chartered engineer. Thus, he submitted, there cannot be any doubt that the assessee had put to use the plant and machinery before the end of the relevant financial year. He submitted, the reasoning of the departmental authorities that the assessee had not taken the service tax registration and fresh electricity connection is totally irrelevant, as, the pilot project was started in the same factory premises which already had electricity connection and service tax registration etc.
8.Without prejudice, learned counsel submitted, as per the definition of block of assets under Section 43(6)(c) of the Act, there is no condition of put to use once the asset falls within a particular block. The only condition is, the assets must have been acquired during the previous year. Further, he submitted, assessee’s claim of depreciation in all subsequent years on the very same block of asset, has been allowed in scrutiny assessments completed under Section 143(3) of the Act. Thus, he submitted, depreciation claimed may be allowed.
9. Learned Departmental Representative strongly relied upon the observations of the Assessing Officer and learned Commissioner (Appeals). Further, he submitted, the certificate issued by the chartered engineer only speaks of commissioning of the plant and machinery and doesn’t speak of commencement of production.
10. We have considered rival submissions and perused the material available on record.
11. The facts and material on record reveal that there is no dispute between the parties that in the year under consideration, the assessee had purchased plant and machinery for the pilot project and has installed them. The dispute is only with regard to the fact, whether, such plant and machinery has been put to use during the year to entitle the assessee to claim depreciation. It is observed, in course of assessment proceedings, the assessee has furnished a certificate issued by a chartered engineer, wherein, it has been certified that pilot project for new product development trial to meet the specific requirements of customer was successfully commissioned on 15.03.2016. In the said certificate, the chartered engineer has mentioned the list of plants and machineries installed for the pilot project. As could be seen, the departmental authorities have disbelieved assessee’s claim on the ground that the assessee has failed to furnish evidence to indicate that fresh electricity connection and service tax registration etc. have been taken for the pilot project. The aforesaid reasoning of departmental authorities, in our view, are unsustainable considering the fact that the pilot project is in the premises of the existing with electricity connection and has complied to all other government rules and regulations.
12. It is further evident that the pilot project is only for the purpose of new product development trial for the products manufactured in the existing factory. Therefore, once, it has been certified that the pilot project had been successfully commissioned on 15.03.2016, assessee’s claim that it has been put to use, is acceptable. This is so because, it is highly improbable that the assessee would keep the plant and machineries idle even after successful commissioning. Admittedly, the Assessing Officer has not conducted any field enquiry to ascertain the fact whether the plant and machinery was put to use or not. Even, otherwise also, there is no dispute that the plant and machinery installed for the pilot project have been added to the existing block. In fact, in subsequent assessment years, the Assessing Officer has allowed assessee’s claim of depreciation on the capitalized plant and machinery of the pilot project. On a reading of section 43(6)(c) of the Act, we find that as per the definition of block of assets therein, there is no condition that the plant and machinery must have been put to use. The only condition is that the assets must have been acquired during the relevant year.
13. In the aforesaid view of the matter, we hold that assessee’s claim of depreciation is allowable. Accordingly, we delete the disallowance. Grounds are allowed.
14. In the result, the appeal is allowed.
Order pronounced in the open court on 10th May , 2023.
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