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31-10-2019, Heidelberg Cement India, Section 32(i)(iia), Tribunal Delhi
This appeal filed by the assessee is directed against the order dated 1st February, 2016 of the CIT(A)-1, Gurgaon, relating to assessment year 2011-12.
2. Grounds of appeal No. 1 and 1.1 raised by the read as under:-
“1. The Ld. CIT(A) has erred on facts and in law, in confirming the disallowance made by the Ld. AO, amounting to INR 87,12,690/-, on account of additional depreciation claimed by the Appellant on new Plant and Machinery in accordance with the provisions of Section 32(i)(iia) of the Act.
1.1 The Ld. CIT(A) / Ld. AO erred on facts and in law, in considering only the nomenclature of the assets to hold the disallowance, without appreciating the detailed nature and use of the assets.”
3. Facts of the case, in brief, are that the assessee is a company engaged in manufacturing high quality cement. It filed its return of income on 30.11.2011 declaring the total income of Rs.50,95,00,880/-. During the course of assessment proceedings, the Assessing Officer noted that the assessee has claimed additional depreciation to the tune of Rs.3,03,91,277/-. From the various details filed by the assessee, the Assessing Officer noted that there are several items on which additional depreciation has been claimed that are not required for manufacturing activity or are mere replacements of plant & machinery earlier in use. He, therefore, asked the assessee to justify the same and to explain as to why the claim of additional depreciation on the various items as per para 1.1 of his order be not disallowed. The assessee, in response to the said notice submitted that all the items as pointed out by the Assessing Officer are integral part of the Plant & machinery which are essential for the smooth operations of the plant & machinery. It was explained that such items are not capable of being used in isolation since the application of such items is essentially based on the functionality of the plant & machinery. Therefore, they form an integral part of the plant and are to be treated as plant for the purpose of allowing additional depreciation.
4. However, the Assessing Officer was not satisfied with the argument advanced by the assessee. He referred to the provisions of section 32(1)(iia) of the Act and observed that the said section clearly allows additional depreciation for acquisition and installation of new plant & machinery and not for replacement of parts of plant & machinery in existence/use. He accordingly disallowed an amount of Rs.87,12,690/- being excess claim of additional depreciation made by the assessee.
5. In appeal, the ld.CIT(A) upheld the action of the Assessing Officer. While holding so, he observed that the large amount of claim is related to rope for the Ropeway and coal shed. The details filed by the assessee shows that the expenses are for replacement of burner, mot r, waste gas fan, primary air fans, etc. According to him, these are not new machinery which has been purchased by the assessee, but, these are in the nature of repair and maintenance of the existing machinery. Relying on the decision of the Hon'ble Delhi High Court in the case of Anurena Tristar vs. ITO (2011) 330 ITR 168 and the decision of the Jodhpur bench of the ITAT in ACIT vs. Friends Engineering Works (2012) 46 (II) ITCL 440, the ld.CIT(A) rejected the claim of additional depreciation made by the assessee.
6. Aggrieved with such order of the CIT(A), the assessee is in appeal before the tribunal.
7. The ld. counsel for the assessee strongly challenged the order of the CIT(A) in denying the claim of additional depreciation. He submitted that the genuineness of the items purchased are not in dispute. Referring to the decision of the Hon'ble Supreme Court in the case of CIT vs. Saravana Spinning Mills, 293 ITR 201, he submitted that the Hon'ble Supreme Court in the said decision has held that the manufacturing process in the textile mill was not one continuous integrated process. That each machine including the ring frame was an independent and separate machine capable of independent and specific function and, therefore, the expenditure incurred for replacement thereof would not come within the meaning of current repairs. The replacement of the ring frame constituted substitution of an old asset by a new asset and, therefore, the expenditure incurred by the assessee did not fall within the meaning of current repairs u/s 31(1) of the Act. Referring to the decision of the Hon'ble Supreme Court in the case of CIT vs. Mir Mohammad Ali, reported in 56 ITR 165, he submitted that where the assessee, a transport operator replaced pet ol engines in two of his buses by new diesel engines, the Hon'ble Supreme Court held that the assessee was entitled to extra depreciation under the provisions of section 10(2)(via) of 1922 Act in respect of engines so replaced. He accordingly submitted that the assessee is entitled to additional depreciation and, therefore, the CIT(A) was not justified in rejecting the claim of the assessee.
8. The ld. DR, on the other hand, heavily relied on the order of the CIT(A). She submitted that if the expenses of repair and maintenance of the existingmachinery are permitted, then, even the repair expenditure would be entitled to additional depreciation. She accordingly submitted that the order of the ld.CIT(A) being in accordance with law should be upheld.
9. We have considered the rival arguments advanced by both the sides and perused the orders of the Assessing Officer and the CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find, the Assessing Officer, in the instant case, disallowed additional depreciation to the tune of Rs.87,12,690/- on the ground that additional depreciation is allowable only for acquisition and installation of new plant & machinery and not for replacement of parts of plant & machinery already in existence/use. We find the ld.CIT(A) upheld the action of the Assessing Officer on the ground that the various items on which additional depreciation has been disallowed are not new machinery which has been purchased by the assessee, but, it is in the nature of repair and maintenance of existing machinery. It is the submission of the ld. counsel for the assessee that when the Assessing Officer has allowed normal depreciation on the plant & machinery which was purchased during the year, therefore, the assessee is entitled to additional depreciation on plant & machinery. We do not find any merit in the arguments advanced by the ld. counsel. The provisions of section 32(1)(iia) clearly mention that in the case of