TaxTMI 
TaxTMI 
TaxTMI 
Judgments on the issue in case of the same assesse:
PR. COMMISSIONER OF INCOME TAX Versus M/s IDMC LIMITED 2017 (10) TMI 732 - SUPREME COURT Dated: - 13 October 2017
Pr. Commissioner of Income Tax Versus M/s IDMC Limited - 2017 (2) TMI 644 - GUJARAT HIGH COURT Dated: - 25 January 2017
M/S. IDMC LIMITED VERSUS ASSISTANT COMMISSIONER OF INCOME TAX ANAND CIRCLE, ANAND 2016 (5) TMI 541 - ITAT AHMEDABAD in ITA. No: 143/AHD/2013
Dated: - 05 April 2016.
Other related judgments on issue of incentive:
ITC. LIMITED VERSUS COMMISSIONER OF INCOME-TAX 1992 (4) TMI 14 - CALCUTTA HIGH COURT
CIT v. Daudayal Hotels (P.) Ltd. 2008 (8) TMI 1 - GUJARAT HIGH COURT
Earlier articles on subject by the same author:
An Article By: - C.A. DEV KUMAR KOTHARI
December 21, 2011
Incentive by way of initial or additional depreciation under section 32(1)(iia) can be allowed in two years. January 1, 2013
In earlier articles written by the same Ld. Author it was opined and emphasized that the deduction allowed once on actual cost is in nature of incentive for making investment in machineries. Author had expressed his view that full amount of 20% should be allowed in first year and otherwise, in case of less than 180 days use in first year balance 10% can be allowed in second year when period of 180 days is completed.
Subsequently amendment was brought in the provision to allow balance 10% in second year. This amendment is curative so it should be applied retrospectively.
Supreme Court confirmed Gujarat High Court on incentive allowance – IDMC case:
The deduction is in nature of incentive and should be allowed liberally and in purpose seeking manner is now settled as the Supreme court has after hearing allowed COD petition and then dismissed appeal against judgment of the Gujarat High Court in case of IMDC (supra.). In that case the revenue has un-necessary disputed allowance for the reason that purchase and installation was not in the same year.
The issue was about additional depreciation claim @ 20% under Section 32 [1](iia) when machinery was purchased before 31st March 2005, but installed after 31st March 2005.
After hearing SLP was dismissed thus judgment of High Court stand confirmed to the effect that the provision of section 32(1)(iia) of the IT Act is required to be interpreted reasonably and purpose seeking manner. Strict and literal reading of section 32(1)(iia) of the IT Act will lead to an absurd result denying the additional depreciation to the assessee though admittedly the assessee has installed new plant and machinery. Under the circumstances, no error has been committed by the learned ITAT in allowing the additional depreciation at the rate of 20% on the plant and machinery installed by the assessee after 31st Day of March 2005 i.e. the year under consideration. The High court held that no substantial question of law arose.
Deduction being incentive should not be reduced from WDV:
Right from beginning the author had expressed view that one time deduction allowed on actual cost and not on WDV from year to year is not for depreciation of machinery but an incentive. Therefore, it should not be deducted from cost to determine WDV. The view of author find support from judgments in cases of ITC Ltd and :
Daudayal Hotels (P.) Ltd (supra.) In these judgments, considering nature of initial depreciation as incentive it was held that initial depreciation is not deductible from WDV. Now nature has been confirmed by the Supreme Court also in case of IMDC (supra.), as incentive. Therefore, to achieve purpose of incentive it is inevitable that it should not be deducted from WDV so as to achieve purpose. If the incentive is deducted from cost/ WDV, then the purpose of incentive shall be defeated and it will only be in nature of accelerate depreciation. That is not the purpose of incentive.
Readers are requested to read earlier articles and judgments for in-depth study on provisions relating to incentive.