2009 (11) TMI 930 - AT - Income Tax

Tribunal Allows Additional Depreciation & Gratuity Deduction, Reverses Disallowance

The Tribunal allowed the assessee's claim for additional depreciation on new plant & machinery installed after 31-03-2002, as both acquisition and ... - ISSUES PRESENTED AND CONSIDERED 1. Whether the assessee is entitled to additional depreciation under section 32(1)(iia) where parts of the plant and machinery were acquired before 31-03-2002 but installed after 31-03-2002, given the statutory phrase 'acquired and installed after 31st day of March, 2002'. 2. Whether the claim for additional depreciation under section 32(1)(iia) is admissible where the assessee asserts a substantial expansion (over 25%) in installed capacity certified by a Chartered Accountant in Form No.3AA, notwithstanding conflicting figures in the Balance Sheet. 3. Whether depreciation on newly installed plant and machinery is allowable when the assessing officer disallows it on the ground that labour/installation work was not completed by the relevant year-end (31-03-2003), relying on final bills dated after that date. 4. Whether deduction for contributions to an Employees' Group Gratuity-cum-Life Assurance Scheme is allowable where the scheme has been approved by the tax authority with effect from an earlier date. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Construction of 'acquired and installed after 31-03-2002' in section 32(1)(iia): legal framework Legal framework: Section 32(1)(iia) grants additional depreciation for new plant and machinery 'acquired and installed after 31-03-2002', subject to other statutory conditions (including substantial expansion). Proviso 3 requires prescribed details and a report of an accountant (Form No.3AA) to be filed with the return. Precedent treatment: No authority or precedent was cited or applied by the Tribunal in the judgment; the Court determined the issue by textual interpretation of the provision. Interpretation and reasoning: The Tribunal reads the phrase 'acquired and installed' conjunctively - both acquisition and installation must be satisfied in respect of the machinery for the entitlement to arise. The Tribunal further reasons that if machinery is physically installed after 31-03-2002, the condition of being 'acquired and installed after 31-03-2002' is satisfied even where purchase (acquisition) occurred earlier, because installation is the operative event showing the machine came into use and thus fulfils the statutory requirement. Ratio vs. Obiter: Ratio - the interpretive conclusion that installation after the cut-off date can satisfy the 'acquired and installed' requirement even where acquisition/purchase occurred before that date (so long as installation occurred after 31-03-2002) is the decision's binding reasoning on that point. No separate obiter dicta are necessary for this issue. Conclusions: The Tribunal allowed additional depreciation in respect of machinery purchased before 31-03-2002 but installed after that date, holding that the statutory requirement is met when installation occurs after 31-03-2002. Issue 2 - Satisfaction of 'substantial expansion' condition by Form No.3AA certification Legal framework: Proviso 3 to section 32(1)(iia) conditions the allowance on furnishing prescribed details and an accountant's report certifying that the deduction has been correctly claimed; Rule 5(a) prescribes Form No.3AA for the certificate of increased installed capacity. Precedent treatment: No precedent was applied; the Tribunal treated the statutory form and certificate as determinative unless rebutted by the Assessing Officer with convincing evidence that the certificate is incorrect. Interpretation and reasoning: The Tribunal reasons that the certificate in Form No.3AA issued by the Chartered Accountant, filed with the return and in compliance with the statutory prescription, constitutes conclusive evidence of the increase in installed capacity unless the AO demonstrates the certificate's incorrectness. Conflicting or inconsistent figures in the Balance Sheet were treated as apparent mistakes and cannot supplant the specific statutory certification made in the prescribed form. Ratio vs. Obiter: Ratio - where the statutory form and accountant's certificate are produced, they constitute prima facie (and, absent rebuttal, conclusive) compliance with the 'substantial expansion' requirement under section 32(1)(iia); the AO must prove the certificate wrong to deny the claim. Conclusions: The Tribunal held that the assessee satisfied the >25% increase requirement via Form No.3AA certification and deleted the AO's disallowance on this ground, directing allowance of the additional depreciation claimed. Issue 3 - Evidentiary sufficiency for normal depreciation where installation completion is disputed (effect of final bills dated post year-end) Legal framework: Depreciation is allowable when the asset is installed and put to use in the relevant previous year. Evidence of installation and use may include inspection reports, running bills, contractors' statements and audited accounts. Precedent treatment: The Tribunal did not rely on cited authorities but assessed the probative value of documentary material on record. Interpretation and reasoning: The AO relied on final labour bills dated 31-03-2003 to contend installation was incomplete by year-end. The Tribunal found that final billing dates alone do not determine the date of completion of work; running bills and the contractor's confirmations showing earlier activity establish that labour and installation work were carried out before year-end. The Tribunal placed weight on contemporaneous running bills, inspection report, audited books, and Chartered Accountant certification of accounts; absent cogent contrary material, the AO's inference from final bills was insufficient to displace the assessee's evidence that machinery was installed and used in the year. The Tribunal also accepted that depreciation claimed at half rate reflected that machines were not in use the whole year, consistent with partial-year use. Ratio vs. Obiter: Ratio - final contractor bills dated after year-end are not conclusive to prove non-installation at year-end where running bills, contractor confirmation and other documentary evidence indicate installation/use before the cutoff; such evidence suffices to allow depreciation. Conclusions: The Tribunal allowed the depreciation (Rs.21,76,451) for new plant and machinery, finding installation/use during the year shown by running bills, inspection and audited accounts, and rejecting the AO's reliance on final bills alone. Issue 4 - Allowability of deduction for gratuity contributions where scheme is approved Legal framework: Deductions for employer contributions to approved employee benefit schemes are permitted if the scheme is approved under the Income-tax Act and the approval is effective from the relevant date. Precedent treatment: The Tribunal did not discuss authority; decision based on statutory approval evidence. Interpretation and reasoning: The assessee produced evidence of CIT approval for the Employees' Group Gratuity-cum-Life Assurance Scheme effective from an earlier date. The revenue's concession and the presence of valid approval left no basis for disallowance. Ratio vs. Obiter: Ratio - where a gratuity scheme is approved by the competent authority from the relevant effective date, disallowance of employer's contribution lacks basis and deduction must be allowed. Conclusions: The Tribunal deleted the disallowance and allowed the gratuity deduction (Rs.85,798).