ITAT instructs AO on depreciation for hydraulic machines & electrical installations.

The ITAT directed the AO to allow depreciation on hydraulic machines as the AO failed to disprove the assessee's explanation. Regarding the disallowance of depreciation rate on electrical installations, the ITAT instructed the AO to determine if the installations were part of plant & machinery. If confirmed, depreciation at 25% should be allowed; otherwise, it should be at 15%.

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Issues:
1. Disallowance of depreciation on hydraulic machines
2. Disallowance of depreciation rate on electrical installations

Issue 1: Disallowance of depreciation on hydraulic machines
The Assessing Officer disallowed depreciation on hydraulic machines amounting to Rs. 7,12,189, stating that the machines were not put to use for commercial production on 31.3.2005. The assessee submitted evidence including purchase bills, installation bills, and a certificate of installation by a Chartered Accountant. The CIT (Appeals) upheld the disallowance, stating that it was virtually impossible for the machines to be installed and used for commercial production within one day. However, the ITAT found that the Assessing Officer did not disprove the assessee's explanation that the machines were ready to use plug-in kind, and there was no documentary evidence supporting the AO's assumptions. Therefore, the ITAT directed the AO to allow depreciation on the machines as per law.

Issue 2: Disallowance of depreciation rate on electrical installations
The Assessing Officer allowed depreciation at 15% on electrical installations instead of the 25% claimed by the assessee, as the AO considered these installations as separate from plant & machinery. The assessee argued that these installations were integral to the machinery and relied on case laws for a 25% depreciation rate. The CIT (Appeals) confirmed the disallowance, stating that the items in electrical installations were defined as electrical fittings and the claim was not supported by evidence. The ITAT decided to send the matter back to the AO to verify if the electrical installations were part of plant & machinery, directing the AO to provide a clear finding on the issue. If confirmed, depreciation at 25% should be allowed; otherwise, it should be at 15%.

In conclusion, the ITAT partly allowed the appeal for statistical purposes, directing the AO to allow depreciation on the hydraulic machines and to reexamine the depreciation rate on electrical installations based on their classification as part of plant & machinery.

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