Tribunal grants additional depreciation for unit at MIDC Waluj, Aurangabad

The appeal by the assessee was allowed. The tribunal directed the A.O. to grant the additional depreciation claimed for the MIDC Waluj, Aurangabad unit, interpreting the term "industrial undertaking" as unit-wise rather than the business as a whole. This decision was based on the legislative intent and relevant case law, emphasizing the independence of each unit in determining eligibility for additional depreciation.

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Issues Involved:
1. Withdrawal of additional depreciation on plant and machinery.
2. Interpretation of "industrial undertaking" under section 32(1)(iia) of the Income Tax Act.

Detailed Analysis:

Issue 1: Withdrawal of Additional Depreciation on Plant and Machinery
The assessee contested the withdrawal of additional depreciation amounting to Rs. 56,87,343/- on the plant and machinery initially allowed in the assessment order dated March 30, 2007. This depreciation was withdrawn following a revision order under section 263 by the CIT. The CIT directed the A.O. to re-examine the eligibility for additional depreciation under section 32(1)(iia) and disallow it if the conditions were not satisfied.

The A.O. subsequently examined the eligibility and concluded that the reference to the "industrial undertaking" should be to the business as a whole, not unit-wise. The A.O. found that the overall installed capacity of the business had increased by only 4.5%, thereby disallowing the additional depreciation.

Issue 2: Interpretation of "Industrial Undertaking" Under Section 32(1)(iia)
The assessee argued that the term "industrial undertaking" should be considered unit-wise rather than as the business as a whole. The installed capacity at the MIDC Waluj, Aurangabad unit had increased from 23,000 to 32,500 numbers, satisfying the condition of more than a 10% increase in installed capacity. The assessee supported this argument with case law, specifically CIT v. Associated Cement Co. Ltd. [1979] 118 ITR 406 (Bom.) and CIT v. VTM Ltd. [2010] 187 Taxman 319 (Mad.).

The CIT(A) upheld the A.O.'s decision, stating that the provisions of section 32(1)(iia) refer to the installed capacity of the industrial undertaking as a whole, not unit-wise. The CIT(A) confirmed the order, emphasizing that the provision does not refer to any particular unit of the industrial undertaking.

The tribunal analyzed the provisions of section 32(1)(iia), which allow additional depreciation for new machinery or plant acquired and installed after March 31, 2002, by an assessee engaged in manufacturing or production. The tribunal noted that the term "industrial undertaking" should be interpreted as unit-wise, especially when the assessee claimed additional depreciation for a specific unit that had increased its capacity by more than 10%.

The tribunal also referred to the case of Associated Cement Cos. Ltd., where the establishment of a new industrial unit was considered an independent undertaking if it operated independently of the existing units. The tribunal concluded that each unit of the assessee, located at different places and operating independently, should be considered a separate industrial undertaking.

The tribunal further supported its decision by citing the case of VTM Ltd., where the Hon'ble Madras High Court allowed additional depreciation for a new windmill installed by a textile manufacturing company, emphasizing that the new machinery need not be operationally connected to the existing business.

The tribunal concluded that the intention of the Legislature was to examine the increase in capacity of the specific undertaking where the new machinery was installed. Since the MIDC Waluj, Aurangabad unit had increased its capacity by more than 10%, it satisfied the conditions of section 32(1)(iia). The tribunal directed the A.O. to allow the additional depreciation as claimed.

Conclusion
The appeal by the assessee was allowed. The tribunal directed the A.O. to grant the additional depreciation claimed for the MIDC Waluj, Aurangabad unit, interpreting the term "industrial undertaking" as unit-wise rather than the business as a whole. This decision was based on the legislative intent and relevant case law, emphasizing the independence of each unit in determining eligibility for additional depreciation.

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