2013 (12) TMI 297 - AT - Income Tax

ITAT Allows Depreciation for Fertilizer Manufacturer, Upholds VSS Deduction

Assistant Commissioner of Income-tax, Circle -12(1) Versus Hindustan Fertiliser Corpn. Ltd.

The ITAT set aside the lower authorities' orders and directed the Assessing Officer to allow depreciation on assets as in the previous year for a ... Depreciation on block of assets – Asset not put to use – Manufacturing activity not carried out during the year - Held that:- The facts of the year under consideration and assessment year 2004-05 are identical - The Assessing Officer is not justified in taking a view inconsistent with the view taken by the Department in AY 2004-05 – Decided in favour of assessee. Applicability of Section 35DDA – Payment under the Voluntary Separation Scheme - Held that:- All the conditions specified u/s 35DDA were satisfied by the scheme - The assessee had incurred the expenditure by way of payment to its employees - The payment was under the scheme framed by the employer - The scheme is voluntary and not compulsory based on the fact - 'The Govt. of India has decided to close the business and the scheme is not voluntary in nature, it is compulsory and is to be opted by all the employees and if it is not availed by certain employees then in that circumstance those employees will be compulsorily retrenched.' - It may be a different thing that the government persuaded or pressurized all the employees to accept the scheme giving threat of retrenchment - It is voluntary because only when a scheme is voluntary, there is question of anybody opting to avail or not to avail - The Revenue itself has allowed the deduction in the earlier year – Decided against Revenue. Issues:1. Disallowance of depreciation on various assets.2. Disallowance of depreciation on plant and machinery.3. Disallowance of payment made under Voluntary Separation Scheme (VSS).Analysis:Issue 1: Disallowance of depreciation on various assetsThe assessee, a Government of India undertaking engaged in fertilizer manufacturing, had stopped manufacturing activity due to losses. The Assessing Officer disallowed depreciation on certain assets for the assessment year under consideration despite allowing it in the previous year. The ITAT found the facts identical to the previous year and held that the Assessing Officer's inconsistent view lacked specific reasons. Thus, the ITAT set aside the lower authorities' orders and directed the Assessing Officer to allow depreciation on assets as in the previous year.Issue 2: Disallowance of depreciation on plant and machineryThe Assessing Officer disallowed depreciation on plant and machinery due to the cessation of manufacturing activity by the assessee. The ITAT noted that the assessee had not claimed depreciation on these assets but on others, which were allowed in the previous year. The ITAT found the disallowance unjustified and directed the Assessing Officer to allow depreciation on assets consistent with the previous year.Issue 3: Disallowance of payment made under Voluntary Separation Scheme (VSS)The Assessing Officer disallowed a portion of the payment made under VSS following Section 35DDA, which allows deductions for voluntary retirement payments. The ITAT analyzed the scheme's nature, finding it voluntary despite government pressure. It held that Section 35DDA applied, reversing the lower authorities' decision and directing the Assessing Officer to allow the deduction as per the section, applicable for subsequent years as well.In conclusion, the ITAT allowed the assessee's appeals for statistical purposes and allowed the Revenue's appeals, providing detailed reasoning for each issue and directing the Assessing Officer on appropriate actions for depreciation and VSS payment disallowances.