ITAT allows additional depreciation on machinery for embroidery; upholds reduced disallowance of office expenses.

The ITAT allowed the assessee's claim for additional depreciation on plant & machinery used in embroidery work, considering it as production of new articles eligible for additional depreciation. The ITAT upheld the disallowance of a portion of office expenses, following the CIT(A)'s decision to reduce the disallowance from 20% to 10%.

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Issues:
1. Disallowance of additional depreciation claimed by the assessee.
2. Disallowance of office expenses.

Detailed Analysis:

Issue 1: Disallowance of Additional Depreciation
The assessee claimed additional depreciation of Rs. 9,18,722 on plant & machinery installed, in addition to normal depreciation. The Assessing Officer disallowed the claim as the assessee was not engaged in manufacturing or production activity. The CIT(A) upheld the disallowance, stating that embroidery work is value addition, not manufacturing. However, the ITAT referred to a previous case where embroidery work was considered production of a new article due to various stages involved. The ITAT emphasized that the machinery used in embroidery work qualifies for additional depreciation under Section 32(1)(iia) as it is used in the production of new articles. The ITAT also noted that embroidery is subject to Excise Duty as a manufactured product. Therefore, the ITAT allowed the claim of additional depreciation, following the precedent set by the Co-ordinate Bench.

Issue 2: Disallowance of Office Expenses
The assessee claimed office expenses of Rs. 59,814, but the Assessing Officer disallowed 20% of the expenses. The CIT(A) reduced the disallowance to 10%, resulting in a sustained disallowance of Rs. 5,981. The ITAT, after considering the arguments, agreed with the CIT(A) and found no reason to interfere with the estimation of office expenses. Consequently, the ground related to office expenses disallowance was dismissed.

In conclusion, the ITAT partly allowed the appeal of the assessee, permitting the additional depreciation claim while upholding the disallowance of a portion of office expenses.

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