2018 (10) TMI 1804 - AT - Income Tax

Tribunal rules on Section 80IA deduction timing & allows additional depreciation for mining assets.

The Tribunal upheld the CIT(A)'s decisions, dismissing the revenue's appeal. It was determined that the initial assessment year for Section 80IA deduction ... Disallowance u/s 80IA - initial assessment year - HELD THAT:- We consider that the initial assessment year is the year in which the assessee makes the claim for the first time and not the year in which the eligible unit commences production. In the case of the assessee the initial assessment year will be A.Y. 2010-11 as the assessee has made first time claim of deduction u/s 80IA of the act and the assessment year 2005-06 the year in which the production was commenced. As per CIRCULAR NO.1/2016 [F.NO.200/31/2015-ITA-I], DATED 15-2-2016 assessee who is eligible to claim deduction u/s 80-IA has the option to choose the initial/ first year from which it may desire the claim of deduction for ten consecutive years, out of a slab of fifteen ( or twenty) years, as prescribed under that sub-section .In the light of the above facts and circular of the Board we do not find any error in the findings of the Ld.. CIT(A), therefore, the appeal of the revenue on this issue is dismissed. Additional depreciation u/s. 32(1)(2) - parts or important/essential parts of plant and machinery, transport vehicle and on the office appliance - HELD THAT:- As decided in own case [2017 (12) TMI 1746 - ITAT AHMEDABAD] assessee has purchased certain spare parts in respect of the machinery which is used for the purpose of power generation units. We further find that the purchase of spare parts for the machinery was treated as capital expenditure and, therefore, makes the assessee eligible for claim of depreciation and also the claim of additional depreciation on the same. - Decided against revenue. Issues Involved:1. Disallowance under Section 80IA of the Income Tax Act.2. Disallowance of additional depreciation under Section 32(1)(ii) of the Income Tax Act.Issue-wise Detailed Analysis:Disallowance under Section 80IA:During the appellate proceedings, the assessing officer noticed that the assessee claimed a deduction of Rs. 43,62,61,420/- under Section 80IA of the Income Tax Act. The AO argued that Section 80IA(5) mandates that the profit and gains of eligible business should be computed as if such eligible business were the only source of income from the initial assessment year. The AO determined that the initial assessment year should be A.Y. 2005-06, the year of commencement of the eligible business. The AO calculated losses from F.Y. 2004-05 to F.Y. 2008-09, concluding that the accumulated losses exceeded the profit for the year, thereby disallowing the deduction under Section 80IA.The assessee appealed to the CIT(A), who allowed the appeal. The CIT(A) noted that the issue of whether the deduction under Section 80IA should be allowed without adjusting notional brought forward losses is legally settled. The CIT(A) referenced judicial pronouncements, including the High Court of Madras in Velayudhaswamy Spinning Mills Private Limited, which established that losses of the eligible unit adjusted with other business profits prior to the initial assessment year should not be brought forward. The initial assessment year is the year the assessee first claims the deduction, not the year production commences. The CIT(A) concluded that the assessee correctly claimed the deduction without adjusting for earlier losses, referencing ITAT Ahmedabad judgments in Sadbhav Engineering Ltd. and Jivraj Tea & Industries Ltd.During appellate proceedings, the departmental representative supported the AO's order, while the assessee's counsel referred to CBDT Circular No. 1/2016, which clarifies that the initial assessment year is the year the assessee opts to claim the deduction. The Tribunal agreed with the CIT(A), emphasizing that the initial assessment year is when the claim is first made, not when production starts, and upheld the CIT(A)'s decision, dismissing the revenue's appeal on this issue.Disallowance of Additional Depreciation under Section 32(1)(ii):The assessing officer noticed that the assessee claimed additional depreciation of Rs. 77,59,947/-. The AO disallowed the claim, stating that additional depreciation was not allowable on parts of plant and machinery, transport vehicles, and office appliances.The assessee appealed to the CIT(A), who allowed the appeal. The CIT(A) noted that the additional depreciation was claimed on mining machinery and vehicles used in mining activities, which are considered manufacturing activities. The CIT(A) found the claim allowable as the machinery and vehicles were used for mining, not road transportation. The CIT(A) directed the deletion of the disallowance.During appellate proceedings, the Tribunal noted that a Co-ordinate Bench of the ITAT had allowed a similar issue in favor of the assessee in a previous case (ITA No. 3010/Ahd/2014). The Tribunal found no error in the CIT(A)'s decision and dismissed the revenue's appeal on this issue as well.Conclusion:In conclusion, the Tribunal upheld the CIT(A)'s decisions on both issues, dismissing the revenue's appeal. The Tribunal agreed that the initial assessment year for Section 80IA deduction is when the claim is first made and that additional depreciation is allowable on mining machinery and vehicles used in mining activities.Order pronounced in the open court on 31-10-2018.