Tribunal Confirms Disallowance of Depreciation on Milk Machinery; Remits Foreign Travel Expenses for Further Review.

In ITA No. 20/Hyd/2012, the Tribunal upheld the reopening of the assessment for AY 2005-06, confirming the disallowance of additional depreciation on machinery used for pasteurisation and standardisation of milk, as these processes do not qualify as manufacturing. The levy of interest under sections 234B and 234C was deemed mandatory. For ITA No. 1828/Hyd/2011, concerning foreign travel expenditure for AY 2008-09, the Tribunal remitted the issue back to the Assessing Officer for further examination. The appeal was dismissed in part and partly allowed for statistical purposes, with the decision announced on 5th October 2012.

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Issues Involved:
1. Reopening of assessment u/s 148 for AY 2005-06.
2. Allowability of additional depreciation u/s 32(1)(iia).
3. Levy of interest u/s 234B and 234C.
4. Allowability of foreign travel expenditure for AY 2008-09.

Summary:

1. Reopening of Assessment u/s 148 for AY 2005-06:
The first issue pertains to the reopening of the assessment. The original assessment was completed u/s 143(3) on 26.12.2007, and a notice u/s 148 was issued on 24.3.2009. The reason for reopening was the disallowance of additional depreciation on machinery, as the assessee was not engaged in manufacturing any article or thing. The CIT(A) confirmed the reopening and the addition made by the Assessing Officer. The assessee argued that all information was available during the original assessment, and no fresh tangible material justified reopening. However, the Tribunal upheld the reopening, citing that the Assessing Officer had valid reasons based on the Tribunal Pune Special Bench's decision in B.G. Chitale v. DCIT, which stated that pasteurisation and standardisation of milk do not amount to production.

2. Allowability of Additional Depreciation u/s 32(1)(iia):
The assessee claimed additional depreciation on machinery used for pasteurisation and standardisation of milk, arguing it was part of the manufacturing process of curd and ghee. The Tribunal disagreed, stating that standardisation and pasteurisation are different from manufacturing curd and ghee. The machinery used for these processes does not qualify for additional depreciation u/s 32(1)(iia). The Tribunal referenced the Pune Special Bench decision in B.G. Chitale, which held that these processes do not constitute manufacturing. Consequently, the Tribunal denied the additional depreciation claim.

3. Levy of Interest u/s 234B and 234C:
The issue of interest u/s 234B and 234C was deemed consequential and mandatory. The Tribunal dismissed this ground, aligning with the statutory provisions.

4. Allowability of Foreign Travel Expenditure for AY 2008-09:
The assessee claimed foreign travel expenditure of Rs. 20,35,971. The Assessing Officer disallowed 80% of this amount due to the lack of bifurcation between business and pleasure trips. The CIT(A) adjusted this to a 2/3 disallowance. The Tribunal remitted the issue back to the Assessing Officer, directing the assessee to provide a bifurcation of expenses. If the assessee fails to furnish the details, the Assessing Officer is to follow the CIT(A)'s order.

Conclusion:
In ITA No. 20/Hyd/2012, the appeal was dismissed, and in ITA No. 1828/Hyd/2011, the appeal was partly allowed for statistical purposes. The order was pronounced in the open court on 5th October, 2012.

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