2016 (12) TMI 442 - AT - Income Tax

Tribunal grants partial relief to assessee, orders AO to allow additional depreciation and re-examine lease rent disallowance.

The Tribunal allowed the assessee's appeals partly, directing the AO to allow the balance 50% additional depreciation for the relevant years and to ... Additional depreciation in respect of the plant and machinery - Held that:- Section 32(1)(iia) provides for additional depreciation at the rate of 20%.The Assessing officer allowed 10% of additional depreciation in respect of the plant and machinery purchased during the A.Y.2009-10. The A.O. found that the additions to the fixed assests made in the second half of the financial year ,therefore,50% of the additional depreciation has been claimed.The balance 50% was carried forward in the next year. The A.O. found that the additional depreciation is allowable only during the year in which the machinery was installed and used for the business of the assessee. There is no provision in the Income tax Act.for carry forward of the additional depreciation to the subsequent year. Carefully gone through the judgment of the Hon'ble Karnataka High Court in the case of CIT vs Rittal India Pvt. Ltd. [2016 (1) TMI 81 - KARNATAKA HIGH COURT ] after extracting the provisions of section 32(1)(iia) of the Act ,found that beneficial legislation has to be interpreted liberally so as to benefit the assessee. Karnataka High Court also found that the intention of the legislation is to allow the additional benefit. The Karnataka High Court opined that the proviso would not restrain the assessee from claiming the balance of the benefit of additional depreciation in the subsequent assessment year. In view of the above, this tribunal is of the considered opinion that the assessee is entitled for remaining 10% of the depreciation during the year under consideration - Decided in favour of assessee Disallowance of lease rent paid - Held that:- As decided in assessee's own case for the A.Y. 2010-11& 2011-12 if as per the agreement, the lessor of the asset retains ownership of the asset and gives the asset to the assessee for use then the lease rent paid is allowable as deduction from the computation of income of the assessee. If according to the lease agreement, the ownership of the asset is transferred to the lessee, then in that case, the lease instalment comprising of the cost of the asset has to be capitalized by the assessee and on that the assessee is entitled to depreciation and the interest portion of the instalment is allowable deduction as revenue expenditure in the computation of income of the assessee. We find that in the instant case, the assessee has claimed deduction of the entire amount of lease rental of ₹ 12,42,820/- while computing the income for income tax purposes but has debited in the books of account only ₹ 3,98,733/- towards lease rent. Both the parties before us have not filed the copy of the lease agreement and therefore, we are not in a position to adjudicate the issue completely. We, therefore, are of the view that it will be in the interest of justice to restore this issue back to the file of the Assessing Officer to readjudicate the issue afresh in the light of the discussion herein above after examining the lease agreement of the assessee. Thus, the grounds of appeal of the assessee are allowed for statistical purposes Issues Involved:1. Disallowance of carry forward and claim of additional depreciation.2. Disallowance of lease rent paid.Issue-wise Detailed Analysis:1. Disallowance of Carry Forward and Claim of Additional Depreciation:The first issue pertains to the disallowance of carry forward and claim of additional depreciation amounting to Rs. 2,06,55,752/- for assessment year 2010-11 and Rs. 1,49,50,229/- for assessment year 2011-12. The assets were acquired in the preceding assessment year 2009-10, and only 50% of the eligible additional depreciation was allowed as the assets were used for less than 180 days. The remaining 50% was claimed in the subsequent year. The Assessing Officer (AO) disallowed the claim, stating that additional depreciation is allowable only for new assets added during the year and there is no provision for carrying forward the balance depreciation to the succeeding year.The assessee appealed to the Commissioner of Income-tax (Appeals) [CIT(A)], who confirmed the AO's addition. The assessee then appealed to the Tribunal, arguing that the additional depreciation should be interpreted liberally as an incentive provision, citing decisions from the Hon'ble Apex Court and the Karnataka High Court in the case of Rittal India (P) Ltd., and the Tribunal's decision in M/s Automotive Coaches & Components Ltd.The Tribunal considered the rival submissions and perused the material on record. It noted that section 32(1)(iia) provides for additional depreciation at the rate of 20%. The AO had allowed 10% additional depreciation for the assets purchased during the second half of the financial year 2009-10, and the balance 50% was carried forward to the next year. The Tribunal referenced the Cochin Bench's decision in Apollo Tyres Ltd. v. ACIT, which allowed the balance 50% additional depreciation in the subsequent year, as well as the Delhi Bench's decision in Cosmo Films Ltd., which supported the carry forward of additional depreciation.The Tribunal also reviewed the Karnataka High Court's judgment in CIT vs Rittal India Pvt. Ltd., which emphasized that beneficial legislation should be interpreted liberally to benefit the assessee, allowing the balance 50% additional depreciation in the subsequent year. Consequently, the Tribunal set aside the lower authorities' orders and directed the AO to allow the claim of balance 50% additional depreciation for the years under consideration.2. Disallowance of Lease Rent Paid:The second issue involves the disallowance of lease rent paid amounting to Rs. 11,01,971/- for assessment year 2010-11 and Rs. 15,13,653/- for assessment year 2011-12. The assessee debited a portion of the lease rentals to the Profit & Loss Account but claimed the entire payment as an allowable deduction in the computation statement. The AO disallowed the claim, restricting the allowance to the amount debited to the Profit & Loss Account, based on the Disputes Resolution Panel's (DRP) decision for earlier years.The assessee appealed to the CIT(A), who confirmed the AO's addition. The assessee then appealed to the Tribunal, arguing that the entire lease payment should be deductible since the assets taken on lease were not capitalized for income-tax purposes, and no depreciation was claimed. The assessee relied on the Tribunal's decision in its own case for assessment year 2008-09, where the issue was set aside to the AO for re-adjudication after examining the lease agreement.The Tribunal noted that the facts were identical to the earlier case and set aside the CIT(A)'s orders for both assessment years. It restored the issue to the AO to re-adjudicate afresh in light of the Tribunal's order for assessment year 2008-09, directing the AO to examine the lease agreement and determine the correct deduction.Conclusion:In conclusion, the Tribunal allowed the assessee's appeals partly for statistical purposes, directing the AO to allow the balance 50% additional depreciation and to re-adjudicate the lease rent disallowance after examining the lease agreements.