2017 (3) TMI 739 - HC - Income Tax

High Court allows Assessee to claim additional depreciation in subsequent year

The High Court affirmed that the Assessee could claim the balance 10% of additional depreciation in the subsequent assessment year under Section ... Eligibility to balance 10% of additional depreciation under Section 32(1)(iia) - claim of carry forward to next AY - number of days of use - Held that:- A perusal of the extract of the Memorandum relied upon would show that the legislature recognised the fact that the manner in which the Revenue chose to interpret the provision, as it stood prior to its amendment would lead to discrimination, in respect of plant and machinery, which was used for less than 180 days, as against that, which was used for 180 days or more. In our opinion, as indicated above, the amendment is clarificatory in nature and not prospective, as is sought to be contended by the Revenue. The Memorandum cannot be read in the manner, in which, the Revenue has sought to read it, which is, that the amendment brought in would apply only prospectively. We are, clearly, of the view that the Memorandum, which is sought to be relied upon by the Revenue, only clarifies as to how the unamended provision had to be read all along. In any event, in so far as the Court is concerned, it has to go by the plain language of the unamended provision, and then, come to a conclusion in the matter. As alluded to above, our view, is that, upon a plain reading of the unamended provision, it could not be said that the Assessee could not claim balance depreciation in the A.Y., which follows the A.Y., in which, the machinery had been bought and used, albeit, for less than 180 days. Thus, having regard to the foregoing discussion, we are of the view that no interference is called for with the impugned judgment of the Tribunal. - Decided in favour of assessee. Issues Involved:1. Legitimacy of the claim for additional depreciation under Section 32(1)(iia) of the Income Tax Act, 1961.2. Interpretation and application of Section 263 of the Income Tax Act, 1961.Issue-wise Detailed Analysis:1. Legitimacy of the claim for additional depreciation under Section 32(1)(iia) of the Income Tax Act, 1961:The primary issue before the Tribunal was whether the Assessee could claim the balance 10% of additional depreciation for machinery purchased and used for less than 180 days in the previous year 2009-10, in the subsequent assessment year 2011-12.The Tribunal relied on its judgment in the case of Fresh & Honest Cafe Ltd. V. DCIT, which in turn relied on the Karnataka High Court judgment in CIT V. Rittal India (P.) Ltd. The Karnataka High Court had interpreted Section 32(1)(iia) to mean that while the proviso restricts the claim of depreciation to 50% if the machinery is used for less than 180 days, it does not restrict the allowance of the remaining 50% in the succeeding assessment year.The Court agreed with this interpretation, emphasizing that the additional depreciation under Section 32(1)(iia) is intended to encourage industrialization by allowing a further sum equal to 20% of the actual cost of new machinery or plant. The Court noted that the language of the provision clearly allows for the balance 10% to be claimed in the subsequent assessment year if the machinery was used for less than 180 days in the initial year.Furthermore, the Court highlighted that an amendment effective from 01.04.2016 clarified this interpretation, stating that the balance 50% of the additional depreciation not allowed in the year of acquisition could be claimed in the immediately succeeding previous year. The Court viewed this amendment as clarificatory and not prospective, indicating that it merely clarified the existing provision rather than introducing a new rule.2. Interpretation and application of Section 263 of the Income Tax Act, 1961:The Revenue issued a Show Cause Notice under Section 263, arguing that the assessment order dated 27.02.2014 was erroneous and prejudicial to its interest because it allowed the Assessee's claim for additional depreciation. The Commissioner of Income Tax (CIT) concluded that the assessment order was indeed erroneous and prejudicial, as the Assessing Officer had not considered the issue raised in the SCN, and thus, canceled the assessment order and directed a redo.The Tribunal, however, found that the assessment order was not erroneous or prejudicial to the Revenue's interest. It held that the Assessee was entitled to claim the additional depreciation in the subsequent assessment year, aligning with the interpretation provided by the Karnataka High Court in CIT V. Rittal India (P.) Ltd. The Tribunal's decision was based on the understanding that the provisions of Section 32(1)(iia) allowed for such a claim, and thus, the original assessment order was neither erroneous nor prejudicial.The High Court upheld the Tribunal's decision, agreeing that the Assessee's claim for additional depreciation was legitimate and that the assessment order was not erroneous or prejudicial to the Revenue's interest. The Court emphasized that the legislative intent behind Section 32(1)(iia) was to promote industrialization and that the provision should be interpreted in a manner that supports this objective.Conclusion:The High Court dismissed the Revenue's appeal, affirming that the Assessee was entitled to claim the balance 10% of additional depreciation in the subsequent assessment year, and that the original assessment order was neither erroneous nor prejudicial to the Revenue's interest. The Court's decision was grounded in the interpretation of Section 32(1)(iia) and the legislative intent to encourage industrialization.