Tribunal Allows 100% Depreciation on Water Scheme, 10% on Roads

Assistant Commissioner of Income-tax, Circle-27 (1), Haldia Versus Haldia Development Authority

Assistant Commissioner of Income-tax, Circle-27 (1), Haldia Versus Haldia Development Authority - TMI Issues Involved:
1. Reopening of assessment for AYs 2008-09 to 2010-11.
2. Disallowance of depreciation on water supply scheme and road for AYs 2011-12 and 2012-13.

Issue-wise Detailed Analysis:

1. Reopening of Assessment for AYs 2008-09 to 2010-11:
The assessee challenged the reopening of assessment for AYs 2008-09 and 2009-10 after a lapse of four years. However, during the hearing, the legal issue of reopening was not pressed by the assessee's representative. Consequently, both parties agreed that the issue for all assessment years was identical, and the decision in one appeal would guide the others. Since the issue first arose in AY 2011-12, the adjudication for AY 2011-12 would lead the decision for other years.

2. Disallowance of Depreciation on Water Supply Scheme and Road for AYs 2011-12 and 2012-13:
The main grievance of the revenue was against the deletion of disallowance of depreciation amounting to Rs. 31,23,87,263/- by the CIT(A). The AO had allowed only 10% depreciation on the water supply scheme and road, disallowing Rs. 31,70,43,691/-. The CIT(A) granted 100% depreciation based on the remand report from the AO, which acknowledged the statutory authority status of the assessee and its eligibility under section 80IA of the Income Tax Act, 1961.

The tribunal examined the provisions of the Income Tax Rules, 1962, specifically the rates of depreciation under New Appendix I and section 80IA of the Act. It was noted that machinery and plant installed in a water supply project after 1st September 2002, used for providing infrastructure facilities, were eligible for 100% depreciation. The tribunal confirmed that the assessee, being a statutory authority engaged in developing infrastructure facilities, was eligible for 100% depreciation on the water supply scheme.

However, regarding the depreciation on roads, the tribunal noted that roads do not fall under the category of buildings acquired for installing machinery and plant forming part of a water supply project. Therefore, roads do not qualify for 100% depreciation under item (3) of the table of rates. Instead, roads fall under item (2), which allows only 10% depreciation. The tribunal upheld the AO's decision to allow only 10% depreciation on roads and reversed the CIT(A)'s order granting 100% depreciation.

Conclusion:
The tribunal directed the AO to allow the assessee's claim for 100% depreciation on the water supply scheme. The CIT(A)'s order granting 100% depreciation for machinery and plant for the water development project for AYs 2011-12 and 2012-13 was confirmed. However, the CIT(A)'s order allowing 100% depreciation for roads was reversed, and the AO's decision to allow only 10% depreciation for roads was upheld. Consequently, the assessee's appeal for AYs 2008-09 to 2010-11 was partly allowed, and the revenue's appeal was also partly allowed. The tribunal pronounced the order in the open court on 19/12/2018.