Additional depreciation allowed for milk processing machinery and electrical equipment deemed integral plant components

The ITAT Ahmedabad allowed the assessee's appeal on three depreciation issues. First, the tribunal permitted claiming the remaining 50% additional depreciation in AY 2015-16 for plant and machinery purchased and used less than 180 days in AY 2014-15, following precedent that earned incentive must be available in subsequent years. Second, the tribunal held that milk processing involving technical machinery and manufacturing various milk products constitutes manufacturing, not mere processing, entitling the assessee to additional depreciation. Third, electrical equipment including substations, DG sets, transformers, and exhaust fans were deemed integral parts of plant and machinery rather than electrical fittings, qualifying for higher depreciation rates applicable to plant and machinery.

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Issues Involved:
1. Claim of additional depreciation on plant and machinery.
2. Eligibility for additional depreciation under Section 32(1)(iia).
3. Classification of electrical items as part of plant and machinery.

Summary:

Issue 1: Claim of Additional Depreciation on Plant and Machinery
The assessee, a society engaged in processing and manufacturing milk and milk products, claimed additional depreciation of Rs. 32,65,56,918/- for plant and machinery purchased in the previous year, of which only 50% was claimed earlier due to less than 180 days of use. The Assessing Officer (A.O.) denied the claim on the grounds that additional depreciation can only be claimed in the year of installation and that the amendment to Section 32(1)(iia) was applicable from Assessment Year (A.Y.) 2016-17. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the A.O.'s decision, stating that the assessee is not engaged in manufacturing an "article or thing" but only processing milk. The Tribunal, however, allowed the claim, citing that the balance 50% of additional depreciation is allowable in the subsequent year if the machinery was used for less than 180 days initially, as per the precedent set by the Hon'ble Supreme Court and various Tribunal decisions.

Issue 2: Eligibility for Additional Depreciation under Section 32(1)(iia)
The CIT(A) denied the additional depreciation on the grounds that the assessee is not engaged in manufacturing but only in processing milk. The assessee argued that it manufactures various milk products, which involves significant transformation of raw milk into different consumable items. The Tribunal, referencing the Jurisdictional High Court's decision in CIT Vs. Gujarat Co.op. Milk Marketing Federation Ltd., concluded that the assessee's activities amount to manufacturing and production, thus entitling it to additional depreciation under Section 32(1)(iia).

Issue 3: Classification of Electrical Items as Part of Plant and Machinery
The A.O. and CIT(A) disallowed depreciation on electrical items such as substations, DG sets, exhaust and pedestal fans, street lighting, and transformers, treating them as electrical fittings rather than part of plant and machinery. The Tribunal, however, accepted the assessee's contention that these items are integral to the manufacturing process, essential for the operation of the plant, and should be classified as part of the plant and machinery. The Tribunal relied on the Gujarat High Court's ruling in CIT Vs. Starlight Silk Mills Pvt. Ltd., which held that such items form an integral part of plant and machinery and are eligible for depreciation.

Conclusion:
The Tribunal allowed the appeal, granting the additional depreciation claimed by the assessee and classifying the electrical items as part of the plant and machinery, thus eligible for depreciation. The Tribunal's decision was based on established legal precedents and a thorough interpretation of the relevant provisions of the Income Tax Act.

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