Revenue loses appeal on carbon receipts as capital receipts and additional depreciation claim under Section 32(1)

Gujarat HC dismissed revenue's appeal regarding carbon receipts as capital receipts, following its earlier decision in 2020. On additional depreciation, the court held that when plant and machinery is used for less than 182 days, the assessee can claim only 10% additional depreciation in the purchase year and the remaining 10% in the subsequent assessment year. The court upheld CIT(A)'s allowance of remaining 10% additional depreciation for AY 2011-12, noting that the Finance Act 2015 clarified this position through third proviso to Section 32(1). Appeal decided against revenue.

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Issues:
Interpretation of Section 32(1)(iia) of the Income Tax Act, 1961 regarding the claim of additional depreciation for plant and machinery used for less than 182 days.

Analysis:
The Tax Appeal under Section 260A of the Income Tax Act, 1961 was filed by the Revenue against the order of the Income Tax Appellate Tribunal for the assessment year 2011-2012. The Revenue raised substantial questions of law regarding the deletion of carbon receipts as capital receipt and the deletion of additional depreciation claim by the assessee. The Tribunal had dismissed the appeal filed by the Revenue concerning the additional depreciation claim (Question No. 2(B).

Regarding the claim of additional depreciation, the assessee had acquired and installed new plant and machinery in the financial year 2009-10. The claim for additional depreciation in the assessment year 2010-11 was restricted to 50% as the assets were used for less than 182 days. In the assessment year 2011-12, the assessee claimed the balance 50% of additional depreciation, which was disallowed by the Assessing Officer but allowed by the CIT (Appeal). The CIT (Appeal) considered Section 32(1)(iia) and allowed 10% additional depreciation for the assessment year 2011-12, interpreting the provision purposively.

The High Court analyzed Section 32(1) of the Act and the relevant provisos, particularly Section 32(1)(iia), which allows a further sum of 20% of the actual cost of new machinery or plant acquired and installed after March 31, 2005, for manufacturing or production activities. The Court held that the assessee could claim the remaining 10% of additional depreciation in the assessment year 2011-12, as clarified by the third proviso to Section 32(1) inserted by the Finance Act, 2015.

Consequently, the High Court affirmed the decisions of the lower authorities, stating that the assessee was entitled to the remaining additional depreciation of 10% for the assessment year 2011-12. The Court found no legal infirmity in the orders of the CIT (Appeal) and the Tribunal, dismissing the appeal on Question No. 2(B) as well.

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