Revenue succeeds as 15% depreciation on shuttering material restored in assessment, 100% claim disallowed following precedent

ITAT, Delhi - AT held that the assessee is entitled to depreciation on shuttering material at 15% rather than 100%. The tribunal followed the Andhra Pradesh HC precedent and set aside the impugned order, restoring the assessment officer's order allowing 15% depreciation. Consequently, the Revenue succeeds on the core issue.

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ISSUES PRESENTED AND CONSIDERED

1. Whether shuttering/centering material capitalised by the assessee is eligible for depreciation at 100% under the tax rules for AY 2015-16 (New Appendix I - "purely temporary erections" such as wooden shuttering) or only at the standard block rate of 15% under section 32.

2. Whether the appellate authority may adjudicate the genuineness and quantum of the cost of shuttering material when the Assessing Officer did not question or disallow the cost in the assessment order.

ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Rate of depreciation on shuttering/centering material (100% v. 15%)

Legal framework: Depreciation is governed by section 32 of the Income Tax Act and the rates prescribed in the relevant Schedule/Rules; for AY 2015-16 New Appendix I expressly lists "purely temporary erections such as wooden structures (i.e. shuttering etc.)" with an indicated allowance of 100% depreciation. The proviso to section 32(1) and the concept of "plant" determine whether items qualify for higher rates or must join a block at prescribed rates (e.g., 15%).

Precedent treatment: A Full Bench of the Telangana & Andhra Pradesh High Court has examined the legal character of shuttering/centering material and held that (i) the components of shuttering, though often individually costing less than a specified threshold, are parts of a homogenous plant and cannot, merely by being divisible or of low unit cost, be treated as separate units eligible for the proviso that permits 100% write-off; and (ii) the proviso permitting 100% depreciation where the actual cost of a "plant" does not exceed a specified amount cannot be invoked to treat every small component as a separate plant for shuttering.

Interpretation and reasoning by the Tribunal: The Tribunal analysed whether shuttering items constitute independent "plants" or are constituent parts of a composite plant used in construction. It accepted the High Court Full Bench reasoning that shuttering/centering material functions as a homogenous qualitative material which, while divisible, operates as an integrated plant for the purpose of construction activity and therefore falls to be depreciated under the block rate (15%) rather than being entirely written off at 100% merely because individual components may be of low value. The Tribunal also noted the statutory language and practical construction engineering understanding: single components cannot be used independently and achieve useful purpose unless combined, which aligns them with components of a plant rather than independent plants.

Ratio versus obiter: The Tribunal treated the Full Bench holding on the composite nature of shuttering and the inapplicability of the proviso to individual components as binding ratio for the issue before it, and expressly followed that ratio. Any extraneous observations in the Full Bench decision not necessary for this holding were not relied upon.

Conclusion on Issue 1: Following the Full Bench reasoning, the Tribunal held that depreciation on shuttering material capitalised by the assessee is allowable at 15% (standard block rate) and not at 100%; it therefore set aside the appellate decision allowing 100% and restored the Assessing Officer's allowance of 15% depreciation.

Issue 2 - Adjudication of genuineness/quantum of shuttering cost when AO made no such disallowance

Legal framework: Appeals are confined to issues arising from the assessment order; appellate adjudication requires that the issue challenged on appeal has been canvassed or formed part of the assessment record or original findings for proper adjudication on merits.

Precedent treatment/approach: The Tribunal applied the procedural principle that an appellate authority should not decide on matters which do not emerge from the assessment order or where the Assessing Officer has not raised the issue in the assessment proceedings.

Interpretation and reasoning by the Tribunal: The Tribunal observed that although Revenue raised a ground challenging the genuineness of the cost (noting an abnormal increase and related-party purchases), the Assessing Officer had neither questioned nor disallowed the cost in the assessment. Because the assessment order did not contain findings on genuineness or make any adjustment on that basis, the Tribunal concluded it was not appropriate to adjudicate that ground in the present appeal.

Ratio versus obiter: The Tribunal's refusal to decide the genuineness/quantum ground in these circumstances is a procedural ruling (ratio for the limited procedural point) - i.e., an appellate tribunal will not decide an issue not raised or decided in the assessment order - rather than a substantive determination on the merits of genuineness.

Conclusion on Issue 2: The ground challenging the genuineness of the shuttering costs was dismissed for lack of adjudicative foundation in the assessment order and therefore was not decided on merits in this appeal.

Cross-references and final disposition

1. Issue 1 and the Tribunal's conclusion directly relied on and followed the Full Bench interpretation of the character of shuttering/centering material and the applicability of the proviso to section 32(1); the Tribunal regarded that precedent as determinative and restored the AO's 15% allowance.

2. Issue 2 was rejected on procedural grounds because the AO had not raised or decided the genuineness/quantum in the assessment; therefore, the appellate authority declined to entertain the point, leaving open the possibility of examination only if first raised in assessment proceedings.

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