By TIOL News Service

BANGALORE, APRIL 13, 2018: THE ISSUE BEFORE THE BENCH WAS - Whether additional depreciation can be claimed on some machinery without proving that such machinery is acquired during the relevant AY or that it is used for manufacture & production purposes. NO IS THE VERDICT.

Concurrently, the Tribunal also held that a claim for additional depreciation on machinery could not be raised without proving that regular depreciation has been allowed by the AO on the same machinery.

Facts of the case:

The Assessee-company is engaged in producing products from Steel. It is also engaged in job work. In its returns for the relevant AY, the Assessee claimed expenses incurred on account of repair and maintenance. It also claimed depeciation u/s 32(1)(iia). On assessment, the AO denied the depreciation claimed. The AO also made additions u/s 40(a)(ia) for non-deduction of TDS, as well as for provision made on account of outstanding liability. On appeal, the CIT(A) upheld the denial of deduction u/s 32(1)(iia). Nonetheless, the Assessee's appeal regarding addition of non deduction of TDS & provision of outstanding liability. Hence the present appeals were filed. The Revenue claimed that the CIT(A) admitted additional evidence filed by the Assessee without giving an opportunity to the AO to examine it, thus contravening the provisions of Rule 46A. The Assessee claimed that the CIT(A) ought to have considered that it was engaged in manufacturing activity, thus enabling it to claim depreciation u/s 32(1)(iia). The Assessee further claimed that apart from doing job work, it was also producing goods having a distinct & different identity.

On hearing the matter, the Tribunal

++ regarding the assessee's claim for depreciation, considered the provisions of Section 32(1)(iia) and definition of manufacture as provided in section 2(29)(BA) of the Act. From the conjoint reading of the above said provisions it is clear that for the purposes of claiming the benefit of additional depreciation, it is essential that the assessee has acquired and installed new assets in the year under consideration for which the additional depreciation is claimed; and the assessee is engaged in the business of manufacture or production of any article or thing. Considering the contention as to whether the activity of the assessee falls within the four corners of business activity of manufacture or production of any article or thing. As mentioned by the AO in the assessment order as well as by the assessee in the written submission, the assessee-company has entered into contract with JSW Steel Ltd, for processing and conversion of steel coil. Now the issue to be examined is whether the cutting of the coil to the required size as per the specification of the customer would amount to manufacturing activity or not;

++ considering the photograph of the input and finished product, there is no change in the physical form except in the reduction in the width of the coil. Though only the width of the coil is reduced and the steel coil (HR {GI}) has been referred as HR (GI) slitting and therefore there is change in the characteristic of both the coil and in commercial world it is known by different commodity. Since in the present case, the stripes have been changed, reduced, silted or winded in different size, therefore the activity of the assessee would fall within the domain of manufacture. However, considering relevant portions of the CIT(A)'s order, the assessee has not produced the relevant bills pertaining to purchase of new plant and machinery claimed to be installed during the year under consideration. Therefore the second requirement as mentioned herein above to claim the benefit of additional depreciation u/s 32(1)(iia) had not been fulfilled which requires the assessee to prove that it had acquired of plant and machinery during this year and it was used for manufacturing & production purposes;

++ moreover, since the ground of grant of regular depreciation on these very machines by the AO was not raised before the CIT(A) in the grounds of appeal, therefore this cannot be agitated before us without raising a additional grounds in accordance with law. Further, though the assessee has orally submitted that the AO granted the regular depreciation on the plant and machinery, but no evidence or document or order has been brought to the notice of this court, to show that the assessee has been granted regular depreciation on plant and machinery on which the additional depreciation was claimed by the assessee. Hence the contention of the assessee that the regular depreciation was granted by the AO on these plant and machinery was not borne out from the record. Accordingly as the assessee has failed to fulfil the requisite condition as mentioned in section 32(1)(iia) of the Act, the assessee is not entitled to any relief.

(See 2018-TIOL-535-ITAT-BANG)