Non-Production Of Bills, Vouchers Not A Valid Reason To Deny Additional Depreciation On Tanks: ITAT Ahmedabad

The Income Tax Appellate Tribunal (ITAT) has held that non-production of bills and vouchers could not be a valid reason to deny additional depreciation where the tax department had accepted the asset as plant and machinery and allowed normal depreciation on it.

A division bench of Judicial Member T.R. Senthil Kumar and Accountant Member Narendra Prasad Sinha upheld the relief granted to Gulbrandsen Private Limited while deciding the Revenue's appeals for Assessment Years 2012-13 and 2013-14.

“Though the AO has mentioned that the assessee did not produce the complete bills and vouchers, he did not disallow the claim for depreciation on tanks rather only the claim of additional depreciation was disallowed. Therefore, the non-production of bills and vouchers could not have been a valid reason to disallow the claim for additional deprecation,” the tribunal observed.

Gulbrandsen Private Limited manufactures chemicals. One of the disputes before the Tribunal concerned its claim of additional depreciation of ₹91.12 lakh on tanks constructed during Assessment Year 2013-14 and treated as part of its plant and machinery.

The Assessing Officer disallowed the claim on the ground that the assessee had not produced complete bills and vouchers relating to additions of ₹7.09 crore made to the tank account. He also held that the tanks were not eligible for additional depreciation.

The company contended that the tanks were constructed for storing raw materials and finished products. It argued that the tanks formed an integral part of its plant and machinery. The company also pointed out that the department had already allowed normal depreciation on the tanks.

The Tribunal noted that the Assessing Officer had not disallowed normal depreciation on the tanks despite referring to non-production of complete bills and vouchers.

“According to the AO, the tanks constructed by the assessee during the year was not a plant and machinery eligible for additional depreciation. As explained by the assessee, the tanks were constructed for the purpose of storage of raw materials as well as finish products, which were hazardous in nature. The tanks were thus part of the plant and machinery and there was no reason for the AO to treat the same as not integral part of the plant and machinery,” the Tribunal held.

The bench observed that normal depreciation on the tanks had been allowed by treating them as plant and machinery. It therefore found no reason to disallow the claim for additional depreciation on the new tanks constructed during the year.

“Therefore, there was no reason to disallow the claim for additional depreciation on the new tanks constructed during the year, in accordance with the provision of section 32(a)(iia) of the Act,” the Tribunal held.

The tribunal also upheld deletion of disallowance relating to capitalisation of interest on capital work-in-progress. It observed that the Assessing Officer had not established any nexus between the ECB loan and acquisition of fixed assets and had proceeded on mere presumption.

The bench further upheld the assessee's claim for deduction under Section 35(2AB). It observed that prior to April 1, 2016, there was no requirement for DSIR to quantify eligible expenditures for claiming the deduction.

However, the tribunal ruled in favour of the Revenue on a separate issue concerning additional depreciation claimed on replacement of spares and parts of existing machinery.

It held that additional depreciation is allowable only on new machinery or plant acquired during the year and not on replacement of spares and parts of existing plant and machinery. The disallowance of ₹1.63 crore on that issue was therefore restored.

The Revenue's appeals were partly allowed.

For Appellant: Senior Advocate S. N. Soparkar, Sr. Advocate

For Respondent: Sher Singh, CIT-DR