Additional depreciation
This query is : Resolved
03 January 2015
A Company purchase a new plant & machinery or Rs. 50 crore on dated 31 december 2014. rate of depreciation is 15%. what is the depreciation amount is f.y. 2014-15 & 2015-16. whether remaning additional depreciation can be claimed in next f.y.
Please suggest.
Please suggest.
03 January 2015
Additional depreciation is admissible in case of new machinery or plant (other than ships and aircraft) acquired and installed after the 31st March 2005 (substituted by FA, 2005 w.e.f. 01.04.2006). To claim benefit under this sub clause, the assessee should be engaged in the business of manufacture or production of any article or thing. The deduction towards additional depreciation is 20% (substituted by FA, 2005 w.e.f. 01.04.2006) of the actual cost of machinery or plant acquired and installed. The first proviso to sec. 32(1)(iia) provides that no additional depreciation shall be allowed in respect of:
- any machinery or plant which, before installation by assesse; was used either within or outside India by any other person;
- any machinery or plant installed in office premises or residential accommodation including accommodation in the nature of guest house;
- any office appliances or road transport vehicles;
- any machinery or plant, the whole of the actual cost of which is allowed as deduction from business income in any one previous year
- However, the quantum of additional depreciation is subject to the restriction contained in second proviso to sec. 32(1)(ii). As per the said proviso, the quantum of depreciation would be restricted to 50%, if the asset acquired by the assessee during the previous year has been put to use for the purposes of business for a period less than one hundred and eighty days in that previous year
The question which arose for consideration is whether the balance of 50% of the additional depreciation would lapse [because of the restriction provided in second proviso to section 32(1)(ii)] or whether the assessee would be justified in claiming the balance of 50% of additional depreciation in the subsequent financial year?
The judicial pronouncements in favour/against the assessee are as under:
Favourable View
DCIT Vs. Cosmo Films Ltd. (2012) 139 ITD 628 (Del.) (Trib.)
In this case, the assessee purchased new assets during the preceding previous year which were put to use for less than 180 days. Apart from the normal depreciation, the assessee was also eligible to claim additional depreciation @15% for the said new asset. Since assets were put to use for less than 180 days, in the preceding A.Y., the assessee claimed only 50% of 15%. Balance additional depreciation was claimed by the assessee in the instant A.Y. The AO, however, denied the said claim. The Hon’ble ITAT allowed the claim of assessee by giving the following findings:
- The second proviso to section 32(1)(ii) provides a restriction on the quantum of depreciation. This restriction is only on the basis of period of use
- If the benefit is restricted only to 50% then it will be against the basic intention to provide incentive for encouraging the industrialization
- In section 32(1)(iia), the expression used is ‘shall be allowed’. Thus, the assessee had earned the benefit in full as soon as he had purchased the new plant and machinery
- There is no restriction provided in the law that balance of one time incentive in the form of additional sum of depreciation shall not be available in the subsequent year
ACIT vs. SIL Investment Ltd. (2012) 73 DTR 233 (Del.)(Trib.)
In this case, the assessee claimed additional depreciation @7.5%, being 50% of the additional depreciation of 15%, in respect of new plant and machinery installed at the new eligible industrial undertaking of the company which was allowed. Therefore, it was held that the eligibility of additional depreciation stands admitted and balance 50% of the depreciation is allowable in the current year.
Against View
Brakes India Ltd. Vs. (2013) DCIT 96 DTR 281 (Chennai) (Trib.)
The Hon’ble ITAT did not allow the balance additional depreciation in subsequent F.Y. by giving the following findings:
- The first requirement for being eligible for additional depreciation u/s 32(1)(iia) is that it should be on a new machinery or plant. A machinery is new only till it is first put to use. Once it is used, it is no longer a new machinery. Therefore, carry forward of any deficit additional depreciation which, as per the assessee, arose on account of use for a period of less than 180 days in the preceding year, if allowed, will not be an allowance for a new machinery or plant
- Further, the second proviso to section 32(1)(iia) clearly shows that it restricts the claim of depreciation to 50% of the amount otherwise allowable, when the assets are put to use for a period of less than 180 days irrespective of whether such claim is for normal depreciation or additional depreciation. Thus, the intention of the legislature is to give such additional depreciation for the year in which the assets were put to use and not for any succeeding year
- There is nothing in the statute which allows carry forward of such depreciation and thus there cannot be any presumption that unless it is specifically denied, carry forward has to be allowed
- any machinery or plant which, before installation by assesse; was used either within or outside India by any other person;
- any machinery or plant installed in office premises or residential accommodation including accommodation in the nature of guest house;
- any office appliances or road transport vehicles;
- any machinery or plant, the whole of the actual cost of which is allowed as deduction from business income in any one previous year
- However, the quantum of additional depreciation is subject to the restriction contained in second proviso to sec. 32(1)(ii). As per the said proviso, the quantum of depreciation would be restricted to 50%, if the asset acquired by the assessee during the previous year has been put to use for the purposes of business for a period less than one hundred and eighty days in that previous year
The question which arose for consideration is whether the balance of 50% of the additional depreciation would lapse [because of the restriction provided in second proviso to section 32(1)(ii)] or whether the assessee would be justified in claiming the balance of 50% of additional depreciation in the subsequent financial year?
The judicial pronouncements in favour/against the assessee are as under:
Favourable View
DCIT Vs. Cosmo Films Ltd. (2012) 139 ITD 628 (Del.) (Trib.)
In this case, the assessee purchased new assets during the preceding previous year which were put to use for less than 180 days. Apart from the normal depreciation, the assessee was also eligible to claim additional depreciation @15% for the said new asset. Since assets were put to use for less than 180 days, in the preceding A.Y., the assessee claimed only 50% of 15%. Balance additional depreciation was claimed by the assessee in the instant A.Y. The AO, however, denied the said claim. The Hon’ble ITAT allowed the claim of assessee by giving the following findings:
- The second proviso to section 32(1)(ii) provides a restriction on the quantum of depreciation. This restriction is only on the basis of period of use
- If the benefit is restricted only to 50% then it will be against the basic intention to provide incentive for encouraging the industrialization
- In section 32(1)(iia), the expression used is ‘shall be allowed’. Thus, the assessee had earned the benefit in full as soon as he had purchased the new plant and machinery
- There is no restriction provided in the law that balance of one time incentive in the form of additional sum of depreciation shall not be available in the subsequent year
ACIT vs. SIL Investment Ltd. (2012) 73 DTR 233 (Del.)(Trib.)
In this case, the assessee claimed additional depreciation @7.5%, being 50% of the additional depreciation of 15%, in respect of new plant and machinery installed at the new eligible industrial undertaking of the company which was allowed. Therefore, it was held that the eligibility of additional depreciation stands admitted and balance 50% of the depreciation is allowable in the current year.
Against View
Brakes India Ltd. Vs. (2013) DCIT 96 DTR 281 (Chennai) (Trib.)
The Hon’ble ITAT did not allow the balance additional depreciation in subsequent F.Y. by giving the following findings:
- The first requirement for being eligible for additional depreciation u/s 32(1)(iia) is that it should be on a new machinery or plant. A machinery is new only till it is first put to use. Once it is used, it is no longer a new machinery. Therefore, carry forward of any deficit additional depreciation which, as per the assessee, arose on account of use for a period of less than 180 days in the preceding year, if allowed, will not be an allowance for a new machinery or plant
- Further, the second proviso to section 32(1)(iia) clearly shows that it restricts the claim of depreciation to 50% of the amount otherwise allowable, when the assets are put to use for a period of less than 180 days irrespective of whether such claim is for normal depreciation or additional depreciation. Thus, the intention of the legislature is to give such additional depreciation for the year in which the assets were put to use and not for any succeeding year
- There is nothing in the statute which allows carry forward of such depreciation and thus there cannot be any presumption that unless it is specifically denied, carry forward has to be allowed
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03 January 2015
As the asset is put to use less than 180 days only 50% of additional depreciation can be claimed. Next f.y. no additional depreciation can be claimed.
03 January 2015
Yes, Depreciation Rate for 2014-15 will be 15% which is regular rate, further additional depreciation will be 50% i.e 10% for 2014-15.
for 2015-16 it will be only 15% depreciation, no additional depreciation is allowed.
for 2015-16 it will be only 15% depreciation, no additional depreciation is allowed.
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