Investment allowance under Section 32AC is not permitted if a new asset has previously claimed depreciation

Fact and issue of the case

Aforesaid two appeals Nos. ITA/939/Chny/2022 and ITA 946/Chny/ 2022 filed by assessee and Department respectively arises out of the order of the learned Commissioner of Income Tax (Appeals)- 16, Chennai [hereinafter “CIT(A)”] dated 17-08-2022 for the Assessment Year 2015-16 in the matter of assessment order passed by Ld. Assessing Officer [AO] under section 143(3) r.w.s. 92CA of the Income Tax Act, 1961 [hereinafter “the Act”] on 28-12-2018. At first we adjudicate the appeal of the assessee and thereafter the appeal of the Department would be adjudicated.

ITA No. ITA 939/Chny/2022:

The grounds of appeal of the assessee read as under:

The order of the Commissioner of Income Tax (Appeals)-16 relevant to the AY 2015-16 dt. 17-08-2022 is opposed to law, facts and circumstances of the case.

The learned Commissioner of Income Tax (Appeals)-16 has erred in disallowing the investment allowance claimed by the appellant under section 32AC(1A) amounting to Rs. 11,77,36,432/- on Co-generation power plant and Anaerobic Digester.

The learned CIT(A) ought to have considered that the Appellant had claimed the allowance only on new asset acquired during the year which is well within the ambit of new asset as defined under section 4 of Section 32AC.

The learned CIT(A) without considering the legislative intent to provide incentive benefits to manufactures and intention of inserting sub-section 4 of section 32AC which specifically denies the allowance only for those assets which have been claimed 100% deduction in any previous years and not to restrict the claim in the same year under consideration.

For the purposes of this section, “new asset” means any new plant and machinery (other than ship or aircraft) but does not include-

I. any plant or machinery which before its installation by the Appellant was used either within or outside India by any other person;

II. any plant or machinery installed in any office premises or any residential accommodation in the nature of a guest house;

III. any office appliances including computers or computer software;

IV. any vehicle; or

V. any plant or machinery, the whole of the actual cost of which is allowed as deduction (whether by way of depreciation or otherwise) in computing the income chargeable under the head “Profits and gains of business or profession” of any previous year.

It is submitted that the exclusion mentioned in Section 32AC(4) r.t. “new asset”, only to restrict the claim already made prior to the current previous year i.e. where depreciation has already been allowed in the earlier years. As far as the Appellant Company is concerned, it is reiterated that no depreciation was claimed in any of the prior years other than AY 2015-16. Further, it is an incentive deduction given besides the depreciation claim admissible to the Appellant.

The learned Commissioner of Income Tax erred in stating that the Appellant has incorrectly claimed allowance under section 32AC which is not tenable.

For these and such other rounds that may be adduced at the time of hearing, it is prayed that the disallowance made in the order dated 17-08-2022 may kindly be deleted.

Observation of the court

The assessee submitted before the Ld. CIT(A) as recorded at page 12 of the Ld. CIT(A)’s order is read as under: “It is submitted that the exclusion mentioned in Section 32AC(4) w.r.t “new asset”, is only to restrict the claim already made prior to the current previos year i.e. where depreciation has already been allowed in the earlier years. As far as this appellant is concerned, it is reiterated that no depreciation was claimed in any of the prior year’s other than AY 2015-16. Further, it is an incentive deduction given besides the depreciation claim admissible to the appellant. It is submitted that the Appellant has acquired and installed the plant and machinery during the financial year 2014-15 and has not claimed any deduction by whatever manner including depreciation during prior years, which does not affect the nature of being a “new asset”.

The Ld. CIT(A) considered the submission of the assessee as well as the observation of the Ld. AO while disposing of the appeal. The Ld. CIT(A) observed that, the ld. AO did not give any reason while disallowing the depreciation allowance on the Electrical Installations. In our view, the observation of the Ld. CIT(A) should not be interfered as no disallowance should be made without stating any reason. Therefore, we upheld the decision of the Ld. CIT(A) on the issue of depreciation allowance on that Electrical Installation.

In view of the forgoing, the appeal of the Department is dismissed.

In the result, the appeals of the assessee as well as the Revenue are dismissed.

Order pronounced on 09th August, 2023.