Income Tax Appellate Tribunal - Jabalpur
Central India Gases Pvt. Ltd. vs Assistant Commissioner Of Income-Tax on 22 December, 1997
Equivalent citations: [1998]66ITD571(JAB)
ORDER
Agrawal, A.M.
1. This appeal by the Revenue is directed against the order of CIT (Appeals), Jabalpur.
2. Ground Nos. 1, 2 and 3 of the assessee's appeal are against the disallowance of depreciation amounting to Rs. 7,66,046 on Gas cylinders. The facts of the case are that the assessee company derives income from production and sale of industrial gases. During the accounting year relevant to assessment year under consideration, the assessee purchased 454 gas cylinders of Rs. 15,32,092 on various dates as under :-
Bill No. Date No. of Cylinders Amount
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JMC/63 10-2-1994 200 6,69,760
JMC/65 19-2-1994 90 3,01,392
JMC/70 26-2-1994 150 5,02,320
JMC/71 26-2-1994 12 40,186
2DA/1993-94 15-12-1993 2 7,415.20
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15,21,073.20
Add : Transportation 11,019.00
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15,32,092.20
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3. As the cost of each cylinder was below Rs. 5,000, the assessee claimed the entire cost of purchase of cylinders at Rs. 15,32,092 as depreciation. The Assessing Officer opined that the cylinders were used for less than 180 days and, therefore, only 50 per cent of the total amount of depreciation was permissible. He accordingly allowed depreciation @ 50 per cent amounting to Rs. 7,66,046, which resulted in the disallowance of Rs. 7,66,046 (Rs. 15,32,092 (-) Rs. 7,66,046). On appeal, the CIT (Appeals) upheld the disallowance. Hence this appeal by the assessee.
4. At the time of hearing before us, the learned counsel for the assessee submitted that it is undisputed that the cost of each cylinder purchased by the assessee was below Rs. 5,000. The user of the cylinder during the year under consideration for the purpose of business is also not in dispute. Therefore, as per proviso to section 32(1)(ii), actual cost of the Plant & Machinery should have been allowed as a deduction. He further submitted that third proviso, which provides for restriction of depreciation to 50 per cent in case of user of assets for less than 180 days would not be applicable in respect of 100 per cent depreciation allowable as per first proviso. In support of his contention, he relied upon the commentary by the learned Author, Dr. Avdesh Ojha in his book "Depreciation under Income-tax and Company Law" at page 124.
5. The learned D.R. on the other hand submitted that the third proviso to section 32(1)(ii) would be squarely applicable and whatever depreciation was permissible, under section 32(1)(ii) or under first proviso thereof, will be restricted to 50 per cent of the normal depreciation, if the asset is used for less than 180 days during the year under consideration. He submitted that if the contention of learned counsel for the assessee is accepted, it would make the third proviso to section 32(1)(ii) redundant. He further submitted that there was no necessity for the purchase of 454 new cylinders. He pointed out that during assessment year 1992-93, the assessee has manufactured gas to the tune of 99,170 Cu.Mtr., while in the year under consideration, the assessee manufactured 1,00,136 Cu. Mtr. The increase in the manufacturing is negligible. Thus, there was no necessity of any extra cylinder. In view of the above, he submitted that all the new cylinders purchased by the assessee might not have been put to use during the accounting year relevant to assessment year under consideration and, therefore, the depreciation allowed at 50 per cent of the actual cost of cylinders is quite in order and no interference therein is called for.
6. We have carefully considered the arguments of both the sides and have perused the material placed before us. Section 32(1) as it stood at the relevant time reads as under :
"32(1) In respect of depreciation of buildings, machinery, plant or furniture owned by the assessee and used for the purposes of the business or profession, the following deduction shall, subject to the provisions of section 34, be allowed -
(i) ** ** **
(ii) (in the case of any block of assets, such percentage on the written down value thereof as may be prescribed) Provided that where the actual cost of any machinery or plant does not exceed (five thousand) rupees, the actual cost thereof shall be allowed as a deduction in respect of the previous year in which such machinery or plant is first put to use by the assessee for the purposes of his business or profession :
Provided further ** ** ** Provided also that where any asset falling within a block of assets is acquired by the assessee during the previous year and is put to use for the purposes of business or profession for a period of less than one hundred and eighty days in that previous year, the deduction under this clause in respect of such asset shall be restricted to fifty per cent of the amount calculated at the percentage prescribed under this clause in the case of block of assets comprising such asset.
Provided also ** ** **
7. From the perusal of the above, it is seen that as per section 32(1)(ii), the assessee is entitled to depreciation in the case of any block of assets and WDV of such block at such percentage which may be prescribed. The first proviso to the above clause provided that in a case where the actual cost of Plant & Machinery is below Rs. 5,000, the actual cost thereof will be allowed as a deduction in the year in which such machinery or plant is first put to use. The third proviso provides that where any asset failing within a block of assets is used, for the purpose of business, for a period of less than 180 days in the previous year, the deduction under this clause in respect of such asset shall be restricted to 50 per cent of the amount calculated at the percentage prescribed under this clause in the case of block of assets comprising such asset.
From the plain reading of section 32(1)(ii) and third proviso it is apparent that the third proviso is applicable in respect of the assets forming part of the block of the assets on which depreciation is allowed at such percent age on WDV as is prescribed. The plant & machinery with actual cost thereof below Rs. 5,000 does not form part of block of asset and depreciation is not allowed on the WDV. But actual cost of such plant & machinery is allowed as a deduction by virtue of first proviso to section 32(1)(ii). Third proviso which restrict the deduction in respect of asset falling within a block of asset, in case of its user for less than 180 days, would have no application upon the assets, which are not forming part of block. Therefore, third proviso would not be applicable in respect of Plant & Machinery, cost of which was below Rs. 5,000 and actual cost thereof was allowed as deduction by virtue of first proviso. While taking above view, we also derive support from the view expressed by learned Author, Dr. Avdhesh Ojha in his book "Depreciation under Income-tax & Company Law". At page 127, he has written -
"According to the first proviso to section 32(1)(ii) (Proposed to be omitted by Finance Bill, 1995) where the actual cost of any machinery or plant does not exceed five thousand rupees, the actual cost thereof shall be allowed as a deduction in respect of the previous year in which such machinery or plant is first put to use by the assessee for the purposes of his business or profession. The important point to be noted in this regard is that this first proviso speaks of the actual cost of plant and machinery and not block of assets. This may be taken to mean that the first proviso allowing the entire actual cost being Rs. 5,000 or less as depreciation in the year in which the asset is first put to use, is related to individual item of plant and machinery and has nothing to do with block of assets. This inference can be arrived at by using even a different approach as discussed below.
.... Therefore, plant and machinery with actual cost of Rs. 5,000 or less is not covered by "block of assets." And if it is not covered by block of assets, then it will not he covered by the third proviso (now second) to section 32(1) (ii) which reduces the depreciation to 50 per cent in case of assets put to use for less than 180 days in the year. This shows that in case of plant and machinery with actual cost of Rs. 5,000 or less, the depreciation was not to be reduced and the entire actual cost was to be allowable as depreciation in the year when the asset was first put to use even for less than 180 days."
It would not be out of place to mention here that Finance Act, 1995 has deleted first proviso to section 32(1)(ii). Memorandum explaining provisions of Finance Act, 1995, para 23.1 & 23.2 reads as under :
"23.1 The first proviso to section 32(1)(ii) of the Income-tax Act provided that where the actual cost of any individual item of machinery or plant did not exceed Rs. 5,000 the full cost would be allowed as depreciation in the very first year of user and the written down value of the asset thereafter is taken to be nil. This proviso was introduced through the Finance Act, 1966, when the concept of block of assets was not in existence. Thereafter sweeping changes were made in the provisions relating to depreciation.
23.2 Further, it was seen that this provision was being misused by claiming 100 per cent depreciation on a large number of assorted items below Rs. 5,000. This enabled the assessees to reduce their taxable profits by claiming 100 per cent write off in the year of purchase. The Finance Act, 1995, has deleted the first proviso to section 32(1)(ii) and all items of machinery or plant including those costing less than Rs. 5,000 will form part of a block of assets and be allowed depreciation at the specified rate in accordance with rule 5 of the Income-tax Rules".
From the above, it is clear that by virtue of omission of first proviso to section 32(1)(ii) all items of plant & machinery costing less than Rs. 5,000 will also form part of block of assets. Therefore, till 31-3-1996, when first proviso was on statute book, items of plant & machinery whose cost does not exceed Rs. 5,000 does not form part of block of asset and actual cost thereof was allowed as a deduction by virtue of first proviso. In view of the above, we hold that the plant & machinery, the actual cost of which is below Rs. 5,000 and which is put to use during the year under consideration, actual cost thereof shall be allowed as a deduction whether or not the asset was used for more than 180 days.
8. The learned DR has claimed that there was no necessity of acquisition of any new cylinder, in view of the production of gases in the year under consideration as compared to the preceding year. He has also doubted the user of all the cylinders in the year under consideration. We find that the assessee has given the complete date-wise details of purchase of cylinders, which is detailed in the page 1 in the assessment order itself. The Assessing Officer has not doubted the acquisition of the cylinders during the year under consideration. The Assessing Officer has also not doubted the user of all the cylinders for the purpose of business during the year under consideration. On the other hand, he disallowed the depreciation with the observation "50 per cent of the total amount of depreciation for using the plant & machinery for less than 180 days". Thus, the Assessing Officer has himself accepted the user of all the cylinders for the purpose of business. He has disallowed the 50 per cent depreciation because cylinders were used for less than 180 days. The learned Departmental Representative is a representative of the Assessing Officer. He cannot dispute a fact, which is accepted by the Assessing Officer himself. Therefore, when the Assessing Officer himself has accepted the user of the cylinders, the learned D.R. cannot dispute it. In view of the legal position and the facts as discussed above, we hold that the assessee is entitled to 100 per cent depreciation on gas cylinders purchased and used during the year under consideration amounting to Rs. 15,32,092. Ground Nos. 1, 2 & 3 of the assessee's appeal are allowed.
9. to 17. [These paras are not reproduced here as they involve minor issues.]