Unclaimed balance 50% additional depreciation on machinery used for under 180 days is allowable in subsequent year.

Issue

• Whether an assessee is entitled to claim the remaining 50% balance of additional depreciation under Section 32(1)(iia) of the Income-tax Act in a subsequent assessment year on eligible plant and machinery that was acquired and put to use for less than 180 days in the immediately preceding assessment year.

Facts

• The assessee acquired and commissioned new eligible plant and machinery in the immediately preceding financial year.
• The machinery was put to use for less than 180 days during that initial financial year.
• Due to the restriction under the second proviso to Section 32(1), the assessee claimed only 50% of the permissible additional depreciation in that initial assessment year.
• For the assessment year under consideration (A.Y. 2006-07), the assessee claimed the remaining balance of 50% of the additional depreciation under Section 32(1)(iia).
• The Revenue contested the claim for the balance additional depreciation in the subsequent assessment year.

Decision

• Balance Claim Permissible: The assessee is entitled to claim the balance 50% of the additional depreciation under Section 32(1)(iia) in the subsequent assessment year.
• Proviso Restriction Scope: The restriction in the second proviso to Section 32(1) merely caps the depreciation allowable in the initial year of acquisition/use (to 50% when used for less than 180 days) but does not extinguish the entitlement to the remaining half in the succeeding year.
• Ruling in Favor of Assessee: The issue was decided entirely in favor of the assessee.

Key Takeaways

• No Forfeiture of Benefit: Additional depreciation under Section 32(1)(iia) is an incentive scheme; put-to-use restrictions of less than 180 days in the initial year only defer the remaining 50% benefit to the next year rather than forfeiting it completely.
• Legislative Intent: The statutory restriction on half-year depreciation limits the quantum for that specific year of acquisition without wiping out the overall statutory entitlement of the tax incentive.