M/s Avon Cycles Ltd., Ludhiana V. ACIT, Ludhiana

CO 1/CHANDI/2012

• Counselvise Citation: [2013] 122 COUNSELVISE.COM (IT) 8228 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 11 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 17-01-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 08-11-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 06-01-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JYOTI KUMARIDR
• Assessee Lawyers: SUBHASH AGGARWAL
• Keywords: Capital asset; Depreciation; Additional depreciation; Earning of tax free income; Revenue expenditure; Capital expenditure
• Section: 143(3); 14A; 32; 147

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH A, CHANDIGARH BEFORE MS. SUSHMA CHOWLA, JUDICIAL MEMBER AND SHRI MEHAR SINGH, ACCOUNTANT MEMBER ITA NO.1143/CHD/2011 (ASSESSMENT YEAR : 2008-09) THE A.C.I.T., VS. AVON CYCLES LTD., CIRCLE V, G.T.ROAD, LUDHIANA. LUDHIANA. PAN: AABCA4140R AND C.O.NO.1/CHD/2012 ARISING OUT OF ITA NO.1143/CHD/2012 (ASSESSMENT YEAR : 2008-09) AVON CYCLES LTD., VS. THE A.C.I.T., G.T.ROAD, CIRCLE V, LUDHIANA. LUDHIANA. PAN: AABCA4140R (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI SUBHASH AGGARWAL DEPARTMENT BY : SMT.JYOTI KUMARI,DR DATE OF HEARING : 08.11.2012 DATE OF PRONOUNCEMENT : 17.01.2013 O R D E R PER SUSHMA CHOWLA, J.M, : THE APPEAL FILED BY THE REVENUE IS AGAINST THE ORD ER OF THE COMMISSIONER OF INCOME-TAX(APPEALS)-II, LUDHIANA DA TED 28.09.2011 RELATING TO ASSESSMENT YEAR 2008-09 AGAINST THE ORD ER PASSED U/S 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). THE ASSESSEE HAS FILED CROSS OBJECTIONS AGAINST THE APPEAL FILED BY THE RE VENUE. 2 2. BOTH THE APPEAL OF THE REVENUE AND THE CROSS OBJ ECTIONS FILED BY THE ASSESSEE ON THE SIMILAR ISSUE WERE HEARD TOGETH ER AND ARE BEING DISPOSED OFF BY THIS CONSOLIDATED ORDER FOR THE SAK E OF CONVENIENCE. 3. THE REVENUE IN ITA NO.1143/CHD/2011 HAS RAISED F OLLOWING GROUNDS OF APPEAL: 1. (A) THAT THE LD. CIT(A)-II, LUDHIANA, ON F ACTS AS WELL AS IN LAW HAS ERRED IN DELETING DISALLOWANCE OF RS 56,98,192/ - MADE U/S 36(I)(III) OF THE I.T. ACT, 1961. (B) THAT THE LD. CIT(A)-11, LUDHIANA HAS FAILED T O APPRECIATE THAT THE ASSESSEE HAS ADMITTED THAT THE INVESTMENT OF RS. 4,75,00,000/- WAS TO EARN CAPITAL GAIN. AS SUCH THI S IS FOR NON- BUSINESS PURPOSE AND THE DECISION OF THE HON'BLE PU NJAB & HARYANA HIGH COURT IN THE CASE OF M/S ABHISHEK INDU STRIES LTD., IS SQUARELY APPLICABLE. 2. (A) THAT THE LD. C1T(A)-II, LUDHIANA, ON FA CTS AS WELL AS IN LAW HAS ERRED IN DELETING DISALLOWANCE OF RS. 42,68,522 /- OUT OF TOTAL DISALLOWANCE OF RS.47,68,522/- MADE U/S 14A OF I.T. ACT, 1961 READ WITH RULE 8-D OF I.T .RULES. (B) THAT THE LD. CIT (A)-I1, LUDHIANA HAS FAILED TO APPRECIATE THAT THE ASSESSEE HAD MADE INVESTMENTS WHICH WOULD GENERATE EXEMPTED INCOME AND THUS SECTION 14A READ WITH RULE 8D OF THE 1. T. ACT, 1961 COMES INTO PLAY. 3. THAT THE LD. C1T(A)-11, LUDHIANA, ON FACTS AS W ELL AS IN LAW HAS ERRED IN DELETING DISALLOWANCE OF RS. 110,04,200/- MADE AN ACCOUNT OF DEPRECIATION CLAIMED ON PEF AND TRANSMISSION LIN ES USED WITH WIND TURBINE GENERATOR. 4. THAT THE ORDER OF THE CIT (A)-LL, LUDHIANA BE S ET ASIDE AND THAT OF THE A.O. BE RESTORED. 5., THAT THE APPELLANT CRAVES LEAVE TO ADD OR AMEN D ANY GROUND OF APPEAL BEFORE IT IS FINALLY DISPOSED. 4. THE ASSESSEE IN C.O.NO.1/CHD/2012 HAS RAISED FOL LOWING GROUNDS OF APPEAL: 1. THAT THE LEARNED CIT(A)-II, LUDHIANA, HAS ERR ED IN CONFIRMING THE DISALLOWANCE OF RS.5,00,000/- U/S 14A OF THE INCOME TAX ACT, 1961 R.W. RULE 8D OF THE INCOME TAX RULES. 2. THAT IN ANY CASE THE ABOVE DISALLOWANCES ARE AG AINST THE LAW AND FACTS OF THE CASE AND IGNORING THE SUBMISSIONS MADE BY THE APPELLANT. 3 5. THE BRIEF FACTS RELATING TO GROUND NO.1 ARE THAT THE ASSESSEE HAD INVESTED RS.4.75 CRORES IN THE PURCHASE OF AGRICULT URAL LAND AT VILLAGE MORE KARIMA AND SHEKHPURA. THE SAID INVESTMENT TOT ALING RS.4.70 CRORES WAS MADE IN THE PRECEDING YEARS AND ONLY SUM OF RS.5 LACS WAS PAID ON 11.4.2007 I.E. DURING THE YEAR UNDER CONSID ERATION. THE PLEA OF THE ASSESSEE BEFORE THE ASSESSING OFFICER WAS THAT THE SAID INVESTMENT WAS MADE OUT OF OWN FUNDS AND NO DISALLOWANCE OUT O F INTEREST PAID ON BORROWINGS WAS MADE IN THE EARLIER YEAR, AS NO BORR OWINGS WERE USED FOR MAKING THE SAID INVESTMENT. EVEN SUM OF RS.5 LACS WAS MADE OUT OF ITS OWN INCOME OF THE YEAR UNDER CONSIDERATION, WHICH W AS DECLARED AT RS.10.20 CRORES. THE ASSESSING OFFICER REJECTING T HE CLAIM OF THE ASSESSEE DISALLOWED A SUM OF RS.56,92,198/- APPLYIN G THE PROVISIONS OF SECTION 36(1)(III) OF THE ACT. 6. BEFORE THE CIT (APPEALS) THE ASSESSEE FURNISHED THE COPIES OF BANK ACCOUNT REFLECTING THE INVESTMENT MADE IN THE EARLI ER YEARS AND RS.5 LACS INVESTED DURING THE YEAR OUT OF ITS OWN FUNDS. THE CIT (APPEALS) VIDE PARA 4.1 AT PAGE 6 OF THE APPELLATE ORDER OBSERVED AS UNDER: 4.1 GROUND NO. 1 OF THE APPELLANT IS AGAINST DISALLOWANCE OF INTEREST OF RS. 56.98,192/- U/S 36(L)(III) OF THE INCOME TAX ACT, 1961. THE AO FOUND THAT THE ASSESSEE HAD INVESTED A SUM O F RS.4.75 CRORES IN THE PURCHASE OF LAND AND ON THE BASIS OF P&H JUDGMENT IN THE CASE OF CIT VS. ABHISHEK INDUSTRIES LTD DISALLOWED THE INTEREST @ 12% ON THE SAID INVESTMENT AMOUNTING RS. 56,98,192/-. THE A PPELLANT SUBMITTED THAT OUT OF THE TOTAL INVESTMENT OF RS.4.75 CRORES, A SUM OF RS.4.70 CRORE WAS INVESTED IN THE PRECEDING YEARS AND NO DISALLOWANCE WAS MADE ON THE SAME. IT WAS ONLY SUM OF RS.5 LACS WHICH WAS INVESTED DUR ING THE YEAR WHICH W AS OUT OF APPELLANT'S OWN FUNDS. IN SUPPORT THE APPELLANT HAD FILED COPIES OF BANK ACCOUNT SHOWING THE AVAILABILITY OF FUNDS ON THE DATES WHEN EARLIER INVESTMENTS AND PAYMENT OF RS. 5 LACS DURING THE YEAR WAS MADE. IT HAS FURTHER BEEN SUBMITTED THAT T THE APPELLANT'S DECLARED INCOME DURING THE YEAR WAS A SUM OF RS.10,20, 27,250/- IN ADDITION TO THE AVAILABILITY OF CASH IN FORM OF DEP RECIATION. ON PERUSAL OF THE RECORD I FIND THE CONTENTION OF THE APPELLAN T IS CORRECT AND THE MADE BY THE AO IS HERE BY DELETED. 4 7. THE REVENUE IS IN APPEAL AGAINST THE SAID DELETI ON OF ADDITION OF RS.56,98,192/- MADE UNDER SECTION 36(1)(III) OF THE ACT. THE LEARNED D.R. FOR THE REVENUE ADMITTED THAT SUM OF RS.4.70 C RORES WAS INVESTED DURING THE PRECEDING YEAR AND ONLY RS.5 LACS WAS IN VESTED DURING THE YEAR UNDER CONSIDERATION. THE CLAIM OF THE LEARNED D.R. FOR THE REVENUE IS THAT THE MONEY WAS DIVERTED FOR NON BUSINESS PUR POSES AND CONSEQUENTLY THE DISALLOWANCE OF INTEREST ATTRIBUTA BLE TO SUCH INVESTMENT WAS TO BE MADE OUT OF INTEREST PAID ON BORROWINGS R AISED BY THE ASSESSEE. RELIANCE WAS PLACED ON THE RATIO LAID DOWN BY THE H ON'BLE PUNJAB & HARYANA HIGH COURT IN CIT VS. ABHISHEK INDUSTRIES [ 286 ITR 1(P&H)] AND ALSO IN MUNJAL SALES CORPORATION VS. CIT [298 I TR 288 (P&H)]. 8. THE LEARNED A.R. FOR THE ASSESSEE POINTED OUT TH AT THE TOTAL RECEIPTS OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION WE RE TO THE TUNE OF RS.27 CRORES AND DURING THE YEAR UNDER CONSIDERATIO N ONLY INVESTMENT OF RS.5 LACS WAS MADE. THE BALANCE INVESTMENT WAS CLA IMED TO BE MADE IN THE PRECEDING YEARS OUT OF ITS OWN FUNDS AND NO DIS ALLOWANCE WAS MADE OUT OF INTEREST EXPENSES IN THE EARLIER YEARS. REL IANCE WAS PLACED ON THE RATIO LAID DOWN BY THE CHANDIGARH BENCH OF THE TRIB UNAL IN THE D.C.I.T., VS. SAMRAT FORGING LTD., ITA NO.975/CHD/2011 RELATI NG TO ASSESSMENT YEAR 2007-08, ORDER DATED 24.5.2012 AND ALSO THE RATIO L AID DOWN BY THE HON'BLE SUPREME COURT IN MUNJAL SALES CORPORATION V S. CIT [298 ITR 298 (SC)]. 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ASSESSEE HAD MADE INVESTMENT TOTALING RS.4.75 CRORE S IN THE PURCHASE OF AGRICULTURAL LAND AS UNDER: 14/1/2006 RS.1,50,00,000/- 9/3/2006 RS. 20,00,000/- 15/2/2007 RS.2,43,00,000/- 5 15/2/2007 RS. 57,00,000/- 11/4/2007 RS. 5,00,000/- 10. THE FINDING OF THE CIT (APPEALS) VIDE PARA 4.1 OF THE APPELLATE ORDER IS THAT THE ASSESSEE HAD FURNISHED THE COPIES OF BANK ACCOUNTS REFLECTING AVAILABILITY OF FUNDS ON THE DATES WHEN EARLIER INVESTMENTS WERE MADE AND ALSO WHEN PAYMENT OF RS.5 LACS WAS MA DE DURING THE YEAR. THE LEARNED D.R. FOR THE REVENUE HAS NOT CON TROVERTED THE FACTUAL FINDING OF THE CIT (APPEALS) THAT THE TOTAL INVESTM ENT MADE BY THE ASSESSEE IN THE EARLIER YEARS AND THE SUM OF RS.5 L ACS INVESTED DURING THE YEAR WERE OUT OF ITS OWN FUNDS AND NOT OUT OF BORRO WED FUNDS. 11. THE HON'BLE APEX COURT IN MUNJAL SALES CORPORAT ION VS. CIT [298 ITR 298 (SC)] HAS REVERSED THE FINDINGS OF THE HON' BLE PUNJAB & HARYANA HIGH COURT IN THAT ASSESSEES CASE AND APPE AL FILED BY THE REVENUE AGAINST THAT ASSESSEE REPORTED IN 298 ITR 2 88 & 294 RESPECTIVELY. THE HON'BLE SUPREME COURT HAVE ALLOW ED THE APPEAL OF THE ASSESSEE AGAINST THE DISALLOWANCE OF INTEREST UNDER SECTION 36(1)(III) OF THE ACT IN VIEW OF THE PROFITS EARNED BY THE ASSESS EE AGAINST WHICH INTEREST FREE LOAN OF RS.5 LACS BEING ADVANCED TO T HE SISTER CONCERN. IN VIEW OF THE RATIO LAID DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF MUNJAL SALES CORPORATION VS. CIT (SUPRA) WE FIND NO MERIT IN THE PLEADINGS OF THE LEARNED D.R. FOR THE REVENUE PLACI NG RELIANCE ON THE RATIO LAID DOWN BY THE HON'BLE PUNJAB & HARYANA HIG H COURT, WHICH HAVE BEEN REVERSED BY THE HON'BLE SUPREME COURT. 12. IN THE FACTS OF THE PRESENT CASE WHERE LOAN OF RS.5 LACS HAS BEEN ADVANCED DURING THE YEAR UNDER CONSIDERATION AND TH E BALANCE LOAN HAVING BEEN ADVANCED IN THE EARLIER YEARS, WHERE NO DISALLOWANCE WAS MADE OUT OF INTEREST EXPENDITURE AND THE ASSESSEE H AVING ESTABLISHED THE AVAILABILITY OF THE NON INTEREST BEARING FUNDS, WE ARE IN CONFORMITY WITH 6 THE ORDER OF THE CIT (APPEALS). THE GROUND NO.1 RA ISED BY THE REVENUE IS THUS DISMISSED. 13. THE ISSUE RAISED BY THE REVENUE VIDE GROUND NO. 2 IS AGAINST THE DISALLOWANCE OF RS.42,68,522/- MADE UNDER SECTION 1 4A OF THE ACT READ WITH RULE 8D OF THE INCOME TAX RULES. THE ASSESSEE VIDE CROSS OBJECTION IS IN APPEAL AGAINST THE DISALLOWANCE OF RS.5 LACS UNDER SECTION 14A OF THE ACT READ WITH RULE 8D OF THE INC OME TAX RULES. BOTH THE GROUND OF APPEAL RAISED BY THE REVENUE AND THE ASSESSEE ON THE SAME ISSUE ARE BEING DEALT WITH HEREUNDER. 14. THE BRIEF FACTS RELATING TO THE ISSUE ARE THAT THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION HAD SHOWN TOTAL INVESTMENT IN SHARES AND MUTUAL FUNDS AS ON 31.3.2008 AT RS.21.04 CRORES AS AGAINST RS.16.32 CRORES SHOWN AS ON 31.3.2007. THE ASSESSEE IN ITS COMPUTATION OF INCOME HAD DISALLOWED SUM OF RS.1,84,180/- AND RS.1 2,10,915/- ON ACCOUNT OF EXPENDITURE RELATABLE TO THE EARNING OF EXEMPT INCOME. THE TOTAL DIVIDEND INCOME EARNED BY THE ASSESSEE WAS RS .22,57,454/- AND THE LONG TERM CAPITAL GAINS EXEMPT UNDER SECTION 10(38) OF THE ACT WAS RS.93,77,270/-. THE ASSESSEE CLAIMED THAT IT HAD M ADE INVESTMENT DURING THE YEAR OUT OF IT IS OWN FUNDS AVAILABLE ON ACCOUN T OF SHARE CAPITAL, RESERVES, SURPLUS AND DEPRECIATION TOTALING RS.113. 61 CRORES. THE ASSESSING OFFICER, HOWEVER, INVOKING THE PROVISIONS OF SECTION 14A OF THE ACT READ WITH RULE 8D OF THE INCOME TAX RULES D ISALLOWED SUM OF RS.47,68,522/-. 15. BEFORE THE CIT (APPEALS) THE PLEA OF THE ASSESS EE WAS THAT THE ASSESSING OFFICER HAD IGNORED THE DISALLOWANCE MADE BY THE ASSESSEE AND HAD ALSO OVERLOOKED THE ENTRIES IN THE BANK ACCOUNT S WHICH REFLECTED CREDIT BALANCE IN THE BANK ACCOUNTS WHENEVER INVEST MENT IN THE SHARES 7 AND MUTUAL FUNDS WERE MADE BY THE ASSESSEE. THE SE COND PLEA OF THE ASSESSEE BEFORE THE CIT (APPEALS) WAS THAT THE ASSE SSEE HAD EARNED INTEREST INCOME OF RS.3.96 CRORES AS AGAINST THE PA YMENT OF RS.2.92 CRORES, WHICH INCLUDED THE INTEREST ON TERM LOAN AM OUNTING TO RS.83.20 LACS. THE CLAIM OF THE ASSESSEE BEFORE THE CIT (AP PEALS) WAS THAT NO DISALLOWANCE IS WARRANTED UNDER SECTION 14A READ WI TH RULE 8D OF THE INCOME TAX RULES. THE CIT (APPEALS) ALSO VERIFIED THE BANK ACCOUNT ENTRIES FROM WHERE THE INVESTMENTS WERE MADE AND TH E CONCLUSION OF THE CIT (APPEALS) WAS THAT MOST OF THE INVESTMENTS HAVE BEEN MADE OUT OF OWN FUNDS AND NO INTEREST HAD BEEN DISALLOWED IN TH E PAST. THE CIT (APPEALS) FURTHER DISALLOWED RS.5 LACS OVER AND ABO VE THE DISALLOWANCE MADE BY THE ASSESSEE TOTALING RS.13,95,065/-. BOTH THE REVENUE AND THE ASSESSEE ARE IN APPEAL AGAINST THE ORDER OF THE CIT (APPEALS). 16. THE REVENUE HAS RAISED THE ISSUE VIDE GROUND NO .2 OF ITS APPEAL AND THE ASSESSEE HAS FILED CROSS OBJECTION AGAINST THE SAME. THE LEARNED D.R. FOR THE REVENUE POINTED OUT THAT THE PROVISION S OF RULE 8D WERE APPLICABLE TO THE INSTANT ASSESSMENT YEAR AS HELD B Y THE HON'BLE BOMBAY HIGH COURT IN GODREJ & BOYCE MFG. CO. LTD. VS. DCIT & ANOTHER [328 ITR 81 (BOM)] AND IT WAS FAIRLY ADMITTED BY THE LEA RNED D.R. FOR THE REVENUE THAT THE ASSESSEE HAD DISALLOWED SUM OF RS. 13,95,065/- ON ACCOUNT OF DIRECT EXPENSES RELATABLE TO THE EARNING OF EXEMPT INCOME. THE CIT (APPEALS) FURTHER DISALLOWED RS.5 LACS. 17. THE LEARNED A.R. FOR THE ASSESSEE FURNISHED DET AILED CHART IN RESPECT OF DISALLOWANCE MADE UNDER SECTION 14A OF T HE ACT BY THE ASSESSING OFFICER AND POINTED OUT THAT THE INVESTME NT IN THE SHARES/MUTUAL FUNDS WERE OUT OF OWN FUNDS AND NO BO RROWED FUNDS WERE UTILIZED FOR MAKING THE SAID INVESTMENT AND HENCE N O DISALLOWANCE WAS WARRANTED UNDER RULE 8D(2)(II) OF THE ACT. FURTHER IN RESPECT OF 8 DISALLOWANCE MADE UNDER RULE 8D(2)(III) THE LEARNED A.R. FOR THE ASSESSEE POINTED OUT THAT THE ASSESSEE HAD ON ITS O WN DISALLOWED SUM OF RS.13,95,065/- ON ACCOUNT OF THE DIRECT EXPENDITURE RELATABLE TO THE EARNING OF THE EXEMPT INCOME AND NO FURTHER DISALLO WANCE WAS WARRANTED UNDER RULE 8D(2)(III) OF THE INCOME TAX RULES. THE NEXT PLEA OF THE LEARNED A.R. FOR THE ASSESSEE WAS THAT IN VIEW OF T HE RATIO LAID DOWN BY THE CALCUTTA BENCH OF THE TRIBUNAL IN DCIT VS. TRAD E APARTMENT LTD. ITA NO.1277/2011, DATED 13.3.2012, THE TOTAL INTERE ST RECEIVED BY THE ASSESSEE BEING RS.3.96 CRORES AND THE INTEREST PAID BEING RS.2.92 CRORES, AS THERE WAS NET INTEREST RECEIVED, NO FURTHER DISA LLOWANCE WAS WARRANTED UNDER RULE 8D OF THE INCOME TAX RULES. IT WAS ALSO POINTED OUT THAT THE INTEREST PAID ON BORROWALS MADE FOR SPECIFIC PURPOS E WAS NOT TO BE CONSIDERED AND OUT OF TOTAL INTEREST PAID OF RS.2.9 2 CRORES, INTEREST ON TERM LOAN RAISED FOR FINANCING THE WINDMILLS AND ME RCEDES CAR WERE RS.83,20,558/- AND INTEREST PAID ON BANKING CREDIT LOAN WAS RS.87,59,761/- AND BALANCE INTEREST PAID WAS RS.1.2 1 CRORES. THE LAST PLEA OF THE ASSESSEE WAS THAT THE ASSESSING OFFICER HAD NOT TAKEN THE TOTAL VALUE OF ASSET CORRECTLY IN AS MUCH AS THE CU RRENT LIABILITIES AND PROVISIONS HAD BEEN DEDUCTED, WHICH SHOULD NOT HAVE BEEN DEDUCTED AND IN CASE THE FORMULA APPLIED, THE CORRECT FIGURE OF DISALLOWANCE WOULD BE RS.10,49,851/-, AGAINST WHICH THE ASSESSEE ITSELF H AD DISALLOWED SUM OF RS.13,95,065/-. FURTHER THE LEARNED A.R. FOR THE A SSESSEE PLACED RELIANCE ON THE SERIES OF DECISIONS OF VARIOUS BENC HES OF THE TRIBUNAL. 18. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ASSESSEE HAD MADE INVESTMENT IN SHARES AND MUTUAL F UNDS ON WHICH IT HAD EARNED DIVIDEND INCOME OF RS.22,47,454/- WHICH WAS EXEMPT AND HAD FURTHER SHOWN LONG TERM CAPITAL GAINS AT RS.93,77,2 70/- WHICH WAS CLAIMED AS EXEMPT UNDER SECTION 10(38) OF THE ACT. THE CIT (APPEALS) 9 ON THE PERUSAL OF THE EVIDENCE FILED HAD GIVEN A FI NDING VIDE PARA 4.3 THAT MOST OF THE INVESTMENT HAD BEEN MADE OUT OF OW N FUNDS IN THE PAST. THE FINDINGS OF THE CIT (APPEALS) IN PARA 4.3 ARE A S UNDER: 4.3 GROUND NO. 3 IS AGAINST THE DISALLOWANCE OF RS . 47,68,522/- MADE BY THE A.O APPLYING THE PROVISION OF SECTION 14A OF IT ACT READ WITH RULE 8D OF IT ACT. THE AO FOUND THAT AS PER THE BALANCE SH EET OF COMPANY THERE WAS AN INVESTMENT OF RS.21,04,53,694/- AS ON 31.03. 2008 AS AGAINST INVESTMENT OF RS. 16,32,53,010/- AS 31.03.2007 AND THE APPELLANT HAD INCURRED INTEREST LIABILITY OF RS.2,91,79,406/-DURI NG THE YEAR. THE AO REPRODUCED THE PROVISIONS OF SECTION 14A OF IT ACT AND OWED A SUM OF RS.38,34,256/- AND FURTHER A SUM OF RS.9,34,266/- E QUAL TO % OF THE AVERAGE OF THE VALUE OF INVESTMENT AND THUS MADE A TOTAL DISALLOWANCE 47,68,522/-. THE APPELLANT VIDE REPLY DATED 17.11 .2010 SUBMITTED THAT A SUM 13,95,065/- HAS ALREADY BEEN DISALLOWED BY THE APPELLANT ON ACCOUNT OF EXPENSES INCURRED FOR EARNING THE EXEMPT INCOME. THE APPELLANT BEFORE ME HAS SUBMITTED THAT THE TOTAL D IVIDEND INCOME WHICH WAS CLAIMED EXEMPT WAS A SUM 22,57,454/- AND LONG T ERM CAPITAL GAINS OF RS.93, 77,2 70 CLAIMED EXEMPT UNDER SECTION 10(38) AND ALL THE INVESTMENTS MADE DURING THE YEAR AS PER PAGE 36 OF PAPER BOOK W ERE MADE OUT OF APPELLANT'S OWN RESOURCES AND NOT OUT OF ANY BORROW INGS. THE APPELLANT HAS FILED COPIES OF THE RELEVANT BANK EN TRIES TO SHOW THAT WHENEVER ANY INVESTMENT WAS MADE THERE WAS ALWAYS A CREDIT BALANCE AVAILABLE IN THE BANK ACCOUNTS. IT HAS FURTHER BEEN SUBMITTED THAT THE APPELLANT HAD EARNED AN INTEREST INCOME OF RS.3,95, 64,326/- FROM THE MARKET ON THE ADVANCES MADE BY THE APPELLANT WHICH IS FAR MORE THAN THE INTEREST PAID BY THE APPELLANT. THE APPELL ANT RELIED ON THE JUDGMENT OF MUMBAI HIGH COURT IN THE CASE OF CIT VS . RELIANCE UTILITIES & POWER LTD REPORTED IN (2009) 313 ITR 34 0 (BOM) TO BUTTRESS HIS CLAIM REGARDING THE AVAILABILITY OF FUNDS WITH THE COMPANY AS PER THE DETAILS GIVEN IN THE WRITTEN SUBMISSIONS. FURTHER R ELIANCE HAS ALSO BEEN PLACED ON THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF MUNJAL SALES CORPORATION VS. CIT REPORTED IN (2008) 298 ITR 298 (SC) AND JUDGMENT OF THE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. SRIDEV ENTERPRISES (1991) REPORTED IN 192 ITR 165 ( KAR). THE APPELLANT HAS ALSO FILED COPIES OF THE JUDGMENT S OF THE HON' BLE TRIBUNAL IN APPELLANTS OWN CASE FOR THE ASSESSMENT YEAR 2005- 06 AND 2006-07 WHERE ADDITIONS MADE U/S 14A STOOD DELETED UNDER SIMILAR CIRCUMSTANCES. RELIANCE HAS ALSO BEEN PLACED IN THE CASE OF CIT VS . HERO CYCLES LTD. REPORTED IN (2010) 323 ITR 518 (P&H) WHERE IN ON SI MILAR ISSUE THE DISALLOWANCE MADE STOOD DELETED. I HAVE PERUSED THE RECORD AND HOLD THAT THE AO WAS NOT JUSTIFIED IN DISALLOWING A SUM OF RS. 47,68,522/-, WHEREAS, ASSESSEE HAS MADE DISALLOWANCE OF RS.13,95,065/- ONLY. IT IS ALS O THE FACT THAT MOST OF THE INVESTMENTS HAVE BEEN MADE OUT OF OWN FUNDS IN PAST . HOWEVER, CONSIDERING THE TOTALITY OF THE FACTS IT WOULD BE FAIR TO RESTR ICT DISALLOWANCE AT RS.5,00,000/- ON ADHOC BASIS TO COVER ANY OF THE EX PENSES LEFT BY THE APPELLANT DURING SELF DISALLOWANCE OF RS.13,95,065/ - IN HIS COMPUTATION. THEREFORE, THIS GROUND OF THE APPELLANT IS PARTLY A LLOWED AND HE GETS RELIEF AMOUNTING TO RS.42,68,522/- REMAINING RS.5,00,000/- IS HEREBY UPHELD. 10 19. THE CIT (APPEALS) ALSO CONSIDERED THE PLEA OF T HE ASSESSEE THAT AGAINST THE INTEREST EXPENDITURE OF ABOUT RS.2.91 C RORES, THE ASSESSEE HAD EARNED INTEREST INCOME OF RS.3.95 CRORES AND CONSEQ UENTLY THE DISALLOWANCE MADE BY THE ASSESSING OFFICER WAS NOT JUSTIFIED. HOWEVER, AN ADHOC DISALLOWANCE OF RS.5 LACS AS MADE BY THE C IT (APPEALS). 20. WE FIND MERIT IN THE PLEA OF THE ASSESSEE THAT WHERE THE INVESTMENT IN THE SHARES AND MUTUAL FUNDS WERE MADE OUT OF ITS OWN FUNDS AND NO BORROWED FUNDS WERE UTILIZED FOR MAKING THE SAID IN VESTMENT IN THE EARLIER YEARS, NO DISALLOWANCE WAS WARRANTED UNDER SECTION 14A OF THE ACT READ WITH RULE 8D OF INCOME TAX RULES. IN THE FACTS OF THE PRESENT CASE BEFORE US THE INVESTMENT MADE BY THE ASSESSEE AS ON 31.3.1998 AMOUNTING TO RS.21.05 CRORES AND AS ON 31.3.2008 WA S RS.16.32 CRORES. THE ASSESSING OFFICER HAD CONSIDERED THE POSITION O F ASSET AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE ON THE FIRST D AY AND THE LAST DATE OF THE YEAR AT RS.137.72 CRORES AND RS.146.68 CRORES R ESPECTIVELY AND DETERMINED THE AVERAGE AT RS.142.20 CRORES AND HAD COMPUTED THE DISALLOWANCE UNDER RULE 8D(2)(II) AT RS.38,34,256/- AND UNDER RULE 8D(2)(III) AT RS.9,34,266/-. THE LEARNED A.R. FOR THE ASSESSEE HAD FURNISHED ON RECORD THE AUDITED SET OF BALANCE SHEE T AND HAS POINTED OUT THAT THE TOTAL VALUE OF ASSET TAKEN BY THE ASSESSIN G OFFICER ON THE FIRST DAY AT RS.137.72 CRORES WAS INCORRECT AS THE CURREN T LIABILITIES AND THE PROVISION TOTALING RS.62.25 CRORES, ONCE ADDED BACK THE TOTAL VALUE OF THE ASSETS WOULD BE RS.199.96 CRORES AS ON 31.3.200 7. SIMILARLY, THE TOTAL VALUE OF ASSET TAKEN BY THE ASSESSING OFFICER ON THE LAST DATE AT RS.146.68 CRORES WAS NET OF THE CURRENT LIABILITIES AND PROVISION OF RS.84.04 CRORES WHICH ONCE ADDED WOULD TOTAL TO RS. 230.72 CRORES WHICH WOULD BE THE VALUE OF THE ASSETS AS ON 31.3.2008. THE AVERAGE OF THE TWO WOULD BE RS.215.34 CRORES AND APPLYING THE FORMULA UNDER RULE 8D(2) 11 (II) OF THE INCOME TAX RULES THE DISALLOWANCE WORKS OUT TO RS.10,49,851/-. THE ASSESSEE HAD DISALLOWED SUM OF RS.13,95,065/- PAID FOR THE PORTFOLIO MANAGEMENT. 21. ON THE PERUSAL OF THE PROVISIONS OF RULE 8D OF THE INCOME TAX RULES WE FIND THAT THE EXPENDITURE RELATABLE TO THE EARNING OF EXEMPT INCOME IS EQUAL TO AGGREGATE OF THE AMOUNT OF EXPEN DITURE DIRECTLY RELATABLE TO THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME I.E. RULE 8D(2)(I) AND THE DISALLOWANCE OF INTEREST AS P ROVIDED UNDER RULE 8D(2)(II) AND FURTHER DISALLOWANCE COMPUTED UNDER R ULE 8D(2)(III) OF THE INCOME TAX RULES. THE DISALLOWANCE MADE BY THE ASS ESSEE ON ACCOUNT OF DIRECT EXPENDITURE RELATABLE TO THE EARNING OF EXEM PT INCOME I.E. FEE PAID FOR PORTFOLIO MANAGEMENT TOTALING RS.13,95,065/- IS DISALLOWABLE UNDER RULE 8D(2)(I) OF THE INCOME TAX RULES. UNDER THE P ROVISIONS OF RULE 8D(2)(II) THE INTEREST RELATABLE TO THE INVESTMENT IN TAX FREE FUNDS IS TO BE COMPUTED AND AS PER THE WORKING OF THE ASSESSEE ITSELF THE SAME COMES TO RS.10,49,851/-. CONSEQUENTLY, WE DIRECT T HE ASSESSING OFFICER TO DISALLOW RS.10,49,851/- BEING THE INTEREST SO RE LATABLE TO THE EARNING OF EXEMPT INCOME. WE FIND NO MERIT IN THE ALTERNAT E PLEA RAISED BY THE ASSESSEE THAT NO DISALLOWANCE OF INTEREST IS CALLED FOR AFTER SETTING OFF THE INTEREST PAID AND INTEREST RECEIVED, WHERE THER E IS NO INTEREST PAYMENT. ADMITTEDLY THE ASSESSEE HAD PAID TOTAL IN TEREST OF RS.2.92 CRORES OUT OF WHICH INTEREST PAID ON TERM LOAN RAIS ED FOR SPECIFIC PURPOSE TOTALS TO RS.1.70 CRORES AND BALANCE INTEREST PAID BY THE ASSESSEE IS RS.1.21 CRORES. THE FUNDS UTILIZED BY THE ASSESSEE BEING MIXED FUNDS AND IN VIEW OF THE PROVISIONS OF RULE 8D(2)(II) OF THE INCOME TAX RULES THE DISALLOWANCE IS CONFIRMED AT RS.10,49,851/-. W E FIND NO MERIT IN THE ADHOC DISALLOWANCE MADE BY THE CIT (APPEALS) AT RS. 5,00,000/-. 12 CONSEQUENTLY GROUND OF APPEAL RAISED BY THE REVENUE IS PARTLY ALLOWED AND GROUND RAISED BY THE ASSESSEE IN CROSS OBJECTIO N IS ALLOWED. 22. THE GROUND NO.3 RAISED BY THE REVENUE IS AGAINS T THE DISALLOWANCE MADE OUT OF DEPRECIATION CLAIMED ON POWER EVACUATIO N FACILITY AND TRANSMISSION LINES USED. 23. THE BRIEF FACTS AS NOTED BY THE CIT (APPEALS) W ERE AS UNDER: 4.4 GROUND NOS. 4 & 5 ARE AGAINST AO'S ACTION IN NOT ALLOWING DEPRECIATION CLAIMED @ 80% ON POWER EVACUA TION FACILITY AND PROCESSING CHARGES PROVIDED IN & ALLOW ING ONLY 15% DEPRECIATION ON POWER LINES CLAIMED @ 80%. DISC USSED THIS ISSUE IN PARA 7, PAGES 10 TO 20 OF THE ORDER. BRIEF FACTS ARE GIVEN BY THE AO IN HIS ORDER AND BY THE APPELLA NT IN HIS WRITTEN SUBMISSIONS. THE BRIEF FACTS ARE THAT THE APPELLANT HAS PUT UP TWO WINDMILLS IN GUJARAT AND THE TOTAL EXPENDITURE OF RS.18,00,72,824/- WAS INCURRED ON THE SAME WHICH INCLUDED A SUM OF RS.92.10 LACS FOR POWER EVACUATIO N FACILITY AND ON PROCESSING CHARGES, AND RS.57,48,00 0/- ON ELECTRICAL TRANSMISSION LINES. THE APPELLANT CLA IMED DEPRECIATION @ 80% ON THE TOTAL AMOUNT. THE AO DID NOT ALLOW ANY DEPRECIATION ON THE AMOUNT INCURRED ON PO WER EVACUATION FACILITY AND ALLOWED 15% DEPRECIATION ON ELECTRICAL TRANSMISSION LINES HOLDING THAT THE EXPENDITURE RELATING TO POWER EVACUATION FACILITY I S A CAPITAL EXPENDITURE WHICH CAN NOT BE TREATED AS PAR T OF THE BLOCK OF RENEWABLE ENERGY DEVICES BEING WIND MI LL ELIGIBLE FOR DEPRECIATION @ 80% AND THE ASSESSEE IS NOT THE OWNER OF PEF THUS NO DEPRECIATION IS ALLOWABLE ON THE SAME. AS REGARDS ELECTRICAL LINES FOR POWER TRANSMISSION, THESE ARE ELIGIBLE ONLY FOR NORMAL RA TES OF DEPRECIATION @ 15% AND THEY ARE NOT PART OF POWER GENERATION WIND MILL DEVICE. 24. DURING THE APPELLATE PROCEEDINGS, THE CIT (APPE ALS) MADE CERTAIN ENQUIRIES WHICH WERE AS UNDER: DURING THE EXAMINATION OF THIS ISSUE I DIRECTED THE APPELLANT'S COUNSEL TO FILE COPIES OF THE BILLS OF ALL THE EXPENDITURE INCURRED ON THE WINDMILLS IN SUPPORT OF OWNERSHIP AND FURTHER CONFIRMATION FROM SUPPLIERS REGARDING TRANSFER OF PEF AND THAT THEY HAVE NOT CL AIMED ANY DEPRECIATION ON THE SAME. THE APPELLANT VIDE HI S REPLY DATED 14.05.2011 AND 09.08.2011 FILED THE COPIES OF THE BILLS ALONG WITH OTHER RELEVANT CORRESPONDENCE AND CERTIFICATE FROM THE SUPPLIERS SUZLON ENERGY LTD RE GARDING 13 THE ARRANGEMENTS FOR POWER EVACUATION FACILITY AND THE OPINION OF THE EXPERTS ON THE SUBJECT NAMELY DELOIT TE HAKINS & SELLS, PUNE AND WALKER, CHANDIOK & CO, PUN E. THE CONFIRMATION FROM SUZLON ENERGY LTD READS AS UN DER: - 'THIS HAS REFERENCE TO YOUR QUERY SEEKING CLARIFICATION WITH REGARDS TO COSTS BORNE BY YOU ON SETTING UP OF POWER EVACUATION FACILITY FOR THE WIN D MILL IN THE STATE OF GUJARAT. 1. THE POWER EVACUATION FACILITY (PEF) SET UP BY US FOR YOU IS PART & PARCEL OF THE WIND MILL. PEF OR T HE WIND MILL WOULD BE USELESS WITHOUT THE OTHER. EXISTENCE OF BOTH IS IMPERATIVE FOR RUNNING OF WIND MILL. THIS FACILITY IS SET UP JOINTLY FOR GROUP OF WIND MILLS AS IT IS NOT VIABLE OR FEASIBLE TO SET UP INDEPENDENT PRF FOR EACH AND EVERY INDIVIDUAL WIND MILL OWNER. 2. ALL OPERATIONAL AND BENEFICIAL RIGHTS ATTACHED TO THE POWER EVACUATION F ACILITY HAVE BEEN TRANSFERRED TO YOU. YOU ARE PART OF OWNER OF PEF TILL THE LIFE OF THE WIND MILL. 3. SUZLON ENERGY HAS NEVER CLAIMED ANY DEPRECIATION ON THIS POWER EVACUATION FACILITY.' THE APPELLANT FURTHER SUBMITTED THAT POWER EVACUATI ON FACILITY AND ELECTRICAL TRANSMISSION LINES' ARE CAP ITAL ASSETS TO PUT THE WINDMILL IN AN OPERATIONAL CONDIT ION. THERE WAS NO JUSTIFICATION TO BIFURCATE THIS EXPEND ITURE FROM THE COST OF THE WINDMILLS AS WITHOUT THIS EXPENDITURE THE WINDMILLS WOULD BE RENDERED USELESS . THE REPLIES FILED BY THE APPELLANT BEFORE THE AO ARE REPRODUCED AT PAGES 11-15 OF THE ORDER. 25. THE CONCLUSION OF CIT (APPEALS) AT PAGE 9 OF TH E APPELLATE ORDER WAS AS UNDER: I HAVE GONE THROUGH THE ORDER OF THE AO AND THE REPLIES FILED BY THE IT AND OTHER CASE LAW CITED BY THE APPELLANT, I AM OF THE OPINION THAT THE AO IS NOT JUSTIFIED IN NOT ALLOWING DEPRECIATION ON THE POWER EVACUATION FACILITY ON THE GROUND THAT THE APPELLAN T WAS NOT THE OWNER OF THE SAME. THERE IS SUFFICIENT EVIDENCE PRODUCED BY THE APPELLANT ON THE OWNERSHIP ISSUE. I HOLD THAT PEF IS PART AND PARCEL OF THE WI ND MILL AND THE WIND MILL CANNOT RUN WITHOUT PEF. THE ASSESSEE HAS FURNISHED DETAILS OF PAYMENTS AND HAS CATEGORICALLY BROUGHT ON RECORD FACT THAT HE IS PAR T OWNER OF PEF AND HENCE HAS CLAIMED PROPORTIONATE DEPRECIATION ON HIS PART OF OWNERSHIP CONTRIBUTION ONLY. THE COUNSEL'S PLEA THAT EVEN OTHERWISE SINCE THE EXPENDITURE IS FOR THE PURPOSE OF RUNNING BUSINESS, THEN ALTERNATIVELY HE HAS BEEN ALLOWED THE FULL OF SUCH EXPENSES AS REVENUE EXPENSES WRING THE YEAR. I HAVE 14 ALSO CAREFULLY CONSIDERED THE COPY OF LETTER WRITTE N BY THE SUZLON LTD. TO THE APPELLANT, THE BILL RAISED B Y THE SUZLON LTD. IN FAVOUR OF THE APPELLANT, VARIOUS JUDGEMENTS ON THE ISSUE CITED BY THE ASSESSEE'S COU NSEL AND AFTER CONSIDERING ALL THESE DOCUMENTS AND SUBMISSIONS, IT IS CLEAR THAT POWER EVACUATION FACI LITY (PEF) IS PART OF THE WIND MILL BECAUSE OTHERWISE TH E RUNNING OF WIND MILL WOULD NOT HAVE BEEN POSSIBLE A ND THE SAME VIEW HAS BEEN TAKEN AS PER JUDGEMENT CITED (SUPRA). AS FAR AS, THE ISSUE OF OWNERSHIP IS CONCE RNED, THE ASSESSEE HAS SUBMITTED ADEQUATE EVIDENCE IN SUPPORT OF HIS CONTENTION WHICH IS BEYOND DOUBT THA T HE HAS MADE CONTRIBUTION TO THE PART OWNERSHIP OF THE ASSET AND THE LETTER OF -M/S SUZLON LTD., ALSO CONF IRMS THIS FACT COUPLED WITH THE FACT THAT THEY HAVE NOT CLAIMED ANY DEPRECIATION ON THIS ASSET. THE COPY OF LETTER OF SUZLON LTD. ADDRESSED TO THE APPELLANT IS MADE AS PART OF THIS ORDER AS ANNEXURE 'A'. IT WAS ALSO BE RELEVANT TO NOTE HERE THAT THESE EXPENSES HAVE BEEN INCURRED BY THE ASSESSEE FOR RUNNING OF BUSINESS AN D ALTERNATIVELY PLEA OF THE APPELLANT'S COUNSEL THAT IF IT IS NOT FOR THE SAKE OF ARGUMENTS IT IS NOT TREATED AS CAPITAL ASSET THEN THE WHOLE OF SUCH EXPENSES SHOUL D BE ALLOWED AS REVENUE EXPENSES DURING THE YEAR BECAUSE IT IS INCURRED FOR BUSINESS. CONSIDERING ALL THESE FAC TS, THE AO IS DIRECTED TO ALLOW DEPRECIATION AT THE RAT E OF 80 PER CENT ON POWER EVACUATION FACILITY, PROCESSIN G CHARGES AND POWER LINES AS PROVIDED IN THE RULES. THEREFORE, THE GROUNDS OF APPEAL OF THE APPELLANT A T SR.NO.4 AND 5 ARE, THEREFORE, ALLOWED. 26. THE LEARNED D.R. FOR THE REVENUE PLACING RELIAN CE ON THE OBSERVATIONS OF THE ASSESSING OFFICER STRESSED THAT NO DEPRECIATION WAS ALLOWABLE ON THE POWER EVACUATION INFRASTRUCTURE FA CILITY(PEF IN SHORT) AND DEPRECIATION @ 15% WAS CORRECTLY ALLOWED ON THE TRANSMISSION LINES. THE PLEA OF THE LEARNED D.R. FOR THE REVENUE WAS TH AT THE ASSESSEE WAS NOT THE OWNER OF POWER EVACUATION FACILITY AND THE SAME WAS NOT EXCLUSIVELY DEDICATED TO THE WINDMILL OF THE ASSESS EE. IT WAS FURTHER PLEADED BY THE LEARNED D.R. FOR THE REVENUE THAT TH E INTENTION OF THE LEGISLATURE WAS TO ALLOW HIGHER DEPRECIATION ON WIN DMILLS AND NOT ON EVERY FACILITY ATTACHED TO IT. 27. THE LEARNED A.R. FOR THE ASSESSEE PLACED RELIAN CE ON THE OBSERVATIONS OF THE CIT (APPEALS) AND POINTED OUT T HAT ANNEXURE ANNEXED TO THE ORDER OF THE CIT (APPEALS) ESTABLISH ED THAT PEF FACILILTY 15 WAS PART OF WINDMILL. IT WAS FURTHER POINTED OUT B Y THE LEARNED A.R. FOR THE ASSESSEE THAT WINDMILL COULD NOT RUN WITHOUT TH E SAID FACILITY AS HAD BEEN HELD BY THE MUMBAI BENCH OF THE TRIBUNAL IN TR UMAC ENGINEERING CO. PVT. LTD. VS. INCOME TAX OFFICER IN ITA NO.555/ MUM/2003 RELATING TO ASSESSMENT YEAR 1996-97, ORDER DATED 27.6.2008. FURTHER RELIANCE WAS PLACED ON THE JUDGMENT OF PUNE BENCH OF THE TRIBUNA L IN POONAWALA FINVEST & AGRO P. LTD. VS. ACIT (2008) 118 TTJ 68 ( PUNE). 28. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ISSUE ARISING VIDE PRESENT GROUND OF APPEAL IS IN R ELATION TO ALLOWABILITY OF DEPRECIATION ON POWER EVACUATION INFRASTRUCTURE FACILITY AND ALSO ON THE TRANSMISSION LINES. THE PLEA OF THE ASSESSEE W AS THAT THE SAID POWER EVACUATION INFRASTRUCTURE FACILITY WAS PART AND PAR CEL OF THE WINDMILL, WHICH COULD NOT RUN WITHOUT THE SAME. THE ASSESSEE CLAIMED TO HAVE MADE PAYMENTS TO SUZLON ENERGY LTD. FOR BECOMING PA RT OWNER OF THE SAID FACILITY ALONGWITH OTHER PERSONS WHO WERE UTIL IZING THE SAID FACILITY. THE ASSESSEE HAD CLAIMED DEPRECIATION ON THE SAID P ART OWNERSHIP AS THE FACILITY WAS SET UP BY SUZLON ENERGY LTD. JOINTLY F OR GROUP OF WINDMILLS, AS IT WAS NOT VIABLE TO SET UP INDEPENDENT POWER EV ACUATION INFRASTRUCTURE FACILITY FOR EACH AND EVERY INDIVIDU AL OWNER OF THE WINDMILL. IT WAS ALSO CERTIFIED BY SUZLON ENERGY L TD. THAT THE OWNERSHIP OF THE SAID ASSET HAS BEEN TRANSFERRED TO THE ASSES SEE AND NO DEPRECIATION WAS CLAIMED BY THEM ON THE SAID POWER EVACUATION IN FRASTRUCTURE FACILITY. THE CONFIRMATION FROM SUZLON ELERGY LTD. HAS BEEN REPRODUCED BY THE CIT (APPEALS), COPY OF WHICH IS FILED BY THE ASSESSEE DURING THE COURSE OF HEARING, WHICH READS AS UNDER: 'THIS HAS REFERENCE TO YOUR QUERY SEEKING CLARIFICATION WITH REGARDS TO COSTS BORNE BY YOU ON SETTING UP OF POWER EVACUATION FACILITY FOR THE WIN D MILL IN THE STATE OF GUJARAT. 16 1. THE POWER EVACUATION FACILITY (PEF) SET UP BY US FOR YOU IS PART & PARCEL OF THE WIND MILL. PEF OR T HE WIND MILL WOULD BE USELESS WITHOUT THE OTHER. EXISTENCE OF BOTH IS IMPERATIVE FOR RUNNING OF WIND MILL. THIS FACILITY IS SET UP JOINTLY FOR GROUP OF WIND MILLS AS IT IS NOT VIABLE OR FEASIBLE TO SET UP INDEPENDENT PRF FOR EACH AND EVERY INDIVIDUAL WIND MILL OWNER. 2. ALL OPERATIONAL AND BENEFICIAL RIGHTS ATTACHED TO THE POWER EVACUATION F ACILITY HAVE BEEN TRANSFERRED TO YOU. YOU ARE PART OF OWNER OF PEF TILL THE LIFE OF THE WIND MILL. 3. SUZLON ENERGY HAS NEVER CLAIMED ANY DEPRECIATION ON THIS POWER EVACUATION FACILITY.' 29. THE ASSESSEE HAD ALSO CLAIMED THE TRANSMISSION LINES THROUGH WHICH ELECTRICITY IS TRANSMITTED TO ELECTRICITY BOARD AS PART AND PARCEL OF THE WINDMILL. THE ASSESSING OFFICER HAD ALLOWED DEPREC IATION ON THE SAME AT LOWER RATES. 30. THE MUMBAI BENCH OF THE TRIBUNAL IN TRUMAC ENGI NEERING CO. PVT. LTD. VS. INCOME TAX OFFICER (SUPRA) HELD THAT TRANS MISSION LINES ARE PART AND PARCEL OF THE WINDMILL AND ARE ENTITLED TO DEPR ECIATION @ 100%. THE CIT (APPEALS) WHILE DECIDING THE APPEAL OF THE PRES ENT ASSESSEE BEFORE US REFERRED TO THE DECISION IN TRUMAC ENGINEERING C O. PVT. LTD. VS. INCOME TAX OFFICER (SUPRA) AND OBSERVED AS UNDER: THE OTHER JUDGMENT CITED BY THE COUNSEL IS IN THE CASE OF TRUMAC ENGINEERING COMPANY PVT. LTD VS. ITO OF ITA NO. 555/MUM/2003. THE ISSUE RELATED TO REOPENIN G U/S 147 AND ALSO TO DEPRECIATION ON THE WIND MILL. AS PER AS REOPENING WAS CONCERNED IT WAS DECIDED AGAIN ST THE ASSESSEE. THE OTHER ISSUE WERE DEALT ON MERITS. THE ASSESSEE HAD CAPITALIZED SOME OF RS. 42.50 LAKHS BE ING THE PAYMENT ON ACCOUNT OF CONTRIBUTION MADE TO GEDA FOR CREATION OF COMMON SUB-STATION FOR EVACUATION O F POWER FROM WIND FARM. THE AO HELD THE CLAIM OF THE ASSESSEE IS NOT ALLOWABLE AS THE PAYMENT IS NOT MAD E FOR CREATING AN ASSET NOR IT IS OWNED BY THE ASSESS EE. THE ASSESSEE FAILED BEFORE THE CIT(A) AND HENCE THE APPEAL BEFORE THE HON'BLE TRIBUNAL. THE TRIBUNAL EXAMINED THE FACTS OF THE CASE IN DETAIL AND HELD A S UNDER:- 17 'CONSIDERING THE RIVAL SUBMISSIONS, WE ARE OF THE V IEW THAT THE ASSESSEE'S APPEAL IS O BE ALLOWED ON MERIT . FIRSTLY, IT IS TO BE SEEN THAT THESE MACHINERIES HA D NO INDEPENDENT FUNCTIONING AS SUCH. MERELY BECAUSE IT IMPROVES THE WORKING SYSTEM OR CONTROLLING/MONITORI NG SYSTEM, IT CANNOT BE TREATED AS AN INDEPENDENT MACHINERY AND NOT PART OF THE INTEGRATED MACHINERY. THE SUBMISSION OF THE LEARNED COUNSEL IS THAT IF TH E MACHINERY INSTALLED AT THE FIRST STAGE OF INSTALLIN G THE WINDMILL ITSELF, THE CLAIM OF THE ASSESSEE WOULD HA VE BEEN ALLOWED. MERELY BECAUSE FOR SOME REASON OR OT HER IT WAS SUBSEQUENTLY INSTALLED DOES NOT MEAN THAT I T IS NOT A PART OF THE MACHINERY AS SUCH. SINCE THE MACHINERY HAD NO INDEPENDENT FUNCTIONING, WE ARE OF THE VIEW THAT THE CLAIM OF THE ASSESSEE IS TO BE AL LOWED. COMING TO THE PAYMENT MADE TO GEDA, WE ARE OF THE VIEW THAT THE DECISION OF THE HON'BLE CALCUTTA HIGH IT IN THE CASE OF BIRLA JUTE MANUFACTURING LTD (SUPRA) IS CLEARLY APPLICABLE. IN CASE OF EXCEL INDUSTRIES LTD (SUPRA), THE HON'BLE BOMBAY HIGH COURT HELD; PAYMEN T MADE FOR OVERHEAD SERVICE LINE, WHICH REMAINED THE PROPERTY OF TRICKY BOARD IS ALLOWABLE AS REVENUE EXPENDITURE. ON FACTS, IN THE INSTANT CASE TIE ASSESSEE, THE PAYMENT TO GEDA IS TO BE ALLOWED IN THE LIGHT O F THIS DECISION OF THE JURISDICTIONAL HIGH COURT. HENCE, APPEAL BY THE ASSESSEE WITH REGARD TO L,2,3,AND 4 A RE ALLOWED 31. THE PUNE BENCH OF THE TRIBUNAL IN POONAWALA FIN VEST & AGRO P. LTD. VS. ACIT (SUPRA) HELD AS UNDER: I HAVE GONE THROUGH THE JUDGMENT REPORTED IN (2008) 118 TTJ 68 (PUNE)(TRIBUNAL). ONE OF THE ISS UES IN THE SAID JUDGMENT RELATED TO DEPRECIATION IN RES PECT OF ELECTRICAL ITEMS LIKE TRANSFORMER AND INTERNAL L INES UPTO METERING FOR WHICH THE ASSESSEE HAD PAID RS. 7 .00 LAKHS TO SUZLON DEVELOPERS PVT. LTD. THIS GADGET WA S FOR TRANSMISSION OF ELECTRICAL POWER GENERATED UPTO SUB-DIVISION OF MSEB. THE HON'BLE TRIBUNAL HELD THA T THE ELECTRICAL ENERGY SO PRODUCED BY THE WIND MILL IS A WASTE IF IT IS NOT TRANSMITTED TO MSEB SUB-STATION. THE FUNCTION OF SUCH UNIT IS THAT THE ELECTRICITY SO GE NERATED IS REQUIRED TO BE TRANSFERRED AND TRANSMITTED TO CA BLE LINE UPTO SUB-STATION, WHERE THE ACTUAL UNITS SO GENERATED ARE STORED AND METERED. SINCE THIS IS THE FUNCTION OF TRANSFORMER UPTO DP STRUCTURE, HENCE OU GHT TO BE HELD AS AN INTEGRAL PART OF WIND MILL AND IS CONSEQUENTLY ENTITLED FOR HIGHER RATE OF DEPRECIATI ON. THE FACTS OF THE CASE ARE IDENTICAL WITH THE FACTS OF THE APPELLANT. 18 32. THE AHMEDABAD BENCH OF THE TRIBUNAL IN ACIT(OSD ) VS. PARRY ENGINEERING & ELECTRONICS P. LTD. IN ITA NO.3317/AH D/2011 WITH C.O.NO.44/AHD/2012 HELD AS UNDER : 4. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSE D THE ORDERS OF THE AO AND THE CIT(A). THE DEPRECIATI ON IS ALLOWABLE ON RENEWABLE ENERGY DEVICE WHICH ALSO INCLUDES WINDMILL. THE DEPRECIATION AT THE RATE OF 80% IS ALLOWABLE ON THE ENTIRE DEVICE WHICH IS CAPABLE OF GENERATING ELECTRICITY USING WIND ENERGY. THERE IS NO PROVISION IN THE ACT TO BIFURCATE THE DEVICE INTO S EVERAL PARTS AND ALLOW DEPRECIATION THEREON AT DIFFERENT R ATES OF DEPRECIATION. THE FOUNDATION, CIVIL AND ELECTRIC AL WORKS ARE NECESSARY FOR THE INSTALLATION OF THE WIN DMILL AND IS CLEARLY PART AND PARCEL OF THE WINDMILL PROJ ECT ON WHICH DEPRECIATION AT THE RATE OF 80% IS ALLOWAB LE. THE CIT(A) HAS REFERRED TO THE DECISIONS OF THE HIG H COURTS WHILE DECIDING THE ISSUE IN FAVOUR OF THE ASSESSEE. ACCORDINGLY, THE GROUND TAKEN IN THE APPE AL OF THE REVENUE WITH REGARD TO THE DEPRECIATION AND ADDITIONAL DEPRECIATION ON THE FOUNDATION, CIVIL & ELECTRICAL WORKS, INSTALLATION, PAYMENT TO GEDA IS DISMISSED. HOWEVER, WITH REGARD TO DEPRECIATION ON THE CAPITALIZED INTEREST, THERE IS NO FINDING IN THE OR DERS OF THE AO AND THE CIT(A) THAT NO PART OF THE BORROWED AMOUNT WAS UTILISED FOR THE PURCHASE OF THE LAND. ACCORDINGLY, THIS LIMITED ISSUE IS RESTORED TO THE FILE OF THE AO WITH THE DIRECTIONS TO VERIFY THE FACTS AND IN CASE THE BORROWED AMOUNT HAS BEEN UTILISED FOR THE PURPOSE OF PURCHASE OF THE LAND, THEN TO DISALLOW T HE DEPRECIATION ON THE CAPITALIZED INTEREST TO THAT EX TENT. WE DIRECT ACCORDINGLY. 33. IN THE PRESENT FACTS AND CIRCUMSTANCES OF THE C ASE WHERE THE ASSESSEE IS PART OWNER OF POWER EVACUATION INFRASTR UCTURE FACILITY, THE ASSESSEE IS ENTITLED TO CLAIM DEPRECIATION ON THE S AID ASSET. UNDER THE PROVISIONS OF SECTION 32 OF THE ACT, DEPRECIATION I S ALLOWABLE ON THE ASSET WHETHER OWNED WHOLLY OR PARTLY BY THE ASSESSE E BUT THE CONDITION IS THAT THE SAME SHOULD BE USED FOR THE PURPOSES OF BU SINESS. IN VIEW OF THE RATIO LAID DOWN BY THE PUNE BENCH OF THE TRIBUN AL IN POONAWALA FINVEST & AGRO P. LTD. VS. ACIT (SUPRA), THE MUMBAI BENCH OF THE TRIBUNAL IN TRUMAC ENGINEERING CO. PVT. LTD. VS. IN COME TAX OFFICER (SUPRA) AND THE AHAMEDABAD BENCH OF THE TRIBUNAL IN ACIT(OSD) VS. PARRY ENGINEERING & ELECTRONICS P. LTD. (SUPRA), WE HOLD THAT THE POWER 19 EVACUATION INFRASTRUCTURE FACILITY IS PART AND PARC EL OF THE WINDMILL THOUGH PARTLY OWNED BY THE ASSESSEE ON WHICH THE AS SESSEE IS ENTITLED TO THE CLAIM OF DEPRECIATION AT THE SAME RATE ON WHICH DEPRECIATION WAS ALLOWED ON THE WINDMILL. FURTHER THE ASSESSEE IS A LSO ENTITLED TO THE CLAIM OF DEPRECIATION AT HIGHER RATE ON THE TRANSMI SSION LINES WHICH AGAIN ARE PART AND PARCEL OF THE WINDMILL. UPHOLDI NG THE ORDER OF THE CIT (APPEALS) WE DISMISS GROUND NO.3 RAISED BY THE REVENUE. 34. IN THE RESULT, THE APPEAL OF THE REVENUE IS PAR TLY ALLOWED AND THE CROSS OBJECTION FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 17 TH DAY OF JANUARY, 2013. SD/- SD/- (MEHAR SINGH) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 17 TH JANUARY, 2012 *RATI* COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT(A)/TH E CIT/THE DR. ASSISTANT REGISTRAR, ITAT, CHANDIGARH 20