Power Build Limited, Anand V. The ACIT., Anand Circle, Anand

CO 198/AHD/2010

• Counselvise Citation: [2012] 122 COUNSELVISE.COM (IT) 7574 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 1 month(s) 11 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 31-08-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 04-07-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 20-07-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SUNIL A TALATI
• Assessee Lawyers: RAJNISH VOHRA
• Keywords: Depreciation; Additional depreciation
• Section: 14A; 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, B BENCH, AHMEDABAD BEFORE SHRI A. K. GARODIA, ACCOUNTANT MEMBER AND SHRI KUL BHARAT, JUDICIAL MEMBER I.T.A. NO.1945 / AHD/2010 (ASSESSMENT YEAR 2007-08) ACIT, ANAND CIRCLE, ANAND VS. POWER BUILD LTD., ANAND SOJITRA ROAD, VALLABHVIDYANAGAR, ANAND PAN/GIR NO. : AABCP2464K C.O. NO.198/AHD/2010 (IN I.T.A.NO. 1945/AHD/2010) (ASSESSMENT YEAR 2007-08) POWER BUILD LTD., VS. ACIT, ANAND CIRCLE ANAND SOJITRA ROAD, ANAND VALLABHVIDYANAGAR, ANAND (APPELLANT) .. (RESPONDENT) APPELLANT BY: SHRI RAJNISH VOHRA, SR. DR RESPONDENT BY: SHRI SUNIL A TALATI, AR DATE OF HEARING: 04.07.2012 DATE OF PRONOUNCEMENT: 31.08.2012 O R D E R PER SHRI A. K. GARODIA, AM:- THIS APPEAL IS FILED BY THE REVENUE AND THE CROSS OBJECTION IS FILED BY THE ASSESSEE WHICH ARE DIRECTED AGAINST THE ORDE R OF LD . CIT(A) IV, BARODA DATED 03.03.2010 FOR THE ASSESSMENT YEAR 200 7-08. 2. FIRST, WE TAKE UP THE APPEAL FILED BY THE REVENU E. THE GROUNDS RAISED BY THE REVENUE ARE AS UNDER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS.38,62,288/- BE ING ADDITIONAL DEPRECIATION ON WIND MILL, OVERLOOKING THE FACT THA T INSTALLATION OF I.T.A.NO. 1945 /AHD/201 C.O.NO.198/AHD/2010 2 THE WIND MILL HAD NO CONNECTION WITH THE CORE MANUF ACTURING ACTIVITY OF THE APPELLANT AND IT ALSO DID NOT QUALI FY AS PLANT AND MACHINERY USED IN MANUFACTURING ACTIVITY OF THE APP ELLANT. 3. LD. D.R. SUPPORTED THE ASSESSMENT ORDER WHEREAS LD. A.R. SUPPORTED THE ORDER OF LD. CIT(A). 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUSE D THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDERS OF AUTHORIT IES BELOW. WE FIND THAT THIS ISSUE HAS BEEN DECIDED BY LD. CIT(A) AS P ER PARA 3.2 OF HIS ORDER WHICH IS REPRODUCED BELOW FOR THE SAKE OF READY REF ERENCE: 3.2 I HAVE CAREFULLY CONSIDERED THE MATTER. SECTIO N 32(L)(IIA) READS AS UNDER: ' IN THE CASE OF ANY NEW MACHINERY OR PLANT, WHICH HAS BEEN ACQUIRED AND INSTALLED AFTER THE 31 ST DAY OF MARCH 2005 BY ASSESSEE ENGAGED IN THE BUSINESS OF MANUFACTURING O R PRODUCTION OF ANY ARTICLE OR THING, A FURTHER SUM E QUAL TO TWENTY PERCENT OF CAPITAL COST OF SUCH MACHINERY OR PLANT SHALL BE A/LOWED AS DEDUCTION UNDER CLAUSE (II)'. THE SECTION, AS ITS STANDS AFTER ITS SUBSTITUTION B Y FINANCE ACT, 2005 W.E.F. 1.4.2006, I.E. AS APPLICABLE TO A.Y.2006-07 ONWARDS, DOES NOT CONTAIN ANY CONDITION REGARDING SUBSTANTIAL EXP ANSION BY WAY OF INCREASE IN INSTALLED CAPACITY OF EXISTING INDUS TRIAL UNDERTAKING DUE TO THE NEW MACHINERY. THE MATTER WAS CLARIFIED BY THE EXPLANATORY MEMORANDUM TO FINANCE ACT, 2005 AS UNDE R: 'IN ORDER TO ENCOURAGE INVESTMENT, THE FINANCE ACT, 2005 HAS AMENDED SECTION 32 TO INCREASE THE RATE OF ADDITION AL DEPRECIATION TO TWENTY PER CENT ON NEW MACHINERY AND PLANT ACQUI RED ON OR AFTER 31 ST DAY OF MARCH, 2005 AND DISPENSED WITH THE CONDITIO N OF ADDITIONAL DEPRECIATION TO BE ALLOWED TO A NEW INDU STRIAL UNDERTAKING AND THE CONDITION OF EXPANSION IN INSTA LLED CAPACITY'. WHEN THERE IS NO SUCH CONDITION U/S.32(L)(IIA) APPL ICABLE FOR THE ASSESSMENT YEAR UNDER QUESTION, AS ALSO CLARIFIED I N THE EXPLANATORY MEMORANDUM, THERE IS NO JUSTIFICATION FOR REJECTING CLAIM OF ADDITIONAL DEPRECIATION ON THIS GROUND. THE OTHER R EASON FOR ASSESSING OFFICER DISALLOWING ADDITIONAL DEPRECIATI ON IS THAT THE WIND MIL! DID NOT HAVE CONNECTION WITH CORE MANUFAC TURING ACTIVITIES OF THE APPELLANT. ADDITIONAL DEPRECIATIO N U/S.32(L)(IIA) IS ADMISSIBLE IN RESPECT OF NEW PLANT AND MACHINERY AC QUIRED AND INSTALLED BY AN ASSESSEE ENGAGED IN THE BUSINESS OF MANUFACTURING I.T.A.NO. 1945 /AHD/201 C.O.NO.198/AHD/2010 3 OR PRODUCTION OF ANY ARTICLE OR THING. THE MACHINER Y IN QUESTION, I.E. WIND MILL GENERATED ELECTRICITY, WHICH WAS SUP PLIED TO GEB, WHICH ALLOWED SET OFF FOR THE UNITS SUPPLIED IN THE ELECTRICITY BILL OF THE APPELLANT. POWER GENERATED BY THE WIND MILL WAS THEREFORE, INDIRECTLY USED IN APPELLANT'S BUSINESS OF MANUFACT URING ONLY. UNDER SECTION 32(L)(IIA), THERE IS NO REQUIREMENT T HAT THE NEW MACHINERY SHOULD BE USED ONLY FOR CORE MANUFACTURIN G ACTIVITY. WITHOUT PREJUDICE, AS HELD BY MADRAS HIGH COURT IN THE CASE OF VTM LTD., IN ORDER TO CLAIM ADDITIONAL DEPRECIATION U/S.32(L)(IIA), IT IS NOT REQUIRED THAT THE NEW MACHINERY SHOULD HA VE OPERATIONAL CONNECTIVITY TO ARTICLE OR THING THAT WAS ALREADY B EING MANUFACTURED BY THE ASSESSEE. THE COURT HELD THAT W IND MILL WAS A NEW MACHINERY/PLANT ELIGIBLE FOR ADDITIONAL DEPRECI ATION U/S.32(L)(IIA), EVEN THOUGH THE ASSESSEE WAS ENGAGE D IN MANUFACTURING OF TEXTILE GOODS. RATIO OF THIS DECIS ION WOULD BE SQUARELY APPLICABLE TO APPELLANT'S CASE. IN VIEW OF THIS, ADDITIONAL DEPRECIATION U/S. 32(L)(IIA) ON THE WIND MILL IS DI RECTED TO BE ALLOWED. 5. WE FIND THAT THE DISALLOWANCE OF CLAIM OF THE AS SESSEE REGARDING ADDITIONAL DEPRECIATION WAS MADE BY THE A.O. ON THI S BASIS THAT AS PER THE CLAUSE (IIA) OF SECTION 32, ADDITIONAL DEPRECIATION IS ALLOWABLE ONLY WHEN THE EXTENSION OF INDUSTRIAL UNDERTAKING ACHIEVED TH E SUBSTANTIAL EXPANSION BY WAY OF INCREASE IN INSTALLED CAPACITY. AS AGAIN ST THIS, IT IS HELD BY LD. CIT(A) THAT THE PROVISIONS OF SECTION 32(1)(IIA) WE RE AMENDED BY FINANCE ACT 2005 W.E.F. 01.04.2006 I.E. APPLICABLE TO ASSESSMENT YEAR 2006-07 ONWARDS, AS PER WHICH THERE IS NO CONDITION REGARDING SUBSTANTIAL EXPANSION BY WAY OF INCREASE IN INSTALLED CAPACITY OF AN INDUSTRIAL UNDERTAKING. HE HAS ALSO REFERRED THE EXPLANATORY MEMORANDUM TO THE FINANCE ACT OF 2005. WE FIND THAT IN SUCH EXPLANAT ORY MEMO, IT IS SPECIFICALLY STATED THAT THE REQUIREMENT OF FULFILL ING THE CONDITIONS OF EXPANSION IN INSTALLED CAPACITY HAS BEEN DISPENSED WITH. UNDER THIS FACTUAL POSITION, WE DO NOT FIND ANY REASON TO INTE RFERE IN THE ORDER OF LD. CIT(A) ON THIS ISSUE. THIS GROUND OF THE REVENUE IS REJECTED. I.T.A.NO. 1945 /AHD/201 C.O.NO.198/AHD/2010 4 6. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. 7. NOW, WE TAKE UP THE C.O. FILED BY THE ASSESSEE. THE ONLY GROUND RAISED BY THE ASSESSEE IN THE C.O. READS AS UNDER: THE LD. CIT(A) HAS ERRED IN CONFIRMING DISALLOWANC E OF RS.14,92,949/- BY INVOKING PROVISIONS OF SECTION 14 A OF THE INCOME TAX ACT, 1961. YOUR APPELLANT SUBMITS THAT THE PROVISIONS OF SECTION 14A ARE NOT APPLICABLE AND HENCE DISALLO WANCE MADE IS UNJUST AND UNCALLED FOR. IT BE HELD SO NOW AND THE ADDITION MADE BE DELETED. 8. IT WAS SUBMITTED BY THE LD. A.R. THAT THE ASSESS EE HAS NOT USED ANY INTEREST BEARING BORROWED FUNDS FOR INVESTMENT IN S HARES. HE FURTHER SUBMITTED A COPY OF THE AUDITED BALANCE SHEET OF TH E ASSESSEE COMPANY AS ON 31.03.2007 AND POINTED OUT THAT THE TOTAL INVEST MENT AS ON 3.103.2007 WAS OF RS.356.35 LACS. HE ALSO SUBMITTED THAT THE CAPITAL OF THE ASSESSEE COMPANY WAS OF RS.300 LACS AND RESERVES AND SURPLUS WAS OF RS.1323.47 LACS TOTALING RS.1623.47 LACS. HE SUBMITTED THAT T HIS GOES TO SHOW THAT THE INTEREST FREE OWN FUNDS WERE MUCH IN EXCESS OF THE INVESTMENT. HE ALSO SUBMITTED THAT THE ASSESSEE COMPANY WAS HOLDIN G THE SHARES AND RECEIVED DIVIDEND AND THERE WAS NO FRESH PURCHASE A ND SALE DURING THE PRESENT YEAR AND, THEREFORE, NO DISALLOWANCE SHOULD BE MADE U/S14A OF THE INCOME TAX ACT, 1961. 9. LD. D.R. SUPPORTED THE ORDERS OF AUTHORITIES BEL OW. 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUS ED THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDERS OF AUTHORIT IES BELOW. WE FIND THAT THE A.O. HAS MADE DISALLOWANCE AS PER RULE 8D OF THE INCOME TAX ACT, 1961 U/S 14A BUT RULE 8D IS NOT APPLICABLE IN THE PRESENT YEAR BECAUSE THE SAME IS APPLICABLE FROM THE ASSESSMENT YEAR 2008-09 ONWARDS. WE ALSO FIND THAT LD. CIT(A) HAS FOLLOWED THE DECISION OF SPECIAL BENCH OF THE TRIBUNAL RENDERED IN THE CASE OF DAGA CAPITAL & I.T.A.NO. 1945 /AHD/201 C.O.NO.198/AHD/2010 5 MNAGEMENT AS REPORTED IN 119 TTJ 289 (SB) MUM. BUT THIS DECISION OF SPECIAL BENCH OF THE TRIBUNAL IS IMPLIEDLY OVERRULE D BY HONBLE BOMBAY HIGH COURT AS PER THE JUDGMENT RENDERED IN THE CASE OF GODREJ & BOYCE MANUFACTURING PVT. LTD. VS DCIT AS REPORTED IN 194 TAXMAN 203. WE ALSO FIND FORCE IN THIS CONTENTION OF LD. A.R. THAT NO INTEREST BEARING BORROWED FUNDS WERE USED FOR MAKING THE INVESTMENT IN SHARES AND WE ALSO FIND THAT OUT OF THE TOTAL DISALLOWANCE OF RS. 14,92,949/- MADE BY THE A.O., DISALLOWANCE OF RS.13,14,775/- IS OUT OF THE INTEREST EXPENDITURE WHICH CANNOT BE MADE UNLESS INTEREST BEARING BORROW ED FUNDS ARE USED FOR INVESTMENT IN SHARES AND HENCE, TO THIS EXTENT, THE DISALLOWANCE IS DELETED. BALANCE DISALLOWANCE OF RS.1,78,174/- HAS BEEN MADE OUT OF ADMINISTRATIVE EXPENSES TO THE EXTENT OF 0.5% OF TH E AVERAGE INVESTMENT OF RS.356.35 LACS. WE FIND THAT AS PER THE BALANCE SHEET SUBMITTED BEFORE US, THE OPENING BALANCE AND CLOSING BALANCE OF EACH INVESTMENT IS THE SAME AND THERE IS NO PURCHASE OR SALE OF INVESTMENT IN THE PRESENT YEAR AND HENCE, IN OUR CONSIDERED OPINION, DISALLOWANCE OF RS.1,78,174/- WITH REGARD TO ADMINISTRATIVE EXPENSE IS EXCESSIVE AND U NREASONABLE IN THE FACTS OF THE PRESENT CASE. WE ALSO FEEL THAT IN SP ITE OF THIS, SOME DISALLOWANCE IS JUSTIFIED AND IN OUR CONSIDERED OPI NION, THE DISALLOWANCE OF RS.50,000/- WILL MEET THE ENDS OF JUSTICE IN THE FACTS OF THE PRESENT CASE. WE HOLD ACCORDINGLY. THIS GROUND IS PARTLY ALLOWED. 10. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED WHEREAS C.O. OF THE ASSESSEE IS PARTLY ALLOWED. 11. ORDER PRONOUNCED IN THE OPEN COURT ON THE DATE MENTIONED HEREINABOVE. SD./- SD./- (KUL BHARAT) (A. K. GARODIA) JUDICIAL MEMBER ACCOUNTANT MEMBER SP I.T.A.NO. 1945 /AHD/201 C.O.NO.198/AHD/2010 6 COPY OF THE ORDER FORWARDED TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT (APPEALS) 5. THE DR, AHMEDABAD BY ORDER 6. THE GUARD FILE AR,ITAT,AHMEDABAD 1. DATE OF DICTATION 28/08/12 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 30/08/12.OTHER MEMBER 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P .S./P.S. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 31/8/12 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. P.S./P.S.31/8/12 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 31/08/12 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK .. 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER . 9. DATE OF DESPATCH OF THE ORDER. .