M/s. Mahjarshi Udyog, Ahmedabad V. The ACIT.,Circle-6, Ahmedabad

CO 40/AHD/2011

• Counselvise Citation: [2014] 123 COUNSELVISE.COM (IT) 0131 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 9 month(s) 21 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 12-12-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 08-12-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 21-02-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B KULSHRESTHA
• Assessee Lawyers: P M MEHTA WITH G M THAKOR
• Keywords: Depreciation; Revenue expenditure; Capital expenditure

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD 0 0 , , BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER AND SHRI KUL BHARAT, JUDICIAL MEMBER ./ ITA NO . 50 / AHD/ 201 1 [ [ / ASSESSMENT YEAR : 200 7 - 08 THE ACIT CIRCLE - 6, AHMEDABAD VS M/S. MAHARSHI UDYOG, PLOT NO.2904, PHASE - IV, GIDC, VATVA, AHMEDABAD PAN : AADFM 1075 E CO NO. 4 0 /AHD/201 1 AY 200 7 - 0 8 ( IN ITA NO. 50 /AHD/201 1 AY 200 7 - 0 8 ) M/S. MAHARSHI UDYOG, VATVA, AHMEDABAD PAN : AADFM 1075 E VS THE ACIT CIRCLE - 6, AHMEDABAD / (APPELLANT) / (RESPONDENT) REVENUE BY : SHRI B. KULSHRESTHA, SR. DR. ASSESSEE(S) BY : SHRI P.M. MEHTA WITH G.M. THAKOR, AR / DATE OF HEARING : 08 /1 2 /2014 / DATE OF PRONOUNCEMENT: 12 /1 2 /2014 / O R D E R PER SHRI N.S. SAINI, ACCOUNTANT MEMBER: THIS IS AN APPEAL FILED BY THE REVENUE AND THE CROSS - OBJECTION FILED BY THE ASSESSEE, BOTH AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) - XI , AHMEDABAD DATED 22 . 10 .201 0 . 2. GROUND NO .1 OF THE APPEAL READS AS UNDER: - ITA NO. 50/AHD/2011 & CO NO.40/AHD/2011 M/S. MAHARSHI UDYOG FOR AY 200 7 - 08 2 THE LD. COMMISSIONER OF INCOME TAX (A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.23,81,194/ - BEING DISALLOWANCE OF DEPRECIATION ON WINDMILL 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS CLAIMED DEPRECIATION AT THE RATE OF 80% ON RS.34,60,760/ - WHICH WAS CIVIL WORK INCLUDING FOUNDATION AND ALLIED WORKS IN RESPECT OF WIND FARM PROJECT CONSISTING OF ONE WTG. THE ASSESSING OFFICER HAS DELETED THE DEPRECIATION BY OBSERVING THAT ON THE CIVIL WORK FOUNDATION, DEPRECIA TION WAS ALLOWABLE TO THE ASSESSEE @ 15% AND THEREFORE, HE DISALLOWED THE DIFFERENTIAL AMOUNT OF DEPRECIATION OF RS.23,81,194/ - AND ADDED BACK TO THE INCOME OF THE ASSESSEE. 4. ON APPEAL, THE CIT(A) OBSERVED THAT THE EXPENDITURE INCURRED TOWARDS CIVIL WO RK, LABOUR PROCESSING AND DEVELOPMENT CHARGES WAS INTRINSICALLY CONNECTED TO THE WINDMILL. THEREFORE, THE EXPENDITURE HAS TO BE CONSIDERED AS PART OF THE COST OF THE WINDMILL. HE RELIED ON THE DECISION OF THE MUMBAI SPECIAL BENCH OF THE TRIBUNAL IN THE CAS E OF DCIT VS. DATRACRAFT INDIA LTD, 133 TTJ 377, WHERE IT WAS HELD THAT ROUTERS AND SWITCHES, WHEN USED ALONGWITH COMPUTER AND WHEN THEIR FUNCTIONS ARE INTEGRATED WITH A COMPUTER, THEY ARE TO BE INCLUDED IN THE BLOCK OF COMPUTER, ENTITLED TO DEPRECIATION @ 60%. THEREFORE, HE DELETED THE DISALLOWANCE OF DIFFERENTIAL DEPRECIATION OF RS.23,81,194/ - MADE BY THE ASSESSING OFFICER. 5. BEING AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVENUE IS IN APPEAL BEFORE US. 6. BOTH THE PARTIES BEFORE US AGREED THAT THE ISSUE NOW STANDS COVERED BY THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF ITA NO. 50/AHD/2011 & CO NO.40/AHD/2011 M/S. MAHARSHI UDYOG FOR AY 200 7 - 08 3 CIT VS. PARRY ENGINEERING AND ELECTRONICS P. LTD., IN TAX APPEAL NO.604 OF 2012, ORDER DATED 29.01.2013, WHEREIN IT WAS HEL D AS UNDER: - 5. WE ARE OF THE OPINION THAT THE APPROACH OF BOTH THE AUTHORITIES IS PERFECTLY JUSTIFIED. WINDMILL WOULD REQ UIRE A SCIENTIFICALLY DESIGNED MACHINERY IN ORDER TO HARNESS THE WIND ENERGY TO THE MAXIMUM POTENTIAL. SUCH DEVICE HAS TO BE FITTED AND MOUNTED ON A CIVIL CONSTRUCTION, EQUIPPED WITH ELECTRIC FITTINGS IN ORDER TO TRANSMIT THE ELECTRICITY SO GENERATED. SUCH CIVIL STRUCTURE AND ELECT RIC FITTINGS, THEREFORE, IT CAN BE WELL IMAGINED, WOULD BE HIGHLY SPECIALIZED. THUS, SUCH CIVIL CONSTRU CTION AND ELECTRIC FITTING WOULD HAVE NO USE OTHER THAN FOR THE PURPOSE OF FUNCTIONING OF THE WINDMILL. ON THE OTHER HAND, IT CAN BE EASILY IMAGINED THAT WINDMILL CANNOT FUNCTION WITHOUT APPROPRIATE INSTALLATION AND ELECTRIFICATION. IN OTHER WORDS, THE INS TALLATION OF WINDMILL AND THE CIVIL STRUCTURE AND THE ELECTRIC FITTINGS ARE SO CLOSELY INTERCONNECTED AND LINKED AS TO FORM THE COMMON PLANT. AS ALREADY NOTED, THE LEGISLATURE HAS PROVIDED FOR HIGHER RATE OF DEPRECIATION OF 80 PER CENT ON RENEWABLE ENERGY DEVISES INCLUDING WINDMILL AND ANY SPECIALLY DESIGNED DEVISE, WHICH RUNS ON WINDMILL. THE CIVIL STRUCTURE AND THE ELECTRIC FITTING, EQUIPMENTS ARE PART AND PARCEL OF THE WINDMILL AND CANNOT BE SEPARATED FROM THE SAME. THE ASSESSEE'S CLAIM FOR HIGHER DEPREC IATION ON SUCH INVESTMENT WAS, THEREFORE, RIGHTLY ALLOWED. . RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. PARRY ENGINEERING AND ELECTRONICS P. LTD. (SUPRA), WE DISMISS THIS GROUND OF APPEAL OF THE REVENUE. 7. GROUND NO.2 OF THE APPEAL READS AS UNDER: - 2. THE LD. COMMISSIONER OF INCOME - TAX (A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.3,23,640/ - BEING EXPENSES MADE ON WINDMILL. 8. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS CLAIMED THE BA NK CHARGES OF RS.3,66,550/ - AS REVENUE EXPENDITURE. HE FURTHER OBSERVED THAT THE ASSESSEE HAS ALSO ITA NO. 50/AHD/2011 & CO NO.40/AHD/2011 M/S. MAHARSHI UDYOG FOR AY 200 7 - 08 4 CLAIMED RS.38,000/ - AS LOAN PROCESSING CHARGES PAID TO CENTRAL BANK OF INDIA AS REVENUE EXPENDITURE. THE SAME WERE INCURRED IN CONNECTION WITH THE PURCHASE OF WINDMILL. HE DISALLOWED THE TOTAL EXPENDITURE OF RS.4,04,550/ - CLAIMED BY THE ASSESSEE , AS INCURRED FOR SANCTIONING OF PROJECT OF WINDMILL, AS BECAUSE THE SAME WAS INCURRED BEFORE THE WINDMILL WAS PUT TO USE AND THAT THE SAME WAS IN THE NATURE OF CAPITA L EXPENDITURE. HOWEVER, HE ALLOWED DEPRECIATION APPLICABLE TO NORMAL MACHINERIES OTHER THAN WINDMILL @ 15% ON THE SAID AMOUNT. 9. ON APPEAL, THE CIT(A) DIRECTED THE ASSESSING OFFICER TO ALLOW THE DEPRECIATION @ 80% ON THE SAID SUM OF RS.4,04,550/ - . 10. BEING AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVENUE IS IN APPEAL BEFORE US. 11. BOTH THE PARTIES BEFORE US AGREED THAT THE ISSUE NOW STANDS COVERED BY THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. PARRY ENGINEERING AND ELE CTRONICS P. LTD., IN TAX APPEAL NO.604 OF 2012, ORDER DATED 29.01.2013, WHEREIN IT WAS HELD AS UNDER: - 5. WE ARE OF THE OPINION THAT THE APPROACH OF BOTH THE AUTHORITIES IS PERFECTLY JUSTIFIED. WINDMILL WOULD REQ UIRE A SCIENTIFICALLY DESIGNED MACHINERY IN ORDER TO HARNESS THE WIND ENERGY TO THE MAXIMUM POTENTIAL. SUCH DEVICE HAS TO BE FITTED AND MOUNTED ON A CIVIL CONSTRUCTION, EQUIPPED WITH ELECTRIC FITTINGS IN ORDER TO TRANSMIT THE ELECTRICITY SO GENERATED. SUCH CIVIL STRUCTURE AND ELECT RIC FITTINGS, T HEREFORE, IT CAN BE WELL IMAGINED, WOULD BE HIGHLY SPECIALIZED. THUS, SUCH CIVIL CONSTRUCTION AND ELECTRIC FITTING WOULD HAVE NO USE OTHER THAN FOR THE PURPOSE OF FUNCTIONING OF THE WINDMILL. ON THE OTHER HAND, IT CAN BE EASILY IMAGINED THAT WINDMILL CAN NOT FUNCTION WITHOUT APPROPRIATE INSTALLATION AND ELECTRIFICATION. IN OTHER WORDS, THE INSTALLATION OF WINDMILL AND THE CIVIL STRUCTURE AND THE ELECTRIC FITTINGS ARE SO CLOSELY INTERCONNECTED AND LINKED AS TO FORM THE COMMON PLANT. AS ALREADY NOTED, THE LE GISLATURE HAS PROVIDED FOR HIGHER RATE OF DEPRECIATION OF 80 PER CENT ON RENEWABLE ENERGY DEVISES INCLUDING ITA NO. 50/AHD/2011 & CO NO.40/AHD/2011 M/S. MAHARSHI UDYOG FOR AY 200 7 - 08 5 WINDMILL AND ANY SPECIALLY DESIGNED DEVISE, WHICH RUNS ON WINDMILL. THE CIVIL STRUCTURE AND THE ELECTRIC FITTING, EQUIPMENTS ARE PART AND PARCEL OF THE WINDMILL AND CANNOT BE SEPARATED FROM THE SAME. THE ASSESSEE'S CLAIM FOR HIGHER DEPRECIATION ON SUCH INVESTMENT WAS, THEREFORE, RIGHTLY ALLOWED. . RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. PARR Y ENGINEERING AND ELECTRONICS P. LTD. (SUPRA), WE DISMISS THIS GROUND OF APPEAL OF THE REVENUE. 12. GROUND NO.3 OF THE REVENUES APPEAL READS AS UNDER: - 3. THE LD. COMMISSIONER OF INCOME TAX (A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.76,200/ - BEING INSURANCE AND GENERAL INSURANCE EXPENDITURE. 13. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE CLAIMED DEDUCTION TOWARDS INSURANCE E XPENDITURE OF RS. 95,250/ - ON WINDMILL WHICH WAS DISALLOWED BY THE ASSESSING OFFICER CONSIDERING IT AS CAPITAL EXPENDITURE. HOWEVER, THE ASSESSING OFFICER HAS ALLOWED DEPRECIATION @ 15% ON THE SAME WHICH IS THE RATE APPLICABLE TO THE NORMAL MACHINERIES. 1 4. ON APPEAL, THE CIT(A) ALLOWED THE DEPRECIATION @ 80% WHICH IS THE APPLICABLE DEPRECIATION RATE ON WINDMILL, AS THE SAME WAS INCURRED ON PURCHASE OF WINDMILL. 15. BEFORE US, BOTH THE PARTIES BEFORE US AGREED THAT THE ISSUE NOW STANDS COVERED BY THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. PARRY ENGINEERING AND ELECTRONICS P. LTD., IN TAX APPEAL NO.604 OF 2012, ORDER DATED 29.01.2013, WHEREIN IT WAS HELD AS UNDER: - ITA NO. 50/AHD/2011 & CO NO.40/AHD/2011 M/S. MAHARSHI UDYOG FOR AY 200 7 - 08 6 5. WE ARE OF THE OPINION THAT THE APPROACH OF BOTH THE AUTH ORITIES IS PERFECTLY JUSTIFIED. WINDMILL WOULD REQ UIRE A SCIENTIFICALLY DESIGNED MACHINERY IN ORDER TO HARNESS THE WIND ENERGY TO THE MAXIMUM POTENTIAL. SUCH DEVICE HAS TO BE FITTED AND MOUNTED ON A CIVIL CONSTRUCTION, EQUIPPED WITH ELECTRIC FITTINGS IN ORDER TO TRANSMIT THE ELECTRICITY SO GENERATED. SUCH CIVIL STRUCTURE AND ELECT RIC FITTINGS, THEREFORE, IT CAN BE WELL IMAGINED, WOULD BE HIGHLY SPECIALIZED. THUS, SUCH CIVIL CONSTRUCTION AND ELECTRIC FITTING WOULD HAVE NO USE OTHER THAN FOR THE PURPOS E OF FUNCTIONING OF THE WINDMILL. ON THE OTHER HAND, IT CAN BE EASILY IMAGINED THAT WINDMILL CANNOT FUNCTION WITHOUT APPROPRIATE INSTALLATION AND ELECTRIFICATION. IN OTHER WORDS, THE INSTALLATION OF WINDMILL AND THE CIVIL STRUCTURE AND THE ELECTRIC FITTING S ARE SO CLOSELY INTERCONNECTED AND LINKED AS TO FORM THE COMMON PLANT. AS ALREADY NOTED, THE LEGISLATURE HAS PROVIDED FOR HIGHER RATE OF DEPRECIATION OF 80 PER CENT ON RENEWABLE ENERGY DEVISES INCLUDING WINDMILL AND ANY SPECIALLY DESIGNED DEVISE, WHICH RU NS ON WINDMILL. THE CIVIL STRUCTURE AND THE ELECTRIC FITTING, EQUIPMENTS ARE PART AND PARCEL OF THE WINDMILL AND CANNOT BE SEPARATED FROM THE SAME. THE ASSESSEE'S CLAIM FOR HIGHER DEPRECIATION ON SUCH INVESTMENT WAS, THEREFORE, RIGHTLY ALLOWED. . RESPECT FULLY FOLLOWING THE ABOVE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. PARRY ENGINEERING AND ELECTRONICS P. LTD. (SUPRA), WE DISMISS THIS GROUND OF APPEAL OF THE REVENUE. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. 16. IN THE CROSS - OBJECTION OF THE ASSESSEE, THE ASSE SSEE HAS TAKEN FOLLOWING GROUND AS GROUND NO.1. 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF ASSESSEE'S CONTRIBUTION TO GROUP GRATUITY SCHEME IN A SUM OF RS.3,99,377. 17. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE CLAIMED DEDUCTION FOR CONTRIBUTION TO GROUP GRATUITY SCHEME WHICH WAS DISALLOWED BY THE ASSESSING OFFICER ONLY ON THE GROUND THAT THE GRATUITY ITA NO. 50/AHD/2011 & CO NO.40/AHD/2011 M/S. MAHARSHI UDYOG FOR AY 200 7 - 08 7 FU N D WAS NOT APPROVED AS PROVIDED IN SECTION 36(1)(V) OF THE ACT. THE SAME WAS CONFIRMED IN APPEAL BY THE CIT(A). 18. BEFORE US, THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE HAS FILED A CERTIFICATE OF COMMISSIONER OF INCOME - TAX , A HMEDABAD - III, AHMEDABAD DATED 04.10.2011 AND SUBMITTED THA T THE GRATUITY FUND IS NOW APPROVED BY THE COMMISSIONER OF INCOME - TAX AND THAT THE EXPENDITURE CLAIMED WAS ALLOWABLE DEDUCTION TO THE ASSESSEE. HE ALSO SUBMITTED THAT THIS CERTIFICATE WAS NOT AVAILABLE WITH THE ASSESSEE DURING THE COURSE OF ASSESSMENT PROC EEDINGS BEFORE THE ASSESSING OFFICER AND DURING THE COURSE OF APPELLATE PROCEEDINGS BEFORE THE CIT(A). HE, THEREFORE, SUBMITTED THAT THE MATTER SHOULD BE RESTORED BACK TO THE FILE OF THE ASSESSING OFFICER FOR ALLOWING THE CLAIM OF THE ASSESSEE AFTER VERIFI CATION OF THE APPROVAL CERTIFICATE GRANTED BY THE COMMISSIONER OF INCOME - TAX , AHMEDABAD - III, AHMEDABAD DATED 04.10.2011. 19. THE DEPARTMENTAL REPRESENTATIVE ALSO AGREED WITH THE SUBMISSIONS OF THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE. 20. THAT BEING SO, WE SET ASIDE THE ORDER OF THE LOWER AUTHORITIES AND REMAND THE MATTER BACK TO THE ASSESSING OFFICER FOR ADJUDICATING THE ISSUE AFRESH IN THE LIGHT OF THE APPROVAL CERTIFICATE GRANTED BY THE COMMISSIONER OF INCOME - TAX , AHMEDABAD - III, AHMEDABAD DAT ED 04.10.2011 AS PER LAW AFTER ALLOWING REASONABLE AND PROPER OPPORTUNITY OF HEARING TO THE ASSESSEE. THUS, THIS GROUND OF CROSS - OBJECTION OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 21. GROUND NOS. 2, 3 AND 4 OF THE CROSS - OBJECTION READ AS UNDE R: - ITA NO. 50/AHD/2011 & CO NO.40/AHD/2011 M/S. MAHARSHI UDYOG FOR AY 200 7 - 08 8 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) ERRED IN HOLDING THAT THE FINANCE CHARGES OF RS.4,04,550 WERE REQUIRED TO BE CAPITALIZED AND NOT ALLOWED AS REVENUE EXPENDITURE. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) ERRED IN HOLDING THAT THE INSURANCE CHARGES OF RS.95,250 WERE REQUIRED TO E CAPITALIZED AND NOT ALLOWED AS REVENUE EXPENDITURE. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF RS.22,673 WHICH WAS MADE BY THE ASSESSING OFFICER BY INVOKING THE PROVISIONS OF SECTION 40(A)(IA) INSOFAR AS THE TRANSPORTATION CHARGES PAID BY THE ASSESSEE WERE WRONGLY TREATED BY THE ASSESSING OFFICER AS LIABLE FOR T DS. 22. AT THE TIME OF HEARING, THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT HE IS NOT PRESSING THESE GROUNDS OF CROSS - OBJECTION AND ALSO MAD E AN ENDORSEMENT TO THIS EFFECT IN THE GROUNDS OF CROSS - OBJECTION APPE NDED TO THE MEMORANDUM OF CROSS - OBJECTION FILED IN FORM NO.36A BEFORE US . TH EREFORE, THESE GROUNDS OF CROSS - OBJECTION ARE DISMISSED FOR WANT OF PROSECUTION . 23. IN THE RESULT, THE APPEAL OF THE REVENUE I S DISMISSED AND CROSS - OBJECTION FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE COURT ON FRIDAY , THE 12 TH OF DECEMBER , 2014 AT AHMEDABAD. SD/ - SD/ - (KUL BHARAT) JUDICIAL MEMBER ( N.S. SAINI) ACCOUNTANT MEMBER AHMEDABAD; DATED 12 /1 2 /2014 BIJU T., PS ITA NO. 50/AHD/2011 & CO NO.40/AHD/2011 M/S. MAHARSHI UDYOG FOR AY 200 7 - 08 9 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / CONCERNED CIT 4. ( ) / THE CIT(A) - XI , AHMEDABAD 5. , , / DR, ITAT, AHMEDABAD 6. [ / GUARD FILE . / BY ORDER, TRUE COPY T R U E C O P Y / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD