M/s EEL India Ltd., Gurgaon V. DCIT, New Delhi

CO 414/DEL/2010

• Counselvise Citation: [2012] 122 COUNSELVISE.COM (IT) 7427 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 5 month(s) 23 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 20-06-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 20-06-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 27-12-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S C VASUDEVA
• Assessee Lawyers: VIKAS SURYAVANSHI
• Keywords: Depreciation
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B: NEW DELHI BEFORE SHRI S.V. MEHROTRA, ACCOUNTANT MEMBER AND SHRI A.D. JAIN, JUDICIAL MEMBER ITA NO. 5340/DEL/2010 ASSESSMENT YEAR: 2007-2008 DCIT, CIRCLE 11(1), ROOM NO. 312, C.R. BLDG., NEW DELHI. VS. EEL INDIA LTD., PLOT NO. 509-510, PHASE-III, UDYOG VIHAR, GURGAON. AAACE0094P (APPELLANT) (RESPONDENT) & CROSS OBJECTION NO. 414/DEL/2010 (ITA NO. 5340/DEL/2010) ASSESSMENT YEAR: 2007-08 EEL INDIA LTD., PLOT NO. 509-510, PHASE-III, UDYOG VIHAR, GURGAON. AAACE0094P VS. DCIT, CIRCLE 11(1), ROOM NO. 312, C.R. BLDG., NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY : SH. VIKAS SURYAVANSHI, SR. DR RESPONDENT BY : SH. S.C. VASUDEVA, CA O R D E R PER S.V. MEHROTRA, A.M. THE APPEAL FILED BY THE REVENUE AND CROSS OBJECTIO N BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER PASSED BY THE LD. CI T(A) DATED 17.09.2010 FOR A.Y. 2007-08. ITA NO. 5340/D/10 & CO NO. 414/D/10 2 2. GROUNDS OF APPEAL BY REVENUE READ AS UNDER: - 1. THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS. 18,34,881/- ON ACCOUNT OF DEPRECIATION ADDITION BY THE AO. 2. THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS. 3,24,688/- ON ACCOUNT OF ADDITION U/S 14A RW WITH R ULE 8D BY THE AO. 3. THE ASSESSEE, A LIMITED COMPANY, IN THE RELEVANT ASSESSMENT YEAR, WAS ENGAGED IN THE BUSINESS OF MANUFACTURING BAG PA CKING, LOADING AND MATERIAL HANDLING EQUIPMENT, BUCKET ELEVATORS, CONV EYORS, FEEDERS, SCREENS, AIR POLLUTION CONTROL EQUIPMENT, BAG DIVER TORS AND ACCESSORIES AND SPARES FOR CEMENT, SUGAR PETROCHEMICALS, CHEMIC ALS AND FERTILIZERS INDUSTRIES. BESIDES THIS, DURING THE YEAR UNDER CO NSIDERATION, THE ASSESSEE COMPANY ALSO STARTED ENERGY PRODUCTION BY INSTALLIN G A WIND MILL TURBINES AT SUTHRI SITE (DIST- MOTISINDHODI), STATE OF GUJRA T. 4. IT HAD FILED E-RETURN OF INCOME DECLARING TOTAL INCOME OF RS. 8,57,38,546/-. THE ASSESSING OFFICER NOTICED THAT ASSESSEE HAD CLAIMED DEPRECIATION @ 80% FOR THE PERIOD LESS THAN 180 DAY S AMOUNTING TO RS. 3,47,68,462/- ON THE CAPITAL SUM OF RS. 8,69,21,154 /-. FROM THE PERUSAL OF THE BILLS IT TRANSPIRED THAT ASSESSEE HAD CAPITALIZ ED FOLLOWING EXPENSES ALSO AS COST OF WIND MILL: - I) CIVIL WORK INCLUDING FOUNDATION AND ALLIED WORKS IN RESPECT OF PROJECT: RS. 35,44,4 27/- II) INSTALLATION (WITH MATERIAL) OF ELECTRICAL LIN E FOR POWER TRANSMISSION AND METERING IN RESPECT OF PROJECT : RS. 16,97,920 /- TOTAL: RS. 52,42,347 /- ITA NO. 5340/D/10 & CO NO. 414/D/10 3 5. THE AO OBSERVED THAT ON CIVIL WORK DEPRECIATION @ 10% IS ALLOWABLE AND THE ELECTRICAL FITTINGS WERE UNDER FURNITURE & FIXTURES FITTINGS WHICH WERE ALSO ENTITLED FOR DEPRECIATION @ 10%. ACCORDINGLY, HE DISALLOWED THE DEPRECIATION AMOUNTING TO RS. 18,34,881/-. LD. CIT (A) ALLOWED THE ASSESSEES APPEAL, INTER-ALIA, OBSERVING THAT IN VI EW OF THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CHALLAPALLI SU GAR LTD. VS. CIT[1975] 98 ITR 167 AND ALSO IN THE CASE OF ARVIND MILLS LTD . VS. CIT, 112 ITR 64 (GUJ.), USHA ELECTRONICS INDIA PVT. LTD., 249 ITR 6 95 (DELHI HIGH COURT), IT IS AN ESTABLISHED PRINCIPLE THAT COST OF FIXED ASSETS WOULD INCLUDE ALL EXPENDITURE NECESSARY TO BRING SUCH ASSETS INTO EXI STENCE AND TO PUT THEM IN WORKING CONDITION. THEREFORE, THE FOUNDATION ON WHICH WIND MILL IS INSTALLED IS AN INTEGRAL PART OF THE ENTIRE WIND MI LL AND THAT IN ABSENCE OF THE SOLID FOUNDATION WIND MILL COULD NOT BECOME FUNCTIO NAL AND OPERATIONAL. IT WAS FURTHER OBSERVED THAT ELECTRICAL LINE AND CABLE S FOR POWER INSTALLATION ARE NOT SUCH WHICH COULD BE CLASSIFIED WITH FURNITU RE AND FITTINGS. 6. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE P ARTIES AND HAVE PERUSED THE RECORD OF THE CASE. 7. LD. CIT(A) HAS RIGHTLY OBSERVED THAT IN VIEW OF THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CHALLAPALLI SUGAR LTD. VS. CIT, 98 ITR 167 (SC), FOR COMPUTING THE ACTUAL COST, ALL THE INCIDE NTAL EXPENSES WHICH WERE NECESSARY TO BRING THE MACHINE IN OPERATION WERE PA RT AND PARCEL OF THE COST OF THE ASSET. UPTO THE STAGE OF INSTALLATION AND MAKING THE MACHINERY OPERATIONAL, ALL THE EXPENSES HAD TO BE TREATED AS PART OF ACTUAL COST OF ASSET. THERE CANNOT BE ANY DISPUTE THAT BEFORE WIN D MILL CAN BECOME OPERATIONAL, IT HAS TO BE MOUNTED ON A SOLID FOUNDA TION AND ALL THE NECESSARY ELECTRICAL FITTINGS HAVE TO BE LAID FOR M AKING THE WIND MILL OPERATIONAL. THEREFORE, ALL THESE EXPENSES HAD TO BE TREATED AS PART AND ITA NO. 5340/D/10 & CO NO. 414/D/10 4 PARCEL OF WIND MILL PLANT. ACCORDINGLY, DEPRECIATI ON ON THESE ITEMS ALSO HAD TO BE ALLOWED AT THE SAME RATE AT WHICH DEPRECIATIO N IS ALLOWED ON WIND MILL PLANT. 8. IN THE RESULT, THIS GROUND IS DISMISSED. 9. GROUNDS OF CROSS OBJECTION READS AS UNDER: - 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE T HE LD. CIT(A) HAS ERRED IN SUSTAINING THE DISALLOWANCE OF RS. 2,2 2,952/- (COMPRISING OF RS. 30,506/- OUT OF SALARY AND 1,92, 446/- OUT OF ADMINISTRATIVE EXPENSES) OUT OF THE DISALLOWANCE OF RS. 3,24,688 MADE BY THE LD. ASSESSING OFFICER. 2. THE LD. CIT(A) OUGHT TO HAVE HELD, AS CLAIMED BY TH E APPELLANT, THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE NO EXPENDITURE HAD BEEN INCURRED ON EARNING TAX FREE INCOME FROM M UTUAL FUNDS. THIS IS IN VIEW OF THE FACT THAT THE LD. AO HAD DETERMINED THE DISALLOWABLE EXPENDITURE BY APPLYING RULE 8D OF INCOME- TAX RULES 1962 WHICH HAS BEEN HELD TO BE PROSPECTIV E IN APPLICATION BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ AND BOYCEE MANUFACTURING CO. LTD. 10. BRIEF FACTS APROPOS GROUND NO. 1 & 2 ARE THAT A SSESSEE HAD SHOWN TAX FREE DIVIDEND INCOME OF RS. 47,51,013/- + CAPIT AL GAIN OF RS. 43,85,959/- IN ITS RETURN OF INCOME. THE ASSESSING OFFICER, AFTER CONSIDERING THE ASSESSEES SUBMISSIONS, MADE A DISA LLOWANCE AS PER RULE 8D AMOUNTING TO RS. 3,24,688/-. LD. CIT(A) ACCEPTE D THE ASSESSEES CONTENTION THAT IN VIEW OF THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF M/S GODREJ & BOYCE MANUFACTURING COMPANY LT D. VS. CIT, DISALLOWANCE U/S 14A COULD NOT BE MADE AS PER RULE 8D. HOWEVER, A REASONABLE BASIS HAD TO BE APPLIED FOR DETERMINING THE EXPENDITURE INCURRED FOR EARNING INCOME. AFTER CONSIDERING THE ASSESSEES SUBMISSIONS, LD. CIT(A) HELD THAT OUT OF TOTAL REMU NERATION PAID TO RAJENDRA PRASAD SAHU OF RS. 2,03,329/-, 15% AMOUNTING TO RS. 30,506/- IS TO BE DISALLOWED. HE FURTHER HELD THAT OUT OF TOTAL ADMI NISTRATIVE EXPENSES ITA NO. 5340/D/10 & CO NO. 414/D/10 5 AGGREGATING TO RS. 96,22,297/-, 2% IS TO BE DISALLO WED WHICH WORKED OUT TO RS. 1,92,446/-. 11. THE ASSESSEE HAS FILED CROSS OBJECTION IN RESPE CT OF PART SUSTENANCE OF DISALLOWANCE. 12. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND HAVE PERUSED THE RECORD OF THE CASE. 13. AT PAGE 19, LD. CIT(A) HAS REPRODUCED THE SUBMI SSIONS OF ASSESSEE, WHEREIN, INTER-ALIA, IT HAS BEEN MENTIONED AS UNDER : - THAT THE DIVIDEND WAS IN MOST OF THE CASES REINVE STED AND WHEREVER IT WAS A CASE TO PAY OUT IT WAS DIRECT LY CREDITED TO BANK ACCOUNT OF THE COMPANY. IT MAY BE ADDED THAT FOR MAKING SUCH INVESTMENT 41 CHEQUES WERE ISS UED DURING THE YEAR. AS TO WHO WAS HANDLING THE CORRESPONDENCE, IF ANY WITH THE ASSET MANAGEMENT COMPANIES, IT WAS EXPLAINED THAT THE JOB WAS MAINLY UNDERTAKEN BY BROKER WHOSE REPRESENTATIVE TO VISIT THE COMPANYS OFFICE AND COMPLETE THE NECESSARY REQUIRE MENT. ONE OF THE EMPLOYEES OF THE COMPANY MR. RAJENDER PR ASAD SAHU WOULD SOME TIME ATTEND TO THE PREPARATION OF CHEQUES. THERE IS NO OTHER NATURE INCURRED BY THE COMPANY. 14. CONSIDERING THE AFOREMENTIONED SUBMISSIONS, WE ARE OF THE OPINION THAT 15% DISALLOWANCE AS SUSTAINED BY LD. CIT(A) IN RESPECT OF SALARY OF COMPANYS EMPLOYEE VIZ. RAJENDRA PRASAD SAHU IS TO BE SUSTAINED. HOWEVER, CONSIDERING THE VOLUME OF WORK INVOLVED, T HE ADMINISTRATIVE EXPENSES DIALLOWED @ 2% ARE ON HIGHER SIDE AND, THE REFORE, KEEPING IN VIEW THE FACTS AND CIRCUMSTANCES OF THE CASE, WE AR E OF THE OPINION THAT THE DISALLOWANCE OUT OF ADMINISTRATIVE EXPENSES IS TO B E RESTRICTED TO % OF RS. 96,22,297/-. WE DIRECT ACCORDINGLY. ITA NO. 5340/D/10 & CO NO. 414/D/10 6 15. AS FAR AS GROUND NO. 2 OF THE CROSS OBJECTION I S CONCERNED, WE FIND THAT THIS ISSUE STANDS SETTLED BY THE DECISION OF H ONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MANUFACTURING CO. LTD . (SUPRA) AS RULE 8D WAS NOT APPLICABLE FOR THE RELEVANT ASSESSMENT YEAR . LD. CIT(A) HAS NOT INVOKED RULE 8D. THEREFORE, THIS GROUND IS MISCONC EIVED. 16. IN THE RESULT, THE DEPARTMENTS APPEAL IS DISMI SSED AND THE CROSS OBJECTION IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 20.06.2012 SD/- SD/- (A.D. JAIN) JUDICIAL MEMBER (S.V. MEHROTRA) ACCOUNTANT MEMBER DATED: 20.06.2012 *KAVITA COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, NEW DELHI. TRUE COPY BY ORDER DEPUTY REGISTRAR