M/s. Malani Impex Inc, JODHPUR V. DCIT, BARMER

CO 56/JODH/2009

• Counselvise Citation: [2011] 122 COUNSELVISE.COM (IT) 6442 (ITAT-JODHPUR)
• Duration Of Justice: 1 year(s) 11 month(s) 3 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 26-08-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 26-07-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 23-09-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: M N MAURYA
• Keywords: Rejection of books of accounts; Depreciation; Business expenditure; Rule of consistency; Capital expenditure
• Section: 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL [ JODHPUR BENCH, JODHPUR ] BEFORE SHRI RAJPAL YADAV, JM AND SHRI K. D. RAN JAN, AM I. T. APPEAL NO. 622 (JODH.) OF 2008. A N D I. T. APPEAL NO. 422 (JODH.) OF 2009. ASSESSMENT YEARS : 200506 & 2006-07. DY. COMMISSIONER OF INCOME-TAX, M/S. MALA NI IMPEX INC., C I R C L E, VS. MAIN BAZAR , C H A U H T A N R O A D, B A R M E R. B A R M E R. P A N / G I R NO. AAF FM 6980 L. A N D C. O. NO. 17 & 56 (JODH.) OF 2009 [ IN I. T. APPEAL NO. 622 (JODH.) OF 2008 ] . A N D [ IN I. T. APPEAL NO. 422 (JODH.) OF 2009 ]. ASSESSMENT YEARS : 200506 & 2006-07. M/S. MALANI IMPEX INC., ASSTT. COMMISSIONER OF INCOME-TAX, C/O. U. C. JAIN, ADVOCATE, VS. C I R C L E , SHATRUNJAY HARI SINGH NAGAR, B A R M E R. PALI ROAD, J O D H P U R. PAN / GIR NO. AAF FM 6980 L. ( APPELLANTS ) ( RESPONDENTS ) ASSESSEE BY : SHRI RAJENDRA JAIN, ADV.; DEPARTMENT BY : SHRI M. N. MAURYA, D. R.; O R D E R. PER K. D. RANJAN, AM : THESE APPEALS BY THE REVENUE AND THE CROSS OBJECTIO NS BY THE ASSESSEE FOR ASSESSMENT YEARS 2005-06 AND 2006-07 ARISE OUT OF SEPARATE ORD ERS OF THE LD. CIT (APPEALS), JODHPUR. THESE 2 I.T.A. NOS. 662 (JODH.) OF 2008 & 422 (JODH.) OF 2009 A N D C. O. NOS. 17 AND 56 (JODH.) OF 2009. APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF, FOR THE SAKE OF CONVENIENCE, BY THIS CONSOLIDATED ORDER. 2. THE FIRST ISSUE, WHICH IS COMMON IN BOTH THE APP EALS, RELATES TO TRADING ADDITION ON ACCOUNT OF FALL IN GP RATES. THE FACTS OF THE CASE STATED IN BRIEF ARE THAT THE ASSESSEE IN THE RELEVANT PERIODS WAS TRADING AS WELL AS MANUFACTURI NG TEXTILE HANDICRAFTS ITEMS. IN ASSESSMENT YEAR 2005-06 THE ASSESSEE ADMITTED GP RATE OF 18.94 PER CENT ON TOTAL TURNOVER OF RS.17.97 CRORES. THE ASSESSEE IN THE IMMEDIATE PRECEDING YEA R ON TOTAL TURNOVER OF RS.16.16 CRORES ADMITTED GP AT 18.75 PER CENT. SIMILARLY IN ASSESS MENT YEAR 2006-07 THE ASSESSEE ADMITTED GP RATE OF 17.16 PER CENT AS AGAINST GP RATE OF 18.94 PER CENT DECLARED IN ASSESSMENT YEAR 2005-06. THE ASSESSING OFFICER DURING THE COURSE OF ASSESSME NT PROCEEDINGS NOTED THAT THE ASSESSEE WAS NOT MAINTAINING STOCK REGISTER/QUANTITATIVE DETAILS OF INVENTORY OF THE CLOSING STOCK. SOME OF THE PURCHASE BILLS WERE UN-NUMBERED. SOME OF THE BILLS WERE CLEARED IN CASH. THE AO IN VIEW OF THESE FACTS ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE BOOKS OF ACCOUNTS SHOULD NOT BE REJECTED. THE AO IN VIEW OF THE FACTS THAT THE ASSESSEE HAD N OT DISPUTED THE DEFECTS POINTED OUT IN THE BOOKS OF ACCOUNT AND IN ASSESSMENT YEAR 2004-05 THE GROSS PROFIT RATE APPLIED BY HIM WAS 20 PER CENT WHICH WAS REDUCED TO 19 PER CENT ON APPEAL, AP PLIED THE GP RATE OF 19 PER CENT IN ASSESSMENT YEAR 2005-06 AND 18 PER CENT IN ASSESSME NT YEAR 2006-07. 3. ON APPEAL BEFORE CIT(A) IN AY 2005-06 IT WAS SUB MITTED BY THE ASSESSEE THAT IN CASE TRADING ADDITION IS SUSTAINED THEN DEDUCTION UNDER SECTION 80-IB SHALL BE RECOMPUTED CONSIDERING THE SUSTAINED TRADING ADDITIONS AS THE INCOME ASSES SED WAS TO BE CONSIDERED AS INCOME DERIVED FROM INDUSTRIAL UNDERTAKING. THE LD. CIT (APPEALS) KEEPING IN VIEW THE FACT THAT IN IMMEDIATE PRECEDING YEAR THE LD. CIT (A) HAD UPHELD THE GP RA TE OF 19 PER CENT AND THE AO MADE ADDITION OF RS.5,47,852/- BY APPLYING GP RATE OF 19.25 PER C ENT, THE LD. CIT (APPEALS) UPHELD THE GP RATE OF 19 PER CENT ON THE GROUND THAT THE AO HAD NOT AD VANCED ANY REASON IN JUSTIFICATION OF ADOPTING GP RATE OF 19.25 PER CENT. THE LD. CIT (APPEALS) D IRECTED THE AO TO APPLY GP RATE OF 19 PER CENT. THE LD. CIT (APPEALS) WHILE DOING SO UPHELD THE REJECTION OF BOOKS OF ACCOUNTS. 3 I.T.A. NOS. 662 (JODH.) OF 2008 & 422 (JODH.) OF 2009 A N D C. O. NOS. 17 AND 56 (JODH.) OF 2009. 4. IN ASSESSMENT YEAR 2006-07 LD. CIT (APPEALS) UPH ELD THE REJECTION OF BOOKS OF ACCOUNTS UNDER SECTION 145(3). HOWEVER, IN VIEW OF THE FACT THAT IN ASSESSMENT YEAR 2004-05 THE GP RATE WAS REDUCED FROM 20 PER CENT TO 19 PER CENT AND ALS O IN ASSESSMENT YEAR 2005-06 GP RATE OF 19 PER CENT WAS UPHELD AND IN THE YEAR UNDER CONSIDERA TION THE DECLARED GP RATE WAS 17.16 PER CENT WHICH HAD FALLEN FROM 18.94 PER CENT IN THE PRECEDI NG YEAR, THE LD. CIT (APPEALS) APPLIED THE GP RATE OF 17.3 PER CENT AS AGAINST 17.16 PER CENT DEC LARED BY THE ASSESSEE. 5. BEFORE US THE LD. SR. DR SUPPORTED THE ORDER OF THE ASSESSING OFFICER WHEREAS THE LD. AR OF THE ASSESSEE OPPOSED THE GROSS PROFIT RATES APPL IED BY THE LD. CIT (APPEALS) IN BOTH THE YEARS AND SUBMITTED THAT THE BOOK RESULTS SHOULD BE ACCEP TED. 6. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT IN ASSESSMENT YEAR 2004-05 ITAT, JODHPUR BENCH, JODHPUR IN ASSESSEES OWN CASE IN I.T. APPEAL NO. 871 (JU) OF 2007 VIDE ORDER DATED 1 5/09/2008 HAD UPHELD THE ORDER OF THE LD. CIT (APPEALS) APPLYING THE GP RATE OF 19 PER CENT A S AGAINST 20 PER CENT APPLIED BY THE ASSESSING OFFICER. THE LD. CIT (APPEALS), HOWEVER, HAD REDUC ED THE GP RATE IN BOTH THE YEARS HAVING REGARD TO INCREASE IN THE TURNOVER. THE FACTS OF T HE CASE ARE IDENTICAL TO THE FACTS FOR ASSESSMENT YEAR 2004-05. IT IS ALSO A FACT THAT THE ASSESSING OFFICER HAD APPLIED GP RATE OF 19.25 PER CENT IN ASSESSMENT YEAR 2005-06 AS AGAINST 20 PER CENT APPL IED IN ASSESSMENT YEAR 2004-05, WHICH WAS REDUCED TO 19 PER CENT BY THE LD. CIT (APPEALS). S IMILARLY, THE ASSESSING OFFICER HAD HIMSELF APPLIED 18 PER CENT GROSS PROFIT RATE IN ASSESSMENT YEAR 2006-07 THOUGH THE LD. CIT (APPEALS) UPHELD THE GP RATE OF 19 PER CENT IN ASSESSMENT YEA R 2005-06. FROM THESE FACTS IT IS EVIDENT THAT THE ASSESSING OFFICER HAD HIMSELF ACCEPTED THE FACT THAT THE GP RATE IN A TRADING CONCERN CANNOT BE STATIC. THE GP RATE IS LIABLE TO VARY UPWARD OR DO WN-WARD. IT IS ALSO A FACT THAT THE ASSESSEE HAD NOT MAINTAINED THE STOCK REGISTER AND BOOKS OF ACCO UNTS HAVE BEEN REJECTED. ITAT IN ASSESSEES OWN CASE HAD UPHELD GP ADDITION ON IDENTICAL FACTS. THEREFORE, IN OUR CONSIDERED OPINION, THE LD. CIT (APPEALS) HAD RIGHTLY APPLIED GP RATE OF 19 PER CENT IN AY 2005-06 AND 17.3 PER CENT IN AY 4 I.T.A. NOS. 662 (JODH.) OF 2008 & 422 (JODH.) OF 2009 A N D C. O. NOS. 17 AND 56 (JODH.) OF 2009. 2006-07. ACCORDINGLY, WE DO NOT FIND ANY INFIRMITY IN THE ORDER PASSED BY THE LD. CIT (APPEALS) IN DELETING THE ADDITION ON ACCOUNT OF TRADING ADDI TION. 7. THE NEXT ISSUE FOR CONSIDERATION, WHICH IS COMMO N IN BOTH THE APPEALS, RELATES TO ALLOWING THE DEDUCTION UNDER SECTION 80IB OF THE AC T AMOUNTING TO RS.28,86,349/- IN AY 2005- 06 AND RS.13,11,983/- IN AY 2006-07. THE ASSESSING OFFICER DISALLOWED THE CLAIM OF DEDUCTION UNDER SECTION 80IB ON THE GROUND THAT THE ASSESSEE WAS NOT MANUFACTURING ENTIRE GOODS IN HOUSE. ON APPEAL THE LD. CIT (APPEALS) FOLLOWING HIS DECIS ION FOR EARLIER YEARS ALLOWED DEDUCTION U/S 80IB IN BOTH THE YEARS. 8. BEFORE US THE LD. AR OF THE ASSESSEE SUBMITTED T HAT IN AY 2004-05 ITAT, JODHPUR BENCH, JODHPUR HAD ALLOWED THE CLAIM OF THE ASSESSEE FOR D EDUCTION UNDER SECTION 80IB. ON THE OTHER HAND, THE LD. SR. DR SUPPORTED THE ORDER OF THE ASS ESSING OFFICER. 9. WE HAVE HEARD BOTH THE PARTIES. WE FIND THAT TH E ITAT, JODHPUR BENCH WHILE ALLOWING THE CLAIM OF THE ASSESSEE UNDER SECTION 80IB OF THE ACT HAS OBSERVED THAT THE DEPARTMENT HAD NOWHERE DENIED THAT THE PROCESS OF CUTTING CLOTH, H AND-PRINTING, STITCHING OF GARMENTS AND FINAL FINISHING WAS DONE BY THE ASSESSEE. EVEN THOUGH TH OSE ACTIVITIES MAY NOT FORM A MAJOR PORTION OF THE ACTIVITIES OF THE ASSESSEE, YET WHEN TAKEN C OST-WISE WITH REFERENCE TO THE COST OF PRODUCTION, THE OUT-SOURCE WORK ACCOUNTED TO 26.89 PER CENT ONLY AND THE SAME WAS NOT THUS SUBSTANTIAL AS UNDERSTOOD BY THE ASSESSING AUTHORIT Y. ONCE THE ASSESSEE WAS ADMITTED TO HAVE CARRIED OUT THE CUTTING, STITCHING AND FINISHING OF GOODS IN HOUSE AND SERVICES BY WAY OF DYEING AND EMBROIDERY THAT ARE INTER-MEDIATORY ACTIVITIES OF MAKING THE GOODS AS EXPORTABLE COMMODITY, WOULD BY ITSELF NOT LOOSE THE CHARACTER OF MANUFACT URE OR PRODUCTION OF ELIGIBLE ARTICLES COUPLED WITH THE FACT THAT A SIMILAR ACTIVITY IN AY 2003-04 HAD ALREADY BEEN ADMITTED AS MANUFACTURE / PRODUCTION OF ARTICLES OR THINGS FOR THE PURPOSE OF ALLOWING DEDUCTION UNDER SECTION 80IB OF THE ACT TO THE ASSESSEE. ITAT, FOLLOWING THE PRINCIPLE OF CONSISTENCY, UPHELD THE ORDER OF THE LD. CIT (APPEALS) ALLOWING DEDUCTION UNDER SECTION 80IB OF THE ACT. IN THE ASSESSMENT YEARS UNDER 5 I.T.A. NOS. 662 (JODH.) OF 2008 & 422 (JODH.) OF 2009 A N D C. O. NOS. 17 AND 56 (JODH.) OF 2009. CONSIDERATION, THE FACTS ARE IDENTICAL TO THE FACTS OF ASSESSMENT YEAR 2004-05. DURING THE COURSE OF HEARING THE REVENUE COULD NOT PLACE ANY MATERIAL TO DISTINGUISH THE FACTS OF THE RELEVANT ASSESSMENT YEARS WITH THAT OF AY 2004-05. THEREFOR E, WE DO NOT FIND ANY JUSTIFICATION TO HAVE A DIFFERENT VIEW IN THE YEARS UNDER CONSIDERATION. A CCORDINGLY, THE ORDERS PASSED BY THE LD. CIT (APPEALS) ALLOWING DEDUCTION UNDER SECTION 80IB HAV E TO BE SUSTAINED. WE ORDER ACCORDINGLY. 10. THE NEXT ISSUE FOR CONSIDERATION IN AY 2005-06 RELATES TO DELETION OF ADDITION OF RS.29,97,496/- MADE UNDER SECTION 40(A)(IA) OF THE ACT. THE FACTS OF THE CASE STATED IN BRIEF ARE THAT THE AO FROM TAX AUDIT REPORT IN FORM NO. 3CD F OUND THAT THE ASSESSEE HAD NOT DEDUCTED TDS IN RESPECT OF CERTAIN PAYMENTS. ON A QUERY RAIS ED BY THE ASSESSING OFFICER IT WAS SUBMITTED BY THE ASSESSEE THAT THE EXPENSES INCURRED WERE IN RESPECT OF JOB CHARGES AND PROFESSION FEE RELATED TO JAIPUR OFFICE AND SINCE THESE EXPENSES H AD BEEN DEBITED IN THE MONTH OF MARCH, THE SAME WERE REFLECTED IN THE STOCK AT THE YEAR ENDED ON 31 ST MARCH, 2005. THEREFORE, THESE EXPENSES HAD ALREADY INCREASED THE VALUE OF THE CLO SING STOCK AND NEED NOT BE ADDED BACK TO THE INCOME. THE LD. AO, HOWEVER, NOTED THAT PROVISIONS OF SECTION 40(A)(IA) HAVE OVER-RIDING EFFECT OVER OTHER PROVISIONS OF SECTION 30 TO 38 AND DO NO T PROVIDE ANY EXCEPTION. IT WAS NOT THE CASE OF THE ASSESSEE THAT THE AMOUNT MENTIONED HAVE NOT BEEN DEBITED TO TRADING OR PROFIT AND LOSS ACCOUNT. THE ASSESSEE HAD ADMITTED DELAYED PAYMENT OF TDS RELATING TO THESE EXPENSES. HE ALSO NOTED THAT THE ASSESSEE HAD ADDED ONE OF THE PAYMEN TS OF RS.1,80,047/- UNDER SECTION 40(A)(IA). THE AO, THEREFORE, DISALLOWED THE AMOUNT OF RS.29,9 7,496/- AS THE ASSESSEE FAILED TO DEDUCT TAX AT SOURCE. 11. ON APPEAL IT WAS SUBMITTED BY THE ASSESSEE THAT THE PAYMENT FOR WHICH DISALLOWANCE WAS MADE WAS SHOWN IN THE CLOSING STOCK AND AS SUCH NO SUCH EXPENDITURE WAS CLAIMED AND, THEREFORE, PROVISIONS OF SECTION 40(A)(IA) OF THE A CT WERE NOT APPLICABLE. THE LD. CIT (APPEALS) HOWEVER, NOTED THAT FROM ASSESSMENT ORDER IT WAS NO T CLEAR WHETHER THE AMOUNT WAS ACTUALLY CLAIMED AS DEDUCTION BY THE ASSESSEE. HE, THEREFOR E, DIRECTED THE AO TO VERIFY THE CLAIM OF THE ASSESSEE AS TO WHETHER THE AMOUNT WAS CLAIMED AS DE DUCTION AND ALSO IT WAS INCLUDED IN THE 6 I.T.A. NOS. 662 (JODH.) OF 2008 & 422 (JODH.) OF 2009 A N D C. O. NOS. 17 AND 56 (JODH.) OF 2009. CLOSING STOCK. IF THE CONTENTION OF THE ASSESSEE W AS FOUND TO BE CORRECT, THERE WAS NO NEED FOR MAKING THE ADDITION. THE ASSESSEE WAS ALSO DIRECTE D TO FURNISH THE DETAILS. 12. WE HAVE HEARD BOTH THE PARTIES. FROM THE ORDER OF THE LD. CIT (APPEALS) AND THE FACTS PLACED ON RECORD, IT IS CLEAR THAT THE LD. CIT (APP EALS) HAS GIVEN SPECIFIC DIRECTIONS THAT IF THE AMOUNT HAS NOT BEEN CLAIMED AS DEDUCTION AND IS INC LUDED IN THE CLOSING STOCK NO ADDITION WAS TO BE MADE. IN SUCH SITUATION, THE AMOUNT OF RS.29,97 ,496/- SHALL BE DELETED. IN OUR CONSIDERED OPINION, THE LD. CIT (APPEALS) WAS JUSTIFIED IN DIR ECTING THE ASSESSING OFFICER TO VERIFY THE CONTENTION OF THE ASSESSEE AND DELETE THE ADDITION, IF THE SAME IS INCLUDED IN THE CLOSING STOCK. WHEN THE ASSESSEE HAD NOT MADE ANY CLAIM FOR EXPEND ITURE AND THE AMOUNT INCLUDED IN THE CLOSING STOCK, NO SEPARATE ADDITION CAN BE MADE. A CCORDINGLY, WE DO NOT FIND ANY INFIRMITY IN THE DIRECTION GIVEN BY THE LD. CIT (APPEALS) TO VER IFY THE CLAIM AND DELETE THE ADDITION, IF THE CONTENTION OF THE ASSESSEE WAS FOUND TO BE CORRECT. 13. THE NEXT ISSUE FOR CONSIDERATION IN ASSESSMENT YEAR 2005-06 RELATES TO RESTRICTING THE DISALLOWANCE OF 1/10 TH OF CONVEYANCE EXPENSES. THE ASSESSING OFFICER DIS ALLOWED 1/6 TH OF CONVEYANCE EXPENSES ON ACCOUNT OF PERSONAL USE, WHI CH HAS BEEN RESTRICTED TO BY THE LD. CIT (APPEALS) TO 1/10 TH OF THE EXPENDITURE. THE LD. CIT (APPEALS) WHILE D IRECTING THE AO TO RESTRICT THE DISALLOWANCE AT 10 PER CENT OF THE TOTAL CLAIM, OBSERVED THAT THERE WAS NO MATERIAL TO INDICATE THAT 1/6 TH OF THE EXPENSES WAS INCURRED FOR PURPOSES OTHER TH AN THOSE FOR BUSINESS. FROM THE ASSESSMENT ORDER, WE FIND THAT THE AO WHILE MAKING DISALLOWANCE OF 1/6 TH HAS NOT IDENTIFIED ANY PARTICULAR EXPENSE WHICH WAS BOGUS OR NOT GENUINE. AT THE SAME TIME, THE POSSIBILITY OF USE FOR NON-BUSINESS PURPOSES CANNOT BE RULED OUT. IT IS A SIMPLE CASE OF ESTIMATION OF DISALLOWANCE. SINCE THE LD. CIT (APPEALS) HAS ESTIMATED 10 PER CE NT OF DISALLOWANCE FOR NON-BUSINESS PURPOSES, IN OUR CONSIDERED OPINION, NO INTERFERENCE IS CALLE D FOR. 14. THE NEXT ISSUE FOR CONSIDERATION IN ASSESSMENT YEAR 2006-07 RELATES TO ALLOWING THE DEPRECIATION ON TDP TRANSFORMER AT THE RATE OF 80 P ER CENT. THE ASSESSEE IN CROSS OBJECTION HAS 7 I.T.A. NOS. 662 (JODH.) OF 2008 & 422 (JODH.) OF 2009 A N D C. O. NOS. 17 AND 56 (JODH.) OF 2009. CHALLENGED THE CONFIRMING THE DEPRECIATION OF RS.9, 10,000/- OUT OF TOTAL DEPRECIATION OF RS.1,52,00,000/- CLAIMED BY THE ASSESSEE ON CAPITAL EXPENDITURE OF RS.3,85,00,000/- INCURRED ON WIND-MILL. THE FACTS RELATING TO THIS GROUND OF AP PEAL ARE THAT THE ASSESSEE CLAIMED DEPRECIATION ON ENTIRE WIND-MILL AT THE RATE OF 80 PER CENT, WHI CH INCLUDED THE EARTH-WORK AND FOUNDATION FOR ENERCON MAKE WIND TURBINE CONVERTER, 800 K.WT. TYPE E-48, INCLUDING CONSTRUCTION OF APPROACH AND INTERNAL ROAD, SUPPLY, CONSTRUCTION AN D ERECTION OF INTERNAL / EXTERNAL LINES INCLUDING DP STRUCTURES POLES. THE ASSESSING OFFIC ER TREATED THE FOUNDATION, ROADS ETC. AS PART OF THE BUILDING. HE ALLOWED DEPRECIATION AT THE RA TE OF 10 PER CENT. ON APPEAL THE LD. CIT (APPEALS) UPHELD THE DISALLOWANCE OF DEPRECIATION O N OTHER ITEMS. HOWEVER, AS REGARDS DEPRECIATION ON TDP TRANSFORMER, THE LD. CIT (APPEA LS) NOTED THAT IN THE CASE OF POONAWALA FINVEST AGRO PVT. LTD. 118 TTJ 68 (PUNE) IT HAS BEE N HELD THAT THE TRANSFORMER UPTO DP STRUCTURE WAS INTEGRAL PART OF WIND MILL. THE LD. CIT (APPEALS),THEREFORE, HELD THAT EARTH-WORK, FOUNDATION AND APPROACH ROAD WERE NOT SUCH THAT IT COULD BE SAID THAT THEY WERE DESIGNED SO AS TO PERFORM THE FUNCTION OF FACILITATING THE G ENERATION OF POWER BY WIND-MILL OR DISTRIBUTION OF SUCH POWER GENERATED BY THE WIND-MILL. CONTRARY TO THIS ALTHOUGH THE ASSESSEE HAD ASSERTED IN HIS SUBMISSIONS THAT THOSE ITEMS FORM PART OF WI ND-MILL, BUT FAILED TO INDICATE OR ESTABLISH THE BASIS ON WHICH IT COULD BE SAID THAT THE EARTH- WORK, FOUNDATION AND APPROACH ROAD COULD PERFORM THE FUNCTIONS OF FACILITATING THE GENERATIO N OF ELECTRICITY. THE LD. CIT (APPEALS) FOLLOWING THE DECISION OF POONAWALA FINVEST AGRO PV T. LTD. (SUPRA) HELD THAT TDP TRANSFORMER WAS INTEGRAL PART OF WIND-MILL ELIGIBLE FOR DEPRECIATION AT THE RATE ADMISSIBLE FOR WIND-MILL. HE ACCORDINGLY DIRECTED THE ASSESSING O FFICER TO ALLOW DEPRECIATION ON TDP TRANSFORMER AS APPLICABLE TO WIND-MILL. 15. BEFORE US THE LD. SR. DR SUPPORTED THE ORDER OF THE ASSESSING OFFICER. ON THE OTHER HAND, THE LD. AR OF THE ASSESSEE SUBMITTED THAT THE INCOM E-TAX ACT HAD PROVIDED INCENTIVE FOR GENERATION FOR WIND-POWER IN ORDER TO ACHIEVE THE N ATIONAL OBJECTIVE OF MEETING THE SHORTAGE OF POWER AND DEVELOPMENT OF INFRASTRUCTURE FACILITIES. THAT IS WHY DEPRECIATION AT HIGHER RATE HAD BEEN PROVIDED. THE DEPRECIATION AT THE RATE OF 80 PER CENT IS PROVIDED IN RESPECT OF WIND-MILL. IT HAS BEEN FURTHER SUBMITTED THAT APPENDIX 1 PRESC RIBES THE RATE OF DEPRECIATION OF 80 PER CENT IN 8 I.T.A. NOS. 662 (JODH.) OF 2008 & 422 (JODH.) OF 2009 A N D C. O. NOS. 17 AND 56 (JODH.) OF 2009. CASES OF RENEWABLE ENERGY DEVICES. ENTRIES (L) AND (M) OF CLAUSE (XIII) OF THE SAID APPENDIX PROVIDE DEPRECIATION AT THE RATE OF 80 PER CENT ON WIND-MILLS AND ANY DESIGN/DEVICES WHICH RUN ON WIND-MILLS; AND ANY SPECIAL DEVICES INCLUDING EL ECTRIC GENERATORS AND PUMPS RUNNING ON WIND- ENERGY. CLAUSE (R) TALKS ABOUT MACHINERY AND PLANT USED IN MANUFACTURE OF ANY OF SUB ITEMS IN CLAUSE (XIII). THEREFORE, IT HAS BEEN SUBMITTED TH AT ANY PLANT AND MACHINERY USED FOR MANUFACTURE OF ANY OF SUB ITEMS MENTIONED IN CLAUSE (XIII) THE SAID MACHINERY WILL BE TREATED AS PART OF THE SAID ENTRY AND DEPRECIATION AT THE RATE OF 80 PER CENT SHALL BE ELIGIBLE. IT WAS FURTHER SUBMITTED THAT VARIOUS ITEMS INCLUDED IN THE WIND-M ILL TOGETHER FORM A WIND-MILL AND EACH PART INDEPENDENTLY HAS NO SIGNIFICANCE IN ITS OWN. IN C ASE OF WIND-MILLS VARIOUS COMPONENTS, LIKE ROTORS, BLADES, GEARS, STEEL TOWER, GRIDS, FAN ETC. PUT TOGETHER FORM A WIND-MILL. DIFFERENT COMPONENTS ARE USED IN MANUFACTURING OF A WIND-MILL . THEREFORE, THE RATE OF DEPRECIATION IS TO BE ALLOWED ON ALL THE PARTS CONSTITUTING THE WIND-M ILL. HE PLACED RELIANCE ON VARIOUS DECISIONS INCLUDING DECISION OF THE ITAT, JAIPUR BENCH IN THE CASE OF VIJAY INDUSTRIES VS. ITO IN I.T. APPEAL NO. 745 AND 731 (JP.) OF 2007 DATED 18 TH JULY, 2008 WHEREIN 80 PER CENT DEPRECIATION HAS BEEN ALLOWED ON THE TOTAL COST FOR INSTALLATION OF WIND-MILL. HE FURTHER SUBMITTED THAT THE LD. CIT (APPEALS) FOLLOWING THE DECISION IN THE CASE OF POO NAWALA FINVEST (SUPRA) HAS REFUSED TO ALLOW THE CLAIM OF DEPRECIATION ON CIVIL WORK OF CONTROL ROOM, SITE DEVELOPMENT AND INTERNAL ROAD AS THE SAME WERE NOT IN HIS OPINION, ESPECIALLY DESIGNED F OR GENERATION OF ENERGY. HE, THEREFORE, SUBMITTED THAT THE CIVIL WORK OF CONTROL ROOM, SITE DEVELOPMENT AND INTERNAL ROAD IS ELIGIBLE FOR DEDUCTION AT THE RATE OF 80 PER CENT. 16. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. THE ASSESSEE HAD CLAIMED DEDUCTION ON ACCOUNT OF DEPREC IATION ALLOWANCE IN RESPECT OF CONTROL ROOM, INTERNAL ROADS AND SITE DEVELOPMENT AND TDP TRANSFO RMER. THE LD. CIT (A) HAS ALLOWED DEPRECIATION ON TDP TRANSFORMER. HOWEVER, HE HAS R EJECTED THE CLAIM OF THE ASSESSEE IN RESPECT OF CONTROL ROOM, SITE DEVELOPMENT AND INTERNAL ROAD S. THE REVENUE IS AGGRIEVED AGAINST ALLOWING DEPRECIATION ALLOWANCE ON TDP TRANSFORMER WHEREAS T HE ASSESSEE IS AGGRIEVED AGAINST DISALLOWANCE OF DEPRECIATION IN RESPECT OF CONTROL ROOM, SITE DEVELOPMENT AND INTERNAL ROADS. CLAUSE (XIII) OF PLANT AND MACHINERY IN APPINDIX-1 DEALS WITH DEPRECIATION ALLOWANCE IN RESPECT 9 I.T.A. NOS. 662 (JODH.) OF 2008 & 422 (JODH.) OF 2009 A N D C. O. NOS. 17 AND 56 (JODH.) OF 2009. OF RENEWABLE ENERGY DEVICES. SUB CLAUSE (L) DEALS WITH WIND-MILLS AND ANY SPECIALLY DESIGNED DEVICES WHICH RUN ON WIND-MILLS. THE DEPRECIATION ALLOWABLE IN RESPECT OF THE ITEMS IN CLAUSE (XIII) IS 80 PER CENT. INTERNAL ROADS, THE SITE DEV ELOPMENT AND CONTROL ROOM CANNOT BE CONSIDERED AS PART OF WIND-MILLS BECAUSE THEY ARE NOT SPECIALL Y DESIGNED DEVICES WHICH RUN ON WIND-MILL. CONTROL ROOM IS NOTHING, BUT A BUILDING. THE USE O F CONTROL ROOM IS NOT DEPENDENT ON WIND-MILL. SO IS THE CASE WITH ROADS AND EXPENDITURE INCURRED ON SITE DEVELOPMENT. CLAUSE (XIII) DEALS WITH RENEWABLE ENERGY DEVICES. THEREFORE, DEPRECIATION ON INTERNAL ROADS, SITE DEVELOPMENT AND CONTROL ROOM CANNOT BE ALLOWED AS A PART OF WIND-MI LL. AS REGARDS TDP TRANSFORMER, IT IS A DEVICE WHICH CONTROLS THE VOLTAGE OF ELECTRICAL ENE RGY. THEREFORE, TRANSFORMER WHICH IS CONNECTED WITH THE WIND-MILL HAS TO BE TAKEN AS PAR T OF WIND-MILL AND HIGHER RATE OF DEPRECIATION WILL BE ALLOWABLE. ITAT, IN THE CASE OF POONAWALA FINVEST & AGRO MILLS (SUPRA) HAS HELD THAT EARTH WORK, FOUNDATION AND APPROACH ROADS WERE NOT SUCH THAT IT COULD BE SAID THAT THEY WERE DESIGNED SO AS TO PERFORM THE FUNCTION OF FACILITAT ING THE GENERATING THE POWER BY WIND-MILL OR DISTRIBUTION OF POWER GENERATED BY WIND-MILL. IT I S NOT THE CASE OF THE ASSESSEE THAT BUILDING, INTERNAL ROAD AND SITE DEVELOPMENT WAS DONE OR WERE SPECIALLY DESIGNED TO MEET THE SPECIAL REQUIREMENTS OF THE WIND MILL. THEREFORE, THE BUIL DING AND INTERNAL ROADS AND SITE DEVELOPMENT CANNOT BE TREATED AS PART OF WIND-MILL. WE, THEREF ORE, UPHOLD THE ORDER OF THE LD. CIT (A) ALLOWING DEPRECIATION ONLY ON TDP TRANSFORMER. 17. NOW COMING TO CROSS OBJECTION FILED BY THE ASSE SSEE IN ASSESSMENT YEAR 2005-06, THE ISSUE RELATING TO DEDUCTION UNDER SECTION 80IB AND APPLICATION OF PROVISIONS OF SECTION 40(A)(IA) ARE IN SUPPORT OF THE ORDER OF THE LD. CIT (A). SI NCE WE HAVE UPHELD THE ORDER OF THE LD. CIT (APPEALS) IN RESPECT OF THESE GROUNDS, THE GROUNDS RAISED IN THE CROSS OBJECTION BECOMES INFRUCTUOUS AND ARE DISMISSED AS SUCH. 18. AS REGARDS GROUND NO. 3 RELATING TO APPLICABILI TY OF PROVISIONS OF SECTION 145, THE LD. AR OF THE ASSESSEE AT THE TIME OF HEARING COULD NOT RE BUT THE FINDINGS RECORDED BY THE LD. CIT (APPEALS) AND, THEREFORE, IN THE ABSENCE OF ANY COG ENT MATERIAL ON RECORD, THE DECISION OF THE LD. 10 I.T.A. NOS. 662 (JODH.) OF 2008 & 422 (JODH.) OF 2009 A N D C. O. NOS. 17 AND 56 (JODH.) OF 2009. CIT (A) UPHOLDING THE REJECTION OF BOOKS OF ACCOUNT S HAS TO BE SUSTAINED AND ACCORDINGLY THIS GROUND OF APPEAL RAISED BY THE ASSESSEE IS DISMISSE D. AS REGARDS CONFIRMING THE TRADING ADDITION BY APPLYING GP RATE BY APPLYING 19 PER CENT, SINCE WE HAVE UPHELD THE ESTIMATION OF GP RELYING ON THE EARLIER DECISION OF THE ITAT, THE CROSS OBJE CTION FILED BY THE ASSESSEE IS DISMISSED. 19. THE NEXT ISSUE WHICH IS COMMON IN THE CROSS OBJ ECTION FOR ASSESSMENT YEARS 2005-06 AND 2006-07 RELATES TO SUSTAINING THE ADDITION OF RS.4, 80,000/- IN RESPECT OF INTEREST PAYMENT IN ASSESSMENT YEARS 2005-06 AND RS.2,74,000/- IN ASSE SSMENT YEAR 2006-07. THE FACTS OF THE CASE ARE THAT THE ASSESSEE HAD USED BORROWED FUNDS FOR C ONSTRUCTION OF BUILDING. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSEE WAS NOT IN A PO SITION TO ESTABLISH THAT THE INVESTMENT IN THE BUILDING UNDER CONSTRUCTION WAS MADE OUT OF THE CAP ITAL OF PARTNERS. THE ASSESSING OFFICER RELYING ON THE DECISIONS IN THE CASES OF TRIVENI EN GG. WORKS VS. CIT 167 ITR 742 AND ABHISHEK INDUSTRIES VS. CIT 286 ITR PAGE 1 (P & H) AND IN CO NSIDERATION OF THE FACT THAT INTERST BEARING FUNDS HAD BEEN UTILIZED FOR CONSTRUCTION OF BUILDIN G, THE ASSESSING OFFICER APPORTIONED THE INTEREST OF RS.4,80,000/- IN AY 2005-06 AND RS.2,74,000/- IN AY 2006-07 OUT OF INTEREST PAID ON BORROWED CAPITAL. HE DISALLOWED THE SAME ON THE GR OUND THAT THE SAID EXPENDITURE WAS NOT INCURRED FOR THE PURPOSES OF BUSINESS. THE ASSESSI NG OFFICER DISALLOWED THESE AMOUNTS UNDER SECTION 36(1)(III) OF THE ACT. 20. BEFORE THE LD. CIT (APPEALS) IT WAS SUBMITTED T HAT THE ASSESSEE HAD SUFFICIENT FUNDS IN THE FORM OF WORKING CAPITAL ON WHICH NO INTEREST HAD BE EN PAID. THEREFORE, THE INVESTMENT MADE IN THE CONSTRUCTION WAS ADEQUATELY COVERED BY THE FUND S OF THE FIRM AND FURTHER THERE WAS NO DIRECT LINK WITH THE LOAN AMOUNT AND THE INVESTMENT MADE I N THE CONSTRUCTION OF THE FACTORY BUILDING. THE LD. CIT (A), HOWEVER, NOTED THAT THE FUNDS TAKE N ON LOAN WERE UTILIZED FOR THE CONSTRUCTION OF THE BUILDING ABOUT WHICH THE ASSESSEE CLAIMED INTER EST TO BE ALLOWED AS BUSINESS EXPENDITURE WHEREAS THE AO IN VIEW OF PROVISO TO SECTION 36(1)( III) INSERTED WITH EFFECT FROM 1/04/2004 HELD THAT SUCH INTEREST WAS REQUIRED TO BE CAPITALIZED. IN VIEW OF THESE FACTS THE LD. CXIT (A) OBSERVED THAT THERE WAS NO SCOPE FOR TAKING A STAND DURING THE APPELLATE PROCEEDINGS THAT THERE 11 I.T.A. NOS. 662 (JODH.) OF 2008 & 422 (JODH.) OF 2009 A N D C. O. NOS. 17 AND 56 (JODH.) OF 2009. WAS SUFFICIENT INTEREST FREE FUND FOR THE CONSTRUCT ION OF THE BUILDING. THE ASSESSEE IN THE WRITTEN SUBMISSIONS DURING THE APPELLATE PROCEEDINGS HAD NO T DENIED HAVING MADE THE CONTENTION DURING THE ASSESSMENT PROCEEDINGS THAT THE INTEREST ON LOA N WHICH MIGHT BE USED FOR BUILDING UNDER CONSTRUCTION SHOULD BE ALLOWED AS BUSINESS EXPENDIT URE FROM WHICH THE ONLY INFERENCE THAT CAN BE DRAWN WAS THAT THE FUNDS WERE USED FOR CONSTRUCT ION OF THE BUILDING. THE LD. CIT (A), THEREFORE, UPHELD THE STAND OF THE AO THAT AMOUNT O F INTEREST WAS TO BE CAPITALIZED. 21. BEFORE US THE LD. AR OF THE ASSESSEE HAS RE-ITE RATED THE SIMILAR ARGUMENTS AS WERE MADE BEFORE THE LD. CIT (A). ON THE OTHER HAND, THE LD. SR. DR SUPPORTED THE ORDER OF THE LD. CIT (A). 22. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. THE CONTENTION OF THE ASSESSEE THAT IN CONSTRUCTION OF THE FACTORY BUILDING BORROWED FUNDS HAVE NOT BEEN UTILIZED HAS NOT BEEN SUPPORTED BY ANY EVIDENC E. BEFORE AO THE ASSESSEE HAD CLAIMED THAT THE INTEREST PAID ON BORROWED CAPITAL USED FOR CONS TRUCTION OF FACTORY BUILDING COULD BE CLAIMED AS BUSINESS EXPENDITURE UNDER SECTION 36(1)(III) OF THE ACT. BEFORE THE LD. CIT (A) THE ASSESSEE HAD CLAIMED THAT IT HAD SUFFICIENT FUNDS TO MEET TH E COST OF CONSTRUCTION AND BORROWED FUNDS WERE NOT UTILIZED FOR THE PURPOSE OF CONSTRUCTION OF BUI LDING. THERE IS NO DISPUTE ABOUT THE FACT THAT BORROWED FUNDS AND ASSESSEES FUNDS WERE MIXED UP. THE ASSESSEE HAD NOT ESTABLISHED ANY NEXUS BETWEEN THE FUNDS OF THE FIRM AND INVESTMENT MADE IN THE BUILDING. IN OTHER WORDS, IT HAS NOT BEEN PROVED WITH EVIDENCE THAT BORROWED FUNDS W ERE NOT UTILIZED FOR THE PURPOSE OF CONSTRUCTION OF THE BUILDING. IN THE ABSENCE OF AN Y SUCH EVIDENCE ON RECORD, IN OUR CONSIDERED OPINION, THE ASSESSING OFFICER WAS JUSTIFIED IN EST IMATING INTEREST RELATABLE TO THE FUNDS USED IN THE CONSTRUCTION OF THE FACTORY BUILDING. PROVISO TO S ECTION 36(1)(III) INSERTED WITH EFFECT FROM 1/04/2004 PROVIDES THAT ANY AMOUNT OF INTEREST PAID , IN RESPECT OF CAPITAL BORROWED FOR ACQUISITION OF AN ASSET FOR EXTENSION OF THE EXISTI NG BUSINESS OR PROFESSION [WHETHER CAPITALIZED IN THE BOOKS OR NOT] FOR ANY PERIOD BEGINNING FROM THE DATE ON WHICH CAPITAL WAS BORROWED FOR ACQUISITION OF THE ASSET TILL THE DATE ON WHICH SUC H ASSET WAS FIRST TO PRODUCE SHALL NOT BE ALLOWED AS DEDUCTION. IN VIEW OF THESE FACTS, IN OUR CONSI DERED OPINION, THE LD. CIT (APPEALS) WAS 12 I.T.A. NOS. 662 (JODH.) OF 2008 & 422 (JODH.) OF 2009 A N D C. O. NOS. 17 AND 56 (JODH.) OF 2009. JUSTIFIED IN CONFIRMING THE STAND OF THE ASSESSING OFFICER DISALLOWING THE PAYMENT OF INTEREST IN RESPECT OF BORROWED CAPITAL AND CAPITALIZING THE SA ME WITH THE FACTORY BUILDING. ACCORDINGLY, WE DO NOT FIND ANY INFIRMITY IN THE ORDER PASSED BY TH E LD. CIT (APPEALS) CONFIRMING THE DISALLOWANCE OF INTEREST PAID ON THE BORROWED CAPIT AL. 23. THE LAST ISSUE FOR CONSIDERATION IN CROSS OBJEC TION FOR ASSESSMENT YEAR 2005-06 RELATES TO DISALLOWANCE OF DEPRECIATION ON COMPUTERS AMOUNTING TO RS.28,800/-. THE ASSESSEE PURCHASED THREE COMPACT COMPUTERS AT THE FAG END OF FINANCIAL YEAR. THESE COMPUTERS DID NOT REQUIRE ANY ENGINEER TO INSTALL. ALL THE PROGRAMMES WERE ALREA DY INSTALLED BY THE VENDOR. IN SUCH SYSTEMS AND THE COMPUTERS WERE ONLY REQUIRED TO BE PLUGGED IN. THE DEPRECIATION, THEREFORE, WAS ALLOWABLE. HOWEVER, THE ASSESSING OFFICER DID NOT ALLOW DEPRECIATION ON COMPUTERS ON THE GROUND THAT IT WAS NOT POSSIBLE FOR THE ASSESSEE TO USE THE COMPUTERS IN FINANCIAL YEAR AS THE COMPUTERS WERE SUPPLIED AS PER GATE ENTRY ON THE BI LL ON 31 ST MARCH, 2005. BEFORE THE LD. CIT (APPEALS) IT WAS SUBMITTED THAT THE COMPUTERS DID N OT REQUIRE ANY ENGINEER TO INSTALL THE MACHINERY AS ALL THE PROGRAMMES WERE ALREADY INSTAL LED BY THE VENDORS IN SUCH SYSTEMS AND SYSTEMS WERE ONLY REQUIRED TO BE PLUGGED IN. THE L D. CIT (APPEALS), REJECTED THIS CONTENTION OF THE ASSESSEE ON THE GROUND THAT NO RECORD COULD BE TRACED TO ESTABLISH THAT THE COMPUTERS WERE USED FOR THE PURPOSE OF BUSINESS DURING THE RELEVAN T PERIOD. THE SUBMISSION OF THE ASSESSEE THAT THE COMPUTERS WERE READY FOR USE WAS NOT MADE BEFOR E THE ASSESSING OFFICER AND, THEREFORE, COULD NOT BE CONSIDERED FOR THE FIRST TIME AT THE STAGE O F APPEAL. HE ACCORDINGLY UPHELD THE DISALLOWANCE OF DEPRECIATION ON COMPUTERS. 24. WE HAVE HEARD BOTH THE PARTIES. ACCORDING TO AS SESSEE THE COMPUTERS WERE PURCHASED ON 29.03.2005 WHEREAS AS PER ASSESSMENT ORDER THE COMP UTERS WERE SUPPLIED AS PER GATE ENTRY ON THE BILL ON 31 ST MARCH, 2005. IT IS ALSO A FACT THAT WHEN COMPUTE RS ARE PURCHASED ALL THE PROGRAMMES ARE INSTALLED BY THE VENDORS AND SYSTEMS DO NOT REQ UIRE ANY INSTALLATION BY THE SYSTEM ENGINEERS. THE ONLY REQUIREMENT TO PUT A COMPUTER SYSTEM TO US E IS JUST PLUG IN AND START OPERATING THE SYSTEM. IT IS NOT THE CASE OF ASSESSING OFFICER TH AT THE PURCHASE OF COMPUTERS WAS BOGUS. IT IS 13 I.T.A. NOS. 662 (JODH.) OF 2008 & 422 (JODH.) OF 2009 A N D C. O. NOS. 17 AND 56 (JODH.) OF 2009. MERE POSTPONEMENT OF DEPRECIATION TO NEXT ASSESSMEN T YEAR. THE FACT THAT COMPUTERS HAVE ENTERED IN THE PREMISES OF THE ASSESSEE ON 31 ST MARCH, IN OUR CONSIDERED OPINION, IN VIEW OF THE FACT THAT NO SPECIFIC INSTALLATION IS REQUIRED BY T HE SYSTEM ENGINEERS, THE POSSIBILITY OF USE BY THE ASSESSEE FOR THE PURPOSES OF BUSINESS ON THE LAST D AY OF THE ACCOUNTING YEAR CANNOT BE RULED OUT. THEREFORE, IN OUR CONSIDERED OPINION, THE LD. CIT ( A) WAS NOT JUSTIFIED IN REJECTING THE CLAIM OF THE ASSESSEE FOR DEPRECIATION IN RESPECT OF COMPUTE RS PURCHASED ON THE LAST DAY OF THE ACCOUNTING YEAR. WE, THEREFORE, ALLOW THIS ISSUE IN FAVOUR OF THE ASSESSEE. THE ASSESSING OFFICER IS DIRECTED TO ALLOW DEPRECIATION ON COMPUTERS. 25. IN THE RESULT, BOTH THE APPEALS FILED BY THE RE VENUE AND THE CROSS OBJECTIONS FILED BY THE ASSESSEE, ARE PARTLY ALLOWED. THE ORDER PRONOUNCED IN THE OPEN COURT ON : 26 TH AUGUST, 2011. SD/- SD/- [ RAJPAL YADAV ] [ K. D. RANJAN ] JUDICIAL MEMBER ACCOUNTANT MEMBER AT NEW DELHI . DATED : 26 TH AUGUST, 2011. *MEHTA * COPY OF THE ORDER FORWARDED TO : - 1. APPELLANTS. 2. RESPONDENTS. 3. CIT, 4. CIT (APPEALS), 5. DR, ITAT, NEW DELHI. TRUE COPY. BY ORDER. ASSISTANT REGISTRAR, ITAT. 14 I.T.A. NOS. 662 (JODH.) OF 2008 & 422 (JODH.) OF 2009 A N D C. O. NOS. 17 AND 56 (JODH.) OF 2009.