ACIT, Madurai V. Bhima Jewellery, Madurai

ITA 109/CHNY/2017

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 4438 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 04-05-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 16-01-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MRS ILAVARASI
• Assessee Lawyers: R KRISHNAN C A
• Keywords: Depreciation
• Section: 32

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH : CHENNAI . , . , BEFORE SHRI ABRAHAM P. GEORGE , ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER ./I.T.A. NO. 108/MDS/2017 / ASSESSMENT YEAR : 2011-2012 THE ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 1, MADURAI VS. M/S. BHIMA JEWELLERY, NMC, 37/5-2, AVAI SHANMUGAM SALAI, MEENAKSHIPURAM, NAGERCOIL 629 001. [PAN AAFFB 4737J] ./I.T.A. NO.109/MDS/2017 / ASSESSMENT YEAR : 2011-2012 THE ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 1, MADURAI VS. M/S. BHIMA JEWELLERY, NO.137, WEST MASI STREET, MADURAI 625 001. [PAN AAIFB 1068K] ( / APPELLANT) ( /RESPONDENT) ! / APPELLANT BY : MRS. ILAVARASI, ADDL. CIT. '# ! /RESPONDENT BY : SHRI. R. KRISHNAN, C.A. $ %& /DATE OF HEARING : 04-05-2017 '( %& /DATE OF PRONOUNCEMENT : 31-05-2017 ITA NOS. 108 & 109/MDS/2017 :- 2 -: / O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER: THESE ARE APPEALS FILED BY THE REVENUE DIRECTED A GAINST ORDERS DATED 07.10.2016 OF LD. COMMISSIONER OF INCO ME TAX (APPEALS)- 3 AND LD. COMMISSIONER OF INCOME TAX (APPEALS)-2, M ADURAI RESPECTIVELY FOR THE IMPUGNED ASSESSMENT YEAR. 2. GROUNDS TAKEN BY THE REVENUE IN BOTH THESE APPEALS ARE SIMILAR. GROUNDS 1 & 8 ARE GENERAL IN NATURE NEED ING NO ADJUDICATION. 3. VIDE ITS GROUND NO.2 & 6, REVENUE GRIEVANCE IS THAT LD. COMMISSIONER OF INCOME TAX (APPEALS) DIRECTED LD. A SSESSING OFFICER TO ALLOW DEPRECIATION ON WINDMILLS AT FULL RATE OF 80% DESPITE THE WINDMILLS HAVING BEEN USED FOR BUSINESS PURPOSE ONL Y AFTER 30 TH SEPTEMBER, 2010. 4. FACTS APROPOS ARE THAT ASSESSEES ENGAGED IN JEWELLE RY BUSINESS HAD FILED ITS RETURNS FOR THE IMPUGNED A SSESSMENT YEAR DISCLOSING INCOME OF D10,07,43,384/- AND D11,54,42 ,940/- RESPECTIVELY. DURING THE COURSE OF ASSESSMENT PROC EEDINGS, IT WAS NOTED BY THE LD. ASSESSING OFFICER THAT ASSESSEE HA D CLAIMED DEPRECIATION ON WINDMILLS. CLAIM OF DEPRECIATION IN RESPECT OF FIRST ASSESSEE WAS ON A WINDMILL COST OF D7,10,00,000/-, AND IN RESPECT OF ITA NOS. 108 & 109/MDS/2017 :- 3 -: SECOND ASSESSEE WAS ON A WINDMILL COST OF D6,92 ,00,000/-. THESE WINDMILLS WHERE ACQUIRED BY THE ASSESSEES FROM M/S . SUZLON ENERGY LIMITED. ASSESSEE HAD CLAIMED DEPRECIATION @80% BE ING THE RATE OF DEPRECIATION APPLICABLE TO WINDMILLS VIDE ITEM NUM BER (8) (XIII) OF SERIAL NUMBER III OF NEW APPENDIX I TO INCOME TAX RULES. LD. ASSESSING OFFICER WAS OF THE OPINION THAT WINDMILLS BEARING NO. KER 448 & 449 INSTALLED BY FIRST ASSESSEE AND BEARING NO. KER 429 & 440 INSTALLED BY SECOND ASSESSEE, THOUGH CONNECTED TO KERALA STATE ELECTRICITY BOARD (KSEB) GRID BEFORE 30.09.2010, CO MMERCIAL PRODUCTION HAD STARTED ONLY ON 23.10.2010. FOR CO MING TO THIS CONCLUSION LD. ASSESSING OFFICER RELIED ON THE RES PONSE GIVEN BY KSEB TO A COMMISSION ISSUED TO IT U/S. 131(1) (D) OF THE ACT. AS PER LD. ASSESSING OFFICER, KSEB HAD CONFIRMED THAT THOUGH W INDMILLS WERE INTER-CONNECTED TO THE KSEB GRID ON 17.07.2010, THE COMMERCIAL OPERATION STARTED ONLY ON 23.10.2010. FURTHER, AS PER LD. ASSESSING OFFICER INITIAL METER READING OF THE WINDMILLS WERE TAKEN ONLY ON 23.10.2010 BY THE KSEB. HE HELD THAT WINDMILLS COU LD BE CONSIDERED AS INSTALLED AND PUT TO USE ONLY ON THE DATE OF STA RTING COMMERCIAL OPERATION WHICH FELL AFTER 30.09.2010. ACCORDING TO HIM, THE WINDMILLS WERE USED FOR A PERIOD LESS THAN 180 DAY S AND BY VIRTUE OF SECOND PROVISO TO SEC. 32(1) OF THE ACT, DEPRECIATI ON THAT COULD BE ALLOWED WAS ONLY 50% OF THE NORMAL RATES. HE THUS RESTRICTED THE ITA NOS. 108 & 109/MDS/2017 :- 4 -: CLAIM OF DEPRECIATION TO 50% OF THE APPLICABLE RAT E OF 80% AND MADE DISALLOWANCES. 5. AGGRIEVED THE ASSESSEES MOVED IN APPEAL BEFORE LD. COMMISSIONER OF INCOME TAX (APPEALS). LD. COMMISSI ONER OF INCOME TAX (APPEALS) HELD THAT WINDMILLS WERE CONNECTED T O ELECTRICITY GRID ON 17.07.2010 AND POWER PURCHASE AGREEMENTS WITH KSEB WERE SIGNED ON 30.09.2010. ACCORDING TO HIM, WINDMILLS WHERE T HUS READY FOR USE AND HAD ALREADY STARTED GENERATING ELECTRICITY PRI OR TO 30.09.2010. HE THUS, HELD THAT ASSESSEES HAD PUT THE WINDMILLS TO USE FOR A PERIOD MORE THAN 180 DAYS AND HENCE ELIGIBLE FOR FULL DEPR ECIATION. 6. NOW BEFORE US, LD. DEPARTMENTAL REPRESENTATIVE STR ONGLY ASSAILING THE ORDER OF THE LD. COMMISSIONER OF INCO ME TAX (APPEALS) SUBMITTED THAT DATE OF START OF COMMERCIAL PRODUCTI ON ALONE COULD BE CONSIDERED AS THE DATE ON WHICH THE MACHINERY WERE PUT TO USE. ACCORDING TO HER, LD. COMMISSIONER OF INCOME TAX (A PPEALS) FELL IN ERROR IN HOLDING THAT ASSESSEE WAS ELIGIBLE FOR FU LL CLAIM OF DEPRECIATION. 7. PER CONTRA, LD. AUTHORISED REPRESENTATIVE SUPPORTIN G THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEA LS) SUBMITTED THAT SEC. 32 OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) DID NOT USE ITA NOS. 108 & 109/MDS/2017 :- 5 -: THE WORD COMMERCIAL PRODUCTION ANYWHERE. ACCORDING TO HIM, ONLY REQUIREMENT WAS THAT MACHINERY SHOULD BE PUT TO USE . 8. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSE D THE ORDERS OF THE AUTHORITIES BELOW. THERE IS NO DISP UTE THAT THE WINDMILLS WERE CONNECTED TO THE GRID ON 17.07.2010. THIS IS M ENTIONED BY THE LD. ASSESSING OFFICER IN THE ASSESSMENT ORDER ITSELF. H OWEVER, AS PER LD. ASSESSING OFFICER COMMERCIAL PRODUCTION HAD STARTED ONLY ON 23.10.2010. WHAT WE FIND IS THAT DURING THE INTERV ENING PERIOD BETWEEN 17.07.2010 TO 23.10.2010, THERE WAS PRODUCT ION OF ELECTRICITY. IT MAY BE TRUE THAT KSEB HAD TAKEN INITIAL METER RE ADING ON 23.10.2010. HOWEVER, THE INITIAL ENERGY METER READ ING REFLECTED BOTH IMPORT AND EXPORT OF ELECTRICITY OF WINDMILLS. IN OUR MINDS, THERE IS NO DOUBT THAT ELECTRICITY WAS GENERATED BY THE WINDMI LLS ON ITSCONNECTION TO THE GRID WHICH ADMITTEDLY HAPPENED ON 17.07.2010 . WHAT IS REQUIRED U/S. 32 OF THE ACT IS THAT AN ASSET SHOULD BE PUT TO USE FOR CLAIMING DEPRECIATION. THERE IS NO REQUIREMENT THAT ASSET SHOULD BE PUT TO USE FOR COMMERCIAL PRODUCTION. EVEN OTHERWIS E IN THE CASE OF ELECTRICITY, WHETHER GENERATED DURING TRIAL PERIOD OR GENERATED AFTER TRIAL RUN, THE PRODUCT REMAINED VERY SAME. IN THE CIRCUMSTANCES, WE ARE OF THE OPINION THAT THE LD. COMMISSIONER OF IN COME TAX (APPEALS) WAS JUSTIFIED IN TAKING A VIEW THAT THE WINDMILLS WERE PUT TO USE FOR A PERIOD MORE THAN 180 DAYS DURING THE RELEVANT PREVI OUS YEAR AND ITA NOS. 108 & 109/MDS/2017 :- 6 -: ALLOWING THE FULL CLAIM OF DEPRECIATION. WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDERS OF THE LD. COMMISSIONER O F INCOME TAX (APPEALS). GROUND 2 & 6 OF THE REVENUE STAND DISMI SSED. 9. VIDE ITS GROUND 3, 4, 5 & 7, REVENUE IS AGGRIEVED T HAT ELECTRICAL INSTALLATION FOR THE WINDMILL AND COST OF CIVIL WORKS FOR WINDMILL WERE CONSIDERED AS PART OF THE COST OF TH E WINDMILL AND ALLOWED DEPRECIATION AT THE RATES PRESCRIBED FOR W INDMILL. 10. LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT AS SESSEE HAD CONSIDERED EXPENSES INCURRED FOR TRANSFORMER / ELECTRICAL WORK OF THE WINDMILLS AND COST OF CIVIL WORKS INCURRED FOR INSTALLING THE WINDMILLS, AS PART OF WINDMILL FOR CLAIMING DEPRE CIATION . AS PER LD. DEPARTMENTAL REPRESENTATIVE, THERE WERE SEPARATE DE PRECIATION RATES FOR ELECTRICAL INSTALLATION WORK AND CIVIL WORKS, I N THE NEW APPENDIX I, PRESCRIBING THE DEPRECIATION RATES. AS PER LD. DEP ARTMENTAL REPRESENTATIVE FOR ELECTRICAL INSTALLATION WORK RA TE OF DEPRECIATION WAS ONLY 15% AND FOR CIVIL WORKS THE RATE OF DEPRECIA TION WAS ONLY 10%. CONTENTION OF THE LD. DEPARTMENTAL REPRESENTATIVE WAS THAT ASSESSEE COULD NOT CLAIM ENHANCED DEPRECIATION AVAILABLE TO WINDMILLS BY SHOWING SUCH ITEMS AS PART OF THE WINDMILLS. RELIA NCE WAS PLACED ON THE DECISION OF PUNE BENCH OF THE TRIBUNAL IN THE C ASE OF POONAWALA FINVEST & AGRO (P) LTD VS. ACIT (2008) 12 DTR 211. AS PER LD. ITA NOS. 108 & 109/MDS/2017 :- 7 -: DEPARTMENTAL REPRESENTATIVE, LD. COMMISSIONER OF IN COME TAX (APPEALS) FELL IN ERROR IN HOLDING THAT ELECTRICAL ITEMS AND CIVIL WORKS WERE PART OF THE WINDMILLS. RELIANCE WAS ALSO PLAC ED ON THE JUDGMENT OF JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. POPULAR BOREWELL SERVICE AND OTHERS, 194 ITR 12 . 11. PER CONTRA, LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT LD. COMMISSIONER OF INCOME TAX (APPEALS) HAD RELIED ON THE DECISION OF CO-ORDINATE BENCH IN THE CASE OF M/S. ASIAN HANDLOOMS VS. DCIT (ITA NO.2291/MDS/2008, DATED 20.11.2009) AND CORRECTLY HELD THAT CIVIL WORKS AND ELECTRICAL INSTALLATION OF THE WINDMILLS WERE ELIGIBLE FOR DEPRECIATION AT THE RATE PROVIDED FOR WINDMILLS. 12. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSE D THE ORDERS OF THE AUTHORITIES BELOW. LD. ASSESSING OFF ICER WHILE HOLDING THAT CIVIL WORKS AND ELECTRICAL INSTALLATION OF THE WINDMILLS COULD NOT BE GIVEN DEPRECIATION RATE SPECIFIED FOR THE WINDMILLS IN NEW APPENDIX I, HAD RELIED ON THE PUNE BENCH IN THE CASE OF POONAWALA FINVEST & AGRO (P) LTD (SUPRA) . HOWEVER, LD. COMMISSIONER OF INCOME TAX (APPEALS) HAD CHOSEN TO FOLLOW THE DECISION OF CO-ORDINATE BE NCH IN THE CASE OF M/S. ASIAN HANDLOOMS (SUPRA) WHEREIN IT WAS HELD AS UNDER:- 'WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED TH E ORDER. THERE CAN BE NO DISPUTE THAT A WIND MILL IS AN APPARATUS THAT HARNESSES WIND POWER, FOR A VARIETY OF USES LIKE PUMPING WATER, DRIVING OF SAW MILL. GRIND ING ITA NOS. 108 & 109/MDS/2017 :- 8 -: CONE AND/OR DRIVING ELECTRICAL TURBINES. A TYPICAL WIND MILL, AS INSTALLED BY THE ASSESSEE, WHICH IS OF SUZ LON CORPORATION. WOULD CONSIST OF A SPECIALIZED FOUNDATION, ON WHICH THE WIND BLADES ARE ATTACHED THROUGH A POST. THE BLADES CONNECTED IN THE TOP IS A REVOLVING APPARATUS TO WHICH DIFFERENT NUMBERS OF ARMS ARE ATTACHED. WHEN IT IS USED FOR PRODUCING ELECTRICITY , THESE ARE CALLED WIND TURBINES AND SERVES AS A SIGNIFICANT SOURCE OF ELECTRICAL ENERGY. BEING A NONCONVENTIONAL SOURCE OF ENERGY WITH RENEWABLE INPUTS AND WHICH IS NATURE FRIENDLY WORLD OVER, WINDMILLS HAVE BEEN GIV EN SPECIAL STATUS. IMPORTANCE AND ENCOURAGEMENT. THERE IS NO DOUBT THAT FOR A WINDMILL TO BE SUSTAINABLE IT H AS TO BE ERECTED IN A PLACE WHERE SUSTAINABLE WIND FLOW IS AVAILABLE WITH A LAND SUITABLE TO A FOUNDATION ON WHICH, A STRUCTURE STRONG ENOUGH TO WITHSTAND A POWERFUL THRUST OF AIR AT ANY POINT OF TIME. SPECIALIZED FOUNDATION AN D SPECIALIZED AREA SPECIFICALLY EAR-MARKED TO FACILIT ATE A FLOW OF WIND WITHOUT HINDRANCE, AND SPECIALIZED ELE CTRICAL FITTINGS AND HIGH TENSION LINES ARE ALL BASIC REQUI REMENTS FOR A WIND MILL PLANT. NONE OF THESE REQUIREMENTS INCLUDING THE PREMISES CAN BE SEEN DETACHED FROM WH AT IS CALLED A 'WIND MILL' SINCE A WIND MILL TO WORK THESE ARE ESSENTIAL. ALL THESE ARE NECESSARY INPUTS GOING INT O ULTIMATE COST OF SUCH WIND MILL. THE FOUNDATION STR UCTURE OR THE SPECIALLY DEMARCATED APPURTENANT THERETO CAN NOT BE CONSIDERED AS EQUIVALENT TO A HOTEL OR A CINEMA BUILDING WHICH IS ADJUNCT TO CARRYING ON A HOTEL BU SINESS OR THEATRE BUSINESS. ON THE OTHER HAND THESE CAN BE DEEMED ONLY A PART OF A WINDMILL FOR HARNESSING WIND ENERGY. IN COMING TO THIS CONCLUSION WE ARE FORTIFI ED BY DECISION OF HON'BLE KARNATAKA HIGH COURT IN THE CAS E OF CIT V KAMATAKA POWER CORPORATION (247 ITR 268) WHERE IT WAS HELD THAT WHETHER THE BUILDING CAN BE TREATED AS A PLANT OR NOT. IT WAS A QUESTION OF FAC T AND WHEN IT IS FOUND AS A FACT THAT THE BUILDING HAS BE EN SO PLANNED AND CONSTRUCTED AS TO SERVE THE ASSESSEE'S SPECIAL TECHNICAL REQUIREMENT, IT WOULD QUALIFY TO BE TREATED AS A PLANT. IN OUR OPINION, THE EXPENSES RE LATING TO THE LAND AND FOUNDATION SPECIALLY INCURRED WITH A VIEW TO SERVE THE TECHNICAL REQUIREMENTS WOULD ALSO BECO ME A PART OF THE PLANT IN A CASE THAT OF A WIND MILL SIMILARLY, IN THE CASE OF CIT V. HERDILIA CHEMICALS (216 ITR 742) , HON'BLE JURISDICTIONAL HIGH COURT HELD THAT HUGE LA ND MEASURING 360 ACRES TAKEN ON LEASE FOR THE PURPOSE OF ITA NOS. 108 & 109/MDS/2017 :- 9 -: ERECTION OF PLANT AND MACHINERY WHERE THE ENTIRE FA CTORY WAS TO BE CONSTRUCTED IN THIS LAND AND EXPENSES INCURRED FOR THE FOUNDATION MEANT FOR FIXING THE MACHINERY AND FOR THE PURPOSE OF LEVELING THE LAND, FORMED A PART OF THE COST OF THE PLANT. IF WE LOOK AT APPENDIX I TO THE INCOME-TAX RULES, PRESCRIBING THE RATES OF DEPRECIATION, IT CAN BE SEEN THAT LEGISLATURE HAS GIVEN HIGHER DEPRECIATION RATE OF 80% ON ANTI-POLLU TION DEVICES, ENERGY SAVING AND RENEWABLE ENERGY DEVICES . APPARENTLY, THESE HIGHER RATE HAVE BEEN GIVEN NOT S OLELY FOR OFF-SETTING THE IMPAIRMENT IN VALUE OF SUCH ASSETS ON ACCOUNT OF USE BUT ALSO TO ENCOURAGE SUCH ENTREPRENEUAL VENTURES WHICH RESULTS IN ENERGY SAVI NGS OR UTILIZATION OF RENEWABLE ENERGY SOURCES, OR PREV ENTION OF POLLUTION. IF A VERY LIMITED MEANING IS GIVEN TO THESE TERMS USED IN APPENDIX I OF THE I. T RULES, IT WOULD DEFEAT THE VERY PURPOSE FOR WHICH SUCH ENHANCED DEPRECIATION WAS PROVIDED FOR. THEREFORE, IN OUR OP INION, ASSESSEE'S CLAIM FOR DEPRECIATION SHOULD NOT BE RESTRICTED IN THE MANNER MADE BY THE ASSESSING OFFI CER. THEREFORE, DISALLOWANCE OF R S.1,17,00,000/- 13 LAKHS, RS.23,51,576/- AND RS.5,73,824/- ON ACCOUNT OF DEPRECIATION CLAIM STANDS CANCELLED. GROUND NOS. 5 TO 19 OF THE ASSESSEE STANDS ALLOWED.' EVEN IF WE CONSIDER THAT PUNE BENCH HAD TAKEN A DIF FERENT VIEW WITH REGARD TO DEPRECIATION RATES APPLICABLE FOR CIVIL WORKS AND ELECTRICAL INSTALLATION OF WINDMILLS, WE CANNOT FIND FAULT WI TH LD. COMMISSIONER OF INCOME TAX (APPEALS) FOLLOWING THE DECISION OF A C O-ORDINATE BENCH WHICH WENT IN FAVOR OF THE ASSESSEE. THAT APART, TH E JUDGMENT OF JURISDICTIONAL HIGH COURT IN THE CASE OF POPULAR BOREWELL SERVICE AND OTHERS (SUPRA) RELIED ON BY THE LD. DEPARTMENTAL REPRESENTATIVE WAS IN RELATION TO DRILLING RIGS, AIR COMPRESSORS AND J ACK HAMMERS WHICH ARE NOT AKIN TO CIVIL WORKS AND ELECTRICAL INSTALLATION NECESSARY FOR A ITA NOS. 108 & 109/MDS/2017 :- 10 -: WINDMILL. WHEN SPECIFIED CIVIL STRUCTURES AND SPECI FIED ELECTRICAL INSTALLATION WORK ARE NECESSARY FOR INSTALLATION OF A WINDMILL, IN OUR OPINION SUCH ITEMS CANNOT BE CONSIDERED AS INDEPE NDENT PIECES OF MACHINERY OR PLANT OR BUILDING. IN THESE CIRCUMSTAN CES, WE ARE OF THE OPINION THAT LD. COMMISSIONER OF INCOME TAX (APPEAL S) WAS JUSTIFIED IN ALLOWING THE CLAIM OF THE ASSESSEE. GROUNDS 3, 4, 5 & 7 OF THE REVENUE STAND DISMISSED. 13. IN THE RESULT, THE APPEALS OF THE REVENUE STAND DI SMISSED. ORDER PRONOUNCED ON WEDNESDAY, THE 31 ST DAY OF MAY, 2017, AT CHENNAI. SD/- ( . ) (G. PAVAN KUMAR) $ %& / JUDICIAL MEMBER SD/- ( . ) (ABRAHAM P. GEORGE) ' %& / ACCOUNTANT MEMBER +$ / CHENNAI , / DATED:31ST MAY, 2017. KV - '%./ 0/% / COPY TO: 1 . / APPELLANT 3. 1% () / CIT(A) 5. / 45 '%6 / DR 2. '# / RESPONDENT 4. 1% / CIT 6. 57 8$ / GF