NCL Energy Ltd. (Presently NCL Industries Ltd), Hyd, Hyderabad V. ACIT, Central Circle-6, Hyd, Hyderabad

ITA 1224/HYD/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 2511 (ITAT-HYDERABAD)
• Duration Of Justice: 7 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-05-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 08-05-2017
• Assessment Year: 2003-2004
• Appeal Filed On: 19-09-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K J RAO
• Assessee Lawyers: S RAMA RAO
• Keywords: Depreciation; Search and seizure
• Section: 143(3); 153A; 154

Judgement Text

ITA NO 1224 OF 20 16 NCL ENERGY LTD HYDERABAD PAGE 1 OF 7 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD SMC(B) BENCH, HYDERABAD BEFORE SMT.ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO.1224/HYD/2016 (ASSESSMENT YEAR: 2003-04) NCL ENERGY LTD (PRESENTLY NCL INDUSTRIES LTD) HYDERABAD PAN: AABCN 1984 G VS ASSTT. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 6 HYDERABAD FOR ASSESSEE : SHRI S. RAMA RAO FOR REVENUE : SHRI K.J. RAO, DR O R D E R THIS IS ASSESSEES APPEAL FOR THE A.Y 2003-04 AGAIN ST THE ORDER OF THE CIT (A)-4 HYDERABAD DATED 24.06.20 16. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN GENERATION OF ELECTRICITY, FILED ITS RETURN OF I NCOME ADMITTING LOSS OF RS.4,86,48,199. A SEARCH AND SEIZURE OPERAT ION WAS CONDUCTED AND IN RESPONSE TO NOTICE U/S 153A, THE A SSESSEE FILED RETURN OF INCOME ADMITTING LOSS OF RS.7,97,85,980 ( INCLUDING DEPRECIATION OF RS.4,13,67,829). ORIGINALLY THE ASS ESSMENT WAS COMPLETED U/S 143(3) R.W.S. 153A OF THE ACT DETERMI NING THE LOSS AT RS.6,00,59,191 (INCLUDING DEPRECIATION LOSS OF R S.4,13,67,829. DATE OF HEARING: 09.05.2017 DATE OF PRONOUNCEMENT: 12 . 0 5 .2017 ITA NO 1224 OF 20 16 NCL ENERGY LTD HYDERABAD PAGE 2 OF 7 3. THE AO OBSERVED THAT THE ASSESSEE HAS NOT GENERA TED ANY POWER DURING THE YEAR BUT CLAIMED DEPRECIATION ON THE ASSETS LIKE CANALS, POWER HOUSE AND OTHER BUILDINGS, PLANT & MACHINERY AND TRANSMISSION LINES AMOUNTING TO RS.4,09,30,784. AS THE ASSETS WERE NOT PUT TO USE BY THE ASSESSEE, THE DEP RECIATION CLAIMED ON THESE ASSETS IS NOT ALLOWABLE AND AS THI S MISTAKE IS APPARENT FROM THE NOTICE ISSUED BY THE AO U/S 154, THE SAME WAS PROPOSED TO BE DISALLOWED. THEREAFTER THE AO COMPLE TED THE PROCEEDINGS U/S 154 CONCLUDING THAT SINCE THE ASSET S OF THE ASSESSEE WERE NOT PUT TO USE FOR BUSINESS AT ANY PO INT OF TIME DURING THE FINANCIAL YEAR 2002-03 RELEVANT TO THE A .Y 2003-04, THE CLAIM OF DEPRECIATION ON THE ABOVE ASSETS IS NOT AL LOWABLE AND ACCORDINGLY, THE DEPRECIATION ALLOWED AT RS.4,13,67 ,829 IN THE ASSESSMENT ORDER U/S 143(3) R.W.S. 153A WAS MODIFIE D BY DISALLOWING DEPRECIATION OF RS.4,09,30,784 ON CANAL S, POWER HOUSE, PLANT AND MACHINERY AND TRANSMISSION LINES. 4. THE CIT (A) HELD THAT THE AO HAS RECTIFIED THE M ISTAKE MADE IN DISALLOWING THE DEPRECIATION AND THE CIT (A ) DISMISSED THE APPEAL CONFIRMING THE ORDER OF THE AO. ITA NO 1224 OF 20 16 NCL ENERGY LTD HYDERABAD PAGE 3 OF 7 5. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US A ND RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. THE ORDER OF THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) IS ERRONEOUS BOTH ON FACTS AND IN LAW. 2. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN DETERMINING THE APPEAL WITHOUT PROVIDING PROPER OPPORTUNITY. 3. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN CONFIRMING THE ORDER PASSED U/S 154 OF THE LT. ACT WITHOUT CONSIDERING THE FACT THAT SUCH ISSUES CANNOT BE CONSIDERED WHILE PASSING ORDER U / S 154 OF THE LT. ACT. 4. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) OUGHT TO HAVE SEEN THAT THERE IS NO MISTAKE APPARENT FROM RECORD WHICH CAN BE RECTIFIED II] 154 OF THE LT ACT AND, THEREFORE, TH E ORDER PASSED IX] 154 IS NOT VALID. 5. THE LEARNED COMMISSIONER OF INCOME- TAX(APPEALS) ERRED IN CONFIRMING THE ASSESSING OFFICER'S OBSERVATION THAT THE POWER GENERATING UNIT DID NOT FUNCTION DURING THE PREVIOUS YEAR AND THAT THEREFORE, DEPRECATION IS NOT ALLOWABLE. 6. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) OUGHT TO HAVE SEEN THAT THE ASSESSING OFFICER SHOULD NOT HAVE DISALLOWED DEPRECIATION ON THE GROUND THAT THE POWER GENERATING UNIT DID NOT FUNCTION DURING THE YEAR. 7. ANY OTHER GROUND THAT MAY BE URGED AT THE TIME OF HEARING. 6. I HEARD BOTH THE PARTIES. THE AO ISSUED NOTICE U /S 154 DT. 22.01.2009 REQUIRING THE ASSESSEE TO EXPLAIN AS TO WHY ITA NO 1224 OF 20 16 NCL ENERGY LTD HYDERABAD PAGE 4 OF 7 DEPRECIATION CLAIMED BY THE ASSESSEE SHOULD NOT BE DISALLOWED. IT WAS THE CONTENTION OF THE AO THAT DURING THE PREVIO US YEAR UNDER CONSIDERATION, THERE WAS NO GENERATION OF POWER. TH E ASSESSEE IN RESPONSE TO THE NOTICE FILED A DETAILED EXPLANATION MENTIONED THAT IT ACTUALLY GENERATED POWER. HOWEVER FOR THE PURPOS E OF GENERATION OF POWER, IT HAD TO IMPORT POWER FROM APTRANSCO AND THE POWER GENERATED WAS LESSER THAN THE POWER IMPORTED. THERE FORE, THE NET RESULT IS NEGATIVE. HENCE THE ASSESSEE DID NOT RECO RD ANY PRODUCTION OF POWER GENERATED. THE AO JUST RELIED O N THE NOTES TO ACCOUNTS WHEREIN IT IS MENTIONED THAT THE UNIT WAS SHUT DOWN DURING THE YEAR AS NO WATER COULD BE RELEASED INTO SRISAILAM RIGHT MAIN CANAL. THE AO DID NOT CONSIDER THE EXPLANATION AND THEREFORE, OBSERVED THAT THERE IS AN ERROR IN THE A SSESSMENT ORDER. 7. THE HON'BLE DELHI HIGH COURT IN THE CASE OF CAPI TAL BUS SERVICE (P) LTD VS. CIT REPORTED IN 123 ITR 404 HELD AS FOLLOWS: HELD, THAT THE EXPRESSION USED FOR THE PURPOSE OF THE BUSINESS (USED IN S 10(2)(IV) R.W.S 10(2)(VI) OF THE I.T. ACT, 1922) COMPREHENDED CASES WHERE THE MACHINERY WAS KEPT READY BY THE OWNER FOR ITS USE IN HIS BUSINESS AND THE FAILURE TO USE IT ACTIVELY IN THE BUSINESS WAS NOT ON ACCOUNT OF ITS INCAPACITY FOR BEING USED FOR THAT PURPOSE OR ITS NON-AVAILABILITY. AND THE LANGUAGE USED IN RULE 8 OF INDIAN I.T. RULES, ITA NO 1224 OF 20 16 NCL ENERGY LTD HYDERABAD PAGE 5 OF 7 1922, WAS NOT INCONSISTENT WITH THIS INTERPRETATION. THE FOUR BUSES WERE ADMITTEDLY IN WORKING ORDER AND THE ASSESSEE WAS KEEPING THEM READY FOR BEING OPERATED IF AND WHEN SOME TOURIST CONTRACT MATERIALIZED. THEY WERE NOT ACTUALLY RUN ON THE ROAD NOT BECAUSE THEY WERE UNDER REPAIR OR WERE UNFIT FOR USE FOR ONE REASON OR THE OTHER, BUT ONLY BECAUSE THERE WERE NOT ENOUGH CONTRACTS DURING THE YEAR TO PLY THE BUSES FOR MORE THAN 30 DAYS EACH. THIS DID NOT MEAN THAT SO FAR AS THE ASSESSEE WAS CONCERNED IT DID NOT EMPLOY THE TRUCKS FOR THE PURPOSES OF BUSINESS. THEY WERE KEPT READY FOR OPERATION AND THEY WERE THERE ONLY IN THE BUSINESS AND FOR USE IN THAT BUSINESS. THE BUSES WERE USED FOR THE PURPOSES OF THE BUSINESS THROUGHOUT THE YEAR THOUGH THEY WERE NOT ACTUALLY PLIED ON THE ROADS FOR MORE THAN 30 DAYS AND THE ASSESSEE WAS ENTITLED TO GRANT OF NORMAL DEPRECIATION IN RESPECT OF THE FOUR BUSES. THE ALLOWANCES FOR NORMAL DEPRECIATION DOES NOT DEPEND UPON THE ACTUAL WORKING OF THE MACHINERY; IT IS SUFFICIENT IF THE MACHINERY IN QUESTION IS EMPLOYED BY THE ASSESSEE FOR THE PURPOSES OF THE BUSINESS AND FOR NO OTHER BUSINESS AND IT IS KEPT BY HIM READY FOR ACTUAL USE. 8. THE LEARNED COUNSEL FOR THE ASSESSEE ALSO BROUGH T TO OUR NOTICE PAGE 21 OF THE PAPER BOOK WHEREIN FOR TH E IMMEDIATELY PRECEDING YEAR, THE ASSESSEE RECEIVED RS.41703.44 C RORES ON SALE OF POWER AND ALSO POINTED OUT TO PAGE NO.12 WHEREIN IT IS STATED AS FOLLOWS: YOUR DIRECTORS REGRET TO REPORT THAT DURING THE YEAR UNDER REVIEW, NO WATER WAS RELEASED BY THE AUTHORITIES FROM THE SRISAILAM RESERVOIR DUE TO ITA NO 1224 OF 20 16 NCL ENERGY LTD HYDERABAD PAGE 6 OF 7 THE DROUGHT CONDITIONS AND INADEQUATE WATER LEVELS. AS A RESULT, THERE WERE NO OPERATIONS OF THE POWER GENERATING PLANTS AT POTIREDDIPADU. SLI1CC THE OPERATIONS OF THE PLANT ARE ENTIRELY DEPENDENT ON THE RELEASE OF WATERS, THE CIRCUMSTANCES WERE BEYOND THE CONTROL OF YOUR BOARD. DUE TO THE FAILURE OF MONSOON THIS YEAR AND SCANT RAINFALL RECEIVED IN THE CATCHMENT AREAS OF THE RIVER KRISHNA, THE SRISAILAM RESERVOIR DID NOT RECEIVE ANY SIGNIFICANT INFLOWS OF WATER INTO IT. THE WATER LEVEL IN THE RESERVOIR WAS SO LOW THAT NO WATER COULD BE RELEASED INTO SRISAILAM RIGHT MAIN CANAL THIS ENTIRE SEASON FORCING US TO SHUT DOWN THE GENERATING UNITS AT OUR MINI HYDEL PROJECT WITHOUT ANY POWER GENERATION. YOUR DIRECTORS TOOK ALL THE STEPS TO CUT DOWN THE EXPENSES. PERSONNEL COSTS WERE REDUCED CONSIDERABLY BY RE-DEPLOYING THE EMPLOYEES TO OTHER COMPANIES. FURTHER, SEVERAL AUSTERITY MEASURES WERE UNDERTAKEN TO ENSURE THAT THE LOSSES DUE TO THE LACK OF REVENUES WERE CONTAINED. 9. I FIND THAT THE AO HAS COMPLETED THE ASSESSMENT U/S 153A OF THE ACT AND HENCE ALL THE FACTS WERE BEFORE HIM. THE POWER GENERATING UNIT DID NOT FUNCTION DURING THE P REVIOUS YEAR. HOWEVER, THAT WOULD NOT ITSELF JUSTIFY THE ORDER PA SSED BY THE AO U/S 154 OF THE I.T. ACT. SINCE THERE IS NO MISTAKE APPARENT ON RECORD AND ALSO RELYING ON THE RATIO OF THE DECISIO N OF THE DELHI HIGH COURT REPORTED IN 123 ITR 404 I HOLD THAT THE ORDER U/S 154 PASSED BY THE AO IS NOT CORRECT AND ALLOW THE ASSES SEES APPEAL. ITA NO 1224 OF 20 16 NCL ENERGY LTD HYDERABAD PAGE 7 OF 7 10. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 12 TH MAY, 2017. SD/- (ASHA VIJAYARAGHAVAN) JUDICIAL MEMBER HYDERABAD, DATED 12 TH MAY, 2017. VINODAN/SPS COPY TO: 1 SHRI S.RAMA RAO, ADVOCATE, FLAT NO.102, SHRIYA'S ELEGANCE, 3-6- 643, STREET NO.9, HIMAYATNAGAR, HYDERABAD 500029 2 ASSTT. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE -6, AAYAKAR BHAVAN, BASHEERBAGH, HYDERABAD 3 CIT (A)-4 HYDERABAD 4 PR. CIT 4 HYDERABAD 5 THE DR, ITAT HYDERABAD 6 GUARD FILE