M/s. Navrang Dye Works, Karur V. ACIT, Trichy

ITA 123/CHNY/2013

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 2375 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-04-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2005-2006
• Appeal Filed On: 24-01-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: N QUADIR HOSEYN
• Keywords: Depreciation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH CHENNAI BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI V. DURGA RAO, JUDICIAL MEMBER ------- ITA NO. 123/MDS/ 2013 ASSESSMENT YEAR : 2005-06 M/S. NAVRANG DYE WORKS, 6/63, A/3, NARIKATTIYUR, S. VALLALAPATTY POST, KARUR-639 004 V. THE ASST. COMMISSIONER OF INCOME-TAX, CIRCLE-II, TRICHY. (PAN : AAAFN4730C) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI N. QUADIR HOSEYN, ADVOCATE RESPONDENT BY : SHRI GURU BASHYAM, JCIT DATE OF HEARING : 01-04-2013 DATE OF PRONOUNCEMENT : 01-04- 2013 O R D E R PER V. DURGA RAO, JUDICIAL MEMBER : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST T HE ORDER OF THE COMMISSIONER OF INCOME-TAX, TIRUCHIRAPALLI D ATED 08-11- 2012 FOR THE ASSESSMENT YEAR 2005-06. 2. GROUND NO.1 IN RESPECT OF DYEING WAGES AND BUNDL ING CHARGES AMOUNTING TO ` 77,430/- WAS NOT PRESSED. HENCE THIS GROUND IS DISMISSED AS NOT PRESSED. ITA NO.123/MDS/2013 : 2 : 3. THE NEXT GROUND OF APPEAL RELATES TO THE CLAIM O F DEPRECIATION ON WINDMILL. FACTS IN BRIEF ARE THAT THE ASSESSEE- FIRM FILED A RETURN DECLARING LOSS OF ` 16,83,510/- ON 6-12-2005. THE ASSESSMENT ORDER WAS PASSED UNDER SECTION 143(3 ) ON 3- 12-2007 DETERMINING THE TOTAL INCOME OF THE ASSESSE E AT ` 23,82,080/- DISALLOWING THE DEPRECIATION CLAIMED BY THE ASSESSEE ON WIND MILL ON THE GROUND THAT WIND MILL WAS NOT PUT TO USE. ON APPEAL THE CIT(APPEALS) CONFIRMED THE O RDER OF THE ASSESSING OFFICER. ON FURTHER APPEAL, THE TRIBUNAL VIDE ITS ORDER DATED 26-06-2009 SET ASIDE THE ISSUE TO THE F ILE OF THE ASSESSING OFFICER TO DECIDE THE SAME AFRESH. IN VI EW OF THE DIRECTIONS OF THE TRIBUNAL, THE ASSESSING OFFICER I SSUED NOTICE U/S 143(2) OF THE INCOME TAX ACT, 1961 ('THE ACT' F OR SHORT) READ WITH SEC. 254 OF THE ACT AND PASSED AN ASSESSM ENT ORDER. IN THE ASSESSMENT ORDER THE ASSESSING OFFIC ER HELD THAT THE ASSESSEES CLAIM OF DEPRECIATION ON WIND MILLS WAS VERIFIED WITH REFERENCE TO THE EVIDENCE GATHERED FROM THE SUPERINTENDING ENGINEER, UDUMALPET ELECTRICITY DIST RIBUTION CIRCLE, UDUMALPET. IT WAS SEEN FROM THE LETTER OF THE OF THE SAID ENGINEER DATED 22-11-2010 THAT THE ASSESSEE FI RM HAD COMMISSIONED THE WIND FARM HTSC NO.686 ON 26.03.200 5 UNDER TEMPORARY TIE UP FOR TEST AND TRIAL RUN PURPO SE ONLY AS ITA NO.123/MDS/2013 : 3 : PER THE CHIEF ENGINEER/NON CONVENTIONAL ENERGY SOURCES/CHENNAI MEMO NO. CE/NCES AND R & DGM/EE/WCB/AEE/F CLIENTS OF M/S. PIONEER WINCON/D.247/05, DATED 21-03-2005 AND THE SAME WAS DISCONNECTED ON 2-4-2005. HE FURTHER OBSERVED THAT THE UNDISPUTED FACT THAT EMERGES FROM THE ABOVE IS THAT THE ASSESSEE FIRM HAD COMMISSIONED THE WIND FAR HTSC NO .686 ON 26-03-2005 UNDER TEMPORARY TIE UP FOR TEST AND T RIAL RUN PURPOSE ONLY AND WAS SUBSEQUENTLY DISCONNECTED ON 2 .4.2005. DURING THE TRIAL RUN IT PRODUCED A MINISCULE PRODUC TION OF 0.14 KVAH OF POWER AND THAT PERMANENT CONNECTION WAS GIV EN ON 12-08-2005 FOR REGULAR COMMERCIAL GENERATION OF POW ER. THE ASSESSING OFFICER OBSERVED THAT DURING THE TRIAL RU N MACHINERIES HAVE NOT BEEN PUT TO USE AND THEREFORE DEPRECIATION CANNOT BE ALLOWED AND SUCH EXPENDITURE INCURRED FOR TRIAL RUN CAN BE CAPITALIZED AT PLINTH AREA RAT ES WITH EXPENDITURE INCURRED FOR INSTALLATION OF MACHINERIE S. THE ASSESSING OFFICER FURTHER OBSERVED THAT DEPRECIATIO N ON PLANT AND MACHINERY CAN BE ALLOWED IF COMMERCIAL PRODUCTI ON STARTED DURING THE YEAR FOLLOWING THE TRIAL PRODUCT ION. ACCORDINGLY, THE ASSESSING OFFICER AGAIN DISALLOWED DEPRECIATION ON WIND MILL FOR THE ASSESSMENT YEAR 2 005-06. ITA NO.123/MDS/2013 : 4 : 4. ON BEING AGGRIEVED, THE ASSESSEE CARRIED THE MAT TER BEFORE THE CIT(APPEALS). BEFORE THE CIT(APPEALS) I T WAS SUBMITTED THAT THE ASSESSEE HAS CONDUCTED TRIAL RU N AND PRODUCED 0.14 KVA H POWER AND THEREFORE THE ASSESSE E IS ENTITLED FOR DEPRECIATION. THE CIT(APPEALS) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE OBSERVED AS UNDER : 8. AS FAR AS DISALLOWANCE OF CLAIM OF DEPRECIATION ON WIND MILL IT WAS POINTED OUT BY THE ASSESSING OFFIC ER IN HIS ASSESSMENT ORDER THE WIND MILL WAS NOT PUT TO USE A S IT WAS NOT CONNECTED TO THE GRID FOR POWER GENERATION. THE ASSESSING OFFICER HAS ALSO VERIFIED THE METER READI NG WHICH SHOWED NON GENERATION OF ELECTRICITY UPTO 02-04-200 5. AS THE WIND MILL WAS NOT CONNECTED TO THE GRID, IT HAS NOT GENERATED ANY ELECTRICITY. THIS CAN BE AMPLY CLEAR FROM THE APPELLANTS OWN SUBMISSION THAT THE APPELLANT ENTER ED INTO AN AGREEMENT ONLY ON 23.03.2005 WITH TNEB FOR SUPPL Y OF POWER GENERATED FROM THE WIND MILL. TNEB CONNECTING THE WIND MILL KUNDAMDAM LINE FEEDER ON 26.03.2005 IS MO ST UNLIKELY AS IT HAS BEEN DISCONNECTED ON 02.04.2005 FOR TECHNICAL REASONS. THEREFORE WITHIN A SHORT SPAN O F ONE DAY OF ENTERING INTO AN AGREEMENT WITH TNEB THE APP ELLANT COULD NOT HAVE COMMENCED ANY PRODUCTION FROM 26.03.2005 TO 31.03.2005. AT THE MOST A TRIAL RUN MIGHT HAVE RUN WITHOUT ANY ACTUAL GENERATION OF POWER. E VEN THE LETTER FILED BY THE APPELLANT FROM ASSISTANT ENGINE ER, O & M KUNDAMDAM, THAT DUE TO NON AVAILABILITY OF GRID, TH E WIND MILL GENERATOR HAS BEEN DISCONNECTED MAY BE AFTER A TEST RUN. THE AUTHORISED REPRESENTATIVE OF THE APPELLAN T FAILED TO PRODUCE ANY CONCRETE PROOF IN THIS REGARD THAT D URING THIS SHORT SPAN OF 4 OR 5 DAYS THAT THE WIND MILL EXPORT ED 0.14 KVAH POWER INTO THE GRID. THE NON GENERATION OF PO WER OF ITA NO.123/MDS/2013 : 5 : THE WIND MILL WAS PROVED FROM THE VERIFICATION OF T HE ASSESSING OFFICER IN HIS ENQUIRY WITH THE ACCOUNTS OFFICER, GOLDLINE FEEDER, TNEB, WHEREIN THE METER READING CA RD FURNISHED BY GOLDLINE FEEDER OFFICIAL SHOWED THAT T HERE WAS GENERATION OF POWER ONLY FROM 112.08.2005. THEREFO RE, ONE CANNOT PLACE ANY RELIANCE ON THE VERSION OF THE AUTHORISED REPRESENTATIVE OF THE APPELLANT THAT THE WINDMILL GENERATOR COMMENCED PRODUCTION FROM 26.03.2005 ONWARDS. AS THE ASSESSING OFFICER WAS A BLE TO PROVE THAT THE ACTUAL GENERATION OF WINDMILL POWER COMMENCED FROM 12.08.2005 HE IS JUSTIFIED IN DENYIN G THE CLAIM OF DEPRECIATION BY DISALLOWING THE SAME AT ` 39,88,160 AND THE ACTION OF THE ASSESSING OFFICER I S HEREBY CONFIRMED. 5. ON BEING AGGRIEVED, THE ASSESSEE HAS CARRIED THE MATTER BEFORE THE TRIBUNAL. THE LEARNED COUNSEL FOR THE A SSESSEE SUBMITTED THAT THE ASSESSEE FIRM HAD COMMISSIONED T HE WIND FARM HTSC NO. 686 ON 26.3.2005 UNDER TEMPORARY TIE UP FOR TEST AND TRIAL RUN PURPOSE ONLY AND WAS SUBSEQUENTL Y DISCONNECTED ON 2-4-2005 AND THAT DURING TRIAL RUN IT PRODUCED A MINISCULE PRODUCTION OF 0.14 KVAH OF POWER AND TH AT PERMANENT CONNECTION WAS GIVEN ON 12-8-2005 FOR REG ULAR COMMERCIAL GENERATION OF POWER. HE SUBMITTED THAT THE ASSESSEE IS ELIGIBLE FOR DEPRECIATION EVEN IF THE P LANT AND MACHINERY IS USED FOR TRIAL PRODUCTION. FOR THAT H E RELIED ON THE ITA NO.123/MDS/2013 : 6 : DECISION OF THE HONBLE ALLAHABAD HIGH COURT IN THE CASE OF MENTHA ALLIED PRODUCTS (326 ITR 297) (ALL.). 6. ON THE OTHER HAND, THE LEARNED DR SUBMITTED THAT THE ASSESSEE STARTED WINDMILL POWER GENERATION IN THE F IRST YEAR AND IF THE ASSESSEE GENERATES POWER CONTINUOUSLY FO R THE ENTIRE YEAR THEN ONLY IT IS ELIGIBLE FOR DEPRECIATI ON AND NOT OTHERWISE. 7. WE HAVE HEARD BOTH THE SIDES, PERUSED THE RECORD S AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. I N THE FIRST ROUND OF LITIGATION THE TRIBUNAL HAD REMITTED THE I SSUE BACK TO THE FILE OF THE ASSESSING OFFICER TO DECIDE THE SAM E AFRESH. IN THE LIGHT OF THE DIRECTIONS GIVEN BY THE TRIBUNAL, THE ASSESSING OFFICER CONSIDERED THE ENTIRE ISSUE AND PASSED AN A SSESSMENT ORDER DATED 23.12.2010. IN THE ASSESSMENT ORDER THE ASSESSING OFFICER OBSERVED AS UNDER : IT IS SEEN FROM THE LETTER OF THE LATTER DATED 22- 11-2010 THAT THE ASSESSEE FIRM HAD COMMISSIONED THE WIND FARM HTSC NO. 686 ON 26.03.2005 UNDER TEMPORARY TIE UP FOR TEST AND TRIAL RUN PURPOSE ONLY AS PER THE CHIE F ENGINEER/NON-CONVENTIONAL ENERGY SOURCES/CHENNAI ME MO NO. CE/NCES AND R & DGM/EE/WCB/AEE/F CLIENTS OF M/S . PIONEER WINCON/D.247/05, DATED 21-03-2005 AND THE S AME WAS DISCONNECTED ON 2-4-2005. IT WAS ALSO INFORMED THAT THE ABOVE WINDMILL FARM NO. 686 1 X 250 KW HAS SUBSEQUE NTLY BEEN RECONNECTED ON 12-08-2005 AS PERMANENT TIE UP FOR COMMERCIAL GENERATION OF POWER. ITA NO.123/MDS/2013 : 7 : * * * * * * * * * * * * * * * * * * 3. UNDISPUTABLE FACT THAT EMERGES FROM THE ABOVE IS THAT THE ASSESSEE FIRM HAD COMMISSIONED THE WIND FARM HT SC NO. 686 ON 26-03-2005 UNDER TEMPORARY TIE U8P FOR T EST AND TRIAL RUN PURPOSE ONLY AND WAS SUBSEQUENTLY DISCONNECTED ON 204.2005 THAT DURING TRIAL RUN IT P RODUCED A MINISCULE PRODUCTION OF 0./14 KVAH OF POWER AND THA T PERMANENT CONNECTION WAS GIVEN ON 12-08-2005 FOR RE GULAR COMMERCIAL GENERATION OF POWER. HOWEVER, THE ASSESSING OFFICER DID NOT ALLOW THE DE PRECIATION. ON APPEAL, THE CIT(APPEALS) CONFIRMED THE VIEW TAKE N BY THE ASSESSING OFFICER. 8. FROM THE ORDERS OF THE AUTHORITIES BELOW THE UND ISPUTED FACTS ARE THAT THE ASSESSEE FIRM HAD COMMISSIONED T HE WIND FARM HTC NO. 686 ON 26.3.2005 UNDER TEMPORARY TIE U P FOR TEST AND TRIAL RUN PURPOSE. SUBSEQUENTLY, IT WAS D ISCONNECTED ON 2.4.2005. DURING THE TRIAL RUN THE ASSESSEE FIR M HAS PRODUCED WIND POWER OF 0.14 KVAH AND PERMANENT CONNECTION WAS GIVEN ON 1ASSESSEE2.8.2005 FOR REGUL AR COMMERCIAL GENERATION OF POWER. THEREFORE, THE AS SESSEE HAS CONDUCTED THE TRIAL RUN AND ALSO PRODUCED 0.14 KVAH WIND POWER. IN THE CASE OF CIT V. MENTHA AND ALLIED PRO DUCTS (SUPRA), THE HONBLE ALLAHABAD HIGH COURT HAS HELD THAT THE ITA NO.123/MDS/2013 : 8 : ASSESSEE IS ENTITLED TO CLAIM DEPRECIATION ON PLANT AND MACHINERY EVEN IF IT IS USED DURING THE YEAR FOR TR IAL PRODUCTION. THE LEARNED DR HAS NOT BROUGHT ANY CONTRARY DECISIO N OF ANY HIGHER FORUM. WE THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE ALLAHABAD HIGH COURT (SUPRA) ALLOW T HIS GROUND OF APPEAL RAISED BY THE ASSESSEE. 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT AT THE TIME OF HEARING ON MONDAY, THE 01 ST APRIL, 2013, AT CHENNAI. SD/- SD/- (ABRAHAM P. GEORGE) (V.DURGA RAO) ACCOUNTANT MEMBER JUDICIAL MEMBER CHENNAI, DATED THE 01 ST APRIL, 2013. H. COPY TO: ASSESSEE/AO/CIT(A)/CIT/D.R./GUARD FILE