M/s Nirani Sugars Ltd., V. Joint Commissioner of Income Tax, (OSD0, Central Circle (2), Belgaum., Belgaum

ITA 1242/BANG/2013

• Counselvise Citation: 124224114 RSA 2013
• Duration Of Justice: 1 year(s) 6 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-02-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 13-01-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 12-08-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR S SUNDARESAN LD
• Assessee Lawyers: ASHOK A KULKARNI
• Keywords: Capital asset; Depreciation; Question of law; Capital expenditure
• Section: 43B; 234B; 32; 54; 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PANAJI BENCH, PANAJI BEFORE SHRI P. K. BANSAL, HONBLE ACCOUNTANT MEMBER AND SHRI D.T. GARASIA, HONBLE JUDICIAL MEMBER ITA N O S . 1242/BANG/2013 & 16 3 /PNJ/201 4 : (A.Y S 2009 - 2010 & 2010 - 11 ) M/S. NIRANI SUGARS LTD., 166, KULALI CROSS, JAMKHANDI ROAD, MUDHOL, DIST. BAGALKOT 587 313. PAN : A ABCN2166J ( APPELLANT) VS. ASST. COMMISSIONER OF INCOME TAX CENTRAL CIRCLE - 2, BELGAUM (RESPONDENT) ASSESSEE BY : ASHOK A. KULKARNI, ADV. REVENUE BY : DR. S. SUNDARESAN , LD. DR DATE OF HEARING : 1 3 / 01 /201 5 DATE OF ORDER : 19 / 0 2 /201 5 O R D E R PER P.K. BANSAL : 1. BOTH T H E S E APPEAL S HA VE BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT( A) DT. 30.1.2012 & 26.2.2013 FOR THE A.Y 2009 - 10 & 2010 - 11 RESPECTIVELY. BOTH THE PARTIES AGREED THAT SO FAR AS GROUND NOS. 1 TO 7 ARE CONCERNED, THESE GROUNDS ARE COMMON AND RELATE TO ONLY ONE ISSUE RELATING TO CLAIM OF DEPRECIATION IN RESPECT OF PLANT A ND MACHINERY USED FOR GENERATION OF THE POWER. THE GROUNDS SINCE COMMON IN BOTH THE YEARS ARE REPRODUCED FOR THE A.Y 2009 - 10 AS UNDER : 1. THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IS OPPOSED TO LAW AND FACTS OF THE CASE. 2. HAVING REGARD TO THE FACT THAT THE GENERATION OF POWER IN THIS CASE FORMS A PART OF THE UNDERTAKING OF THE ASSESSEE MANUFACTURING AND SELLING SUGAR CLAUSE 1 BELOW SECTION 32( 1 ) (II) DOES NOT APPLY AS THE PLANT AND MACHINERY USED FOR THE GENERATION OF POWER CANNOT BE SAID TO BE THE ASSETS OF AN UNDERTAKING ENGAGED IN GENERATION OF POWER. 2 ITA NOS. 1242/BANG/2013 & 163/PNJ/2014 (A.Y. 2009 - 10 & 2010 - 11) 3. THE PLANT AND MACHINERY USED IN GENERATION OF POWER HEREIN ARE NOT THE ASSETS OF SUCH AN UNDERTAKING AS SUCH, AS THE UNDERTAKING HERE IS ONE OF PRODUCTION AND SALE OF SUGAR. THE RELEVANT EXPRESSION IN THE ABOVE SUB - CLAUSE (I) MEANS A CONCERN WHICH IS ESSENTIALLY ENGAGE D IN GENERATION OF POWER AND NOT TO PLANT AND MACHINERY, PRODUCING POWER INCIDENTALLY AS A PART OF AN UNDERTAKING, WHOSE ESSENTIAL FUNCTION IS SOMETHING D IFFERENT, AS HERE, BEING PRODUCTION AND SALE OF SUGAR. 4. THEREFORE, THE RULE APPLICABLE FOR ALLOWING DEPRECIATION IN THIS CASE WILL BE THE RULE 5(1) OF THE INCOME TAX RULES 1962 AND NOT RULE 5(1A). 5. IN THE ALTERNATIVE AND WITHOUT PREJUDICE EVEN IF RULE 5(1A) IS ATTRACTED UNDER THE PLEA THAT SUB - CLAUSE ( 1 ) U/S.32(1) APPLIES, IT SHOULD HAVE BEEN APPRECIATED THAT THE RULE REGARDING OPTION TO BE EXERCISED AS PER SECOND PROVISO U/S.5(1A) AS REGARDS THE TIME LIMIT FOR EXERCISING SUCH OPTION IS NOT MANDATO RY BUT DIRECTORY. 6. CLAIMING OF DEPRECIATION ON THE BASIS OF THE WDV METHOD AS PER RULE 5(1) OF THE INCOME TAX RULES 1962 WHILE FILING THE RETURN OF INCOME AND IN IT SHOULD BE TREATED AS DUE COMPLIANCE WITH THE REQUIREMENTS OF THE SAID SECOND PROVISO FOR THE PURPOSE OF EXERCISING OPTION. 7. HENCE DEPRECIATION OUGHT TO HAVE BEEN ALLOWED NOT ON THE STRAIGHT LINE METHOD BUT ON THE WDV METHOD. 2. IN ADDITION TO THE ABOVE GROUNDS, IN THE A.Y 2010 - 11 THE ASSESSEE HAS TAKEN THE FOLLOWING THREE MORE GROUNDS : 8. THE HONBLE COMMISSIONER OF INCOME - TAX (APPEALS) ERRED IN UPHOLDING THE DISALLOWANCE OF RS.4,62,04,825/ - RELAYING ON THE PROVISIONS OF SECTION 43B OF THE ACT. 9. THE HONBLE COMMISSIONER OF INCOME - TAX (APPEALS) OUGHT TO HAVE APPRECIATED THAT THE PURCHA SE TAX PAYABLE UNDER THE PROVISIONS OF SALES TAX IS CONVERTED INTO LOAN BY THE SCHEME OF THE KARNATAKA GOVERNMENT UNDER THE INDUSTRIAL POLICY. HENCE, THE PROVISIONS OF SECTION 43 B ARE NOT APPLICABLE. 10. THE LEVY OF INTEREST U/S 234 B AND 234C ARE NOT IN A CCORDANCE WITH LAW. 3. BOTH THE PARTIES AGREED THAT GROUND NOS. 1 TO 7 IN BOTH THE YEARS BEING COMMON BE DECIDED ON THE BASIS OF THE FACTS RELATING TO A.Y 2009 - 10. 3 ITA NOS. 1242/BANG/2013 & 163/PNJ/2014 (A.Y. 2009 - 10 & 2010 - 11) 4. THE BRIEF FACTS FOR A.Y 2009 - 10 ARE THAT THE COMPANY IS ENGAGED IN THE PRODUCTION OF SU GAR FROM SUGARCANE CRUSHING. IT HAS FILED ITS RETURN FOR A.Y 2009 - 10 ON 1.10.2010 WHILE RETURN FOR THE A.Y 2010 - 11 WAS FILED WITHIN THE DUE DATE. THE DATE FOR FILING THE RETURN FOR A.Y 2009 - 10 WAS 30.11.2009. DURING THE COURSE OF THE ASSESSMENT PROCEEDI NGS, THE AO NOTED THAT THE ASSESSEE CLAIMED DEPRECIATION OF RS. 16,79,53,376/ - ON CAPITAL EXPENDITURE OF RS.41,98,83,440/ - INCURRED TOWARDS ENERGY SAVING DEVICES @ 80% OF THE ACTUAL COST OF THE PLANT AND MACHINERY (RESTRICTED TO 50% OF THE CLAIM AS THE ASS ETS WERE USED FOR LESS THAN 180 DAYS). WHEN INQUIRED, THE ASSESSEE SUBMITTED THAT THEY ARE USING BACK PRESSURE TURBINES FOR THE PURPOSE OF POWER GENERATION ALONGWITH OTHER DEVICES FOR GENERATION OF POWER AS DETAILED IN THE ASSESSMENT ORDER AND THAT HIGHER DEPRECIATION RATE UNDER ITEM III(8)(IX)D I.E. CO - GENERATION SYSTEMS WERE APPLICABLE. THE AO OBSERVED THAT THE RETURN FOR THE IMPUGNED ASSESSMENT YEAR WAS FILED ON 1.10.2010 AGAINST THE DUE DATE AS PRESCRIBED U/S 139(1) I.E. 30.11.2009. AS PER THE PROVIS IONS OF SEC. 32(1) (I) READ WITH RULE 5(1A) DEPRECIATION IN RESPECT OF AN ASSESSEE ENGAGED IN THE BUSINESS OF POWER GENERATION IS ALLOWABLE UNDER APPENDIX - 1A I.E. STRAIGHT LINE METHOD AS A PERCENTAGE OF ACTUAL COST AT THE OPTION OF THE ASSESSEE PROVIDED THE OPTION IS EXERCISED BY THE ASSESSEE BEFORE THE DUE DATE OF FILING OF THE RETURN. ACCORDING TO THE AO SINCE THE ASSESSEE FAILED TO EXERCISE THE OPTION BEFORE THE DUE DATE OF FILING OF THE RETURN, THEREFORE, DEPRECIATION IS TO BE ALLOWED TO THE ASSESSEE NO T AS PER APPENDIX - 1 BUT AS PER THE RATES PRESCRIBED IN RULE 5(1A) (II) PROVISO UNDER APPENDIX - 1A . THE ASSESSEE CONTENDED THAT RULE 5 ( 1 A) IS APPLICABLE ONLY TO AN ASSESSEE ENGAGED SOLELY IN THE BUSINESS OF GENERATION AND DISTRIBUTION OF POWER AND NOT TO ANY OTHER ASSESSEE ALSO ENGAGED IN THE BUSINESS OF POWER AS IS THE CASE OF THE ASSESSEE. THE AO DID NOT AGREE WITH THE SUBMISSION OF THE ASSESSEE SINCE THE ASSESSEE IS ALSO ENGAGED IN THE PRODUCTION OF SUGAR. THE ASSESSEE HAS ALSO NOT EXERCISED HIS OPTION WITH REGARD TO THE AVAILING DEPRECIATION AS PROVIDED UNDER RULE 5(1A) R.W.S. 32(1)(I) OF THE INCOME 4 ITA NOS. 1242/BANG/2013 & 163/PNJ/2014 (A.Y. 2009 - 10 & 2010 - 11) TAX ACT. THE AO, THEREFORE, DISALLOWED DEPRECIATION TO THE EXTENT IT WA S IN EXCESS. WHEN THE MATTER WENT BEFORE THE CIT(A), CIT(A) CONFIRMED THE DISALLOWANCE. SIMILARLY, IN A.Y 2010 - 11 THE DISALLOWANCE WAS MADE AS DEPRECIATION WAS RESTRICTED IN THE A.Y 2009 - 10 @ 7.69 % AS PER RULE 5(1A) APPENDIX - 1A. A CCORDINGLY , ON THE SAME BASIS DEPRECIATION WAS ALLOWED DURING THE A.Y 2010 - 11. WHEN THE MATTER WENT BEFORE CIT(A), CIT(A) UPHELD THE DISALLOWANCE. 5. BEFORE US, THE LD. AR DR E W OUR ATTENTION TOWARDS RULE 5(1A) WHICH STATES THAT THE ALLOWANCE U/S 32(1)(I) IN RESPECT OF DEPREC IATION OF THE ASSETS ACQUIRED ON/AFTER 1.4.1997 SHALL BE CALCULATED AT THE PERCENTAGE SPECIFIED IN THE SECOND COLUMN OF THE TABLE IN APPENDIX - 1A ON THE ACTUAL COST THEREOF TO THE ASSESSEE AS ARE USED FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE AT ANY TIME DURING THE PREVIOUS YEAR AND VEHEMENTLY CONTENDED THAT AS PER THE SECOND PROVISO IT WAS PROVIDED THAT UNDERTAKING SPECIFIED U/S 32(1)(I) INSTEAD OF CLAIMING DEPRECIATION AS SPECIFIED IN THE APPENDIX - 1A, A T ITS OPTION CAN CLAIM DEPRECIATION UNDER SUB - RULE ( 1) READ WITH APPENDIX - 1 IF SUCH OPTION IS EXERCISED BEFORE THE DUE DATE OF FURNISHING OF RETURN OF INCOME U/S 139(1) FOR THE ASSESSMENT YEAR RELEVANT TO PREVIOUS YEAR IN WHICH IT BEGINS TO GENERATE POWER. IN CASE OF ANY OTHER UNDERTAKING IT WAS ALSO POINT ED OUT THAT ONCE THE OPTION IS EXERCISED, IT WILL BE FINAL AND SHALL APPLY TO ALL THE SUBSEQUENT ASSESSMENT YEARS. OUR ATTENTION WAS ALSO DRAWN TOWARDS PROVISIONS OF SEC. 32(1)(I) WHICH ENTITLES AN ASSESSEE , WHO IS ENGAGED IN THE GENERATION AND DISTRIBUTI ON OF POWER , DEPRECIATION AT SUCH PERCENTAGE ON THE ACTUAL COST THEREOF AS MAY BE PRESCRIBED. THE PERCENTAGE HAS BEEN PRESCRIBED UNDER RULE 5(1A) AND APPENDIX - 1A OF THE INCOME TAX RULES. IT WAS CONTENDED THAT THE SECTION EMPOWERS THE RULE MAKING AUTHORITY ONLY TO PRE SCRIBE THE PERCENTAGE OF THE DEPRECIATION ON THE ACTUAL COST AND BEYOND THAT IT DOES NOT HAVE POWER TO PRESCRIBE ANY OTHER CONDITIONS. ONCE THE ASSESSEE IS ENGAGED IN GENERATION AND DISTRIBUTION OF POWER , IT HAS TO BE ALLOWED 5 ITA NOS. 1242/BANG/2013 & 163/PNJ/2014 (A.Y. 2009 - 10 & 2010 - 11) DEPRECIATION ON THE ACTUAL CO ST THEREOF AT THE RATE AS MAY BE PRESCRIBED. IN THE CASE OF OTHER PERSONS WHO ARE NOT ENGAGED IN THIS BUSINESS, DEPRECIATION HAS TO BE ALLOWED ON THE BASIS OF THE BLOCK OF ASSETS AT SUCH PERCENTAGE ON THE WDV THEREOF AS MAY BE PRESCRIBED. IN THE CASE OF THE ASSESSEE, IT WAS STATED THAT THE ASSESSEE HAS FILED ITS RETURN OF INCOME ON 1.10.2010 AFTER THE DUE DATE OF FILING OF RETURN. THE SPECIFIC ISSUE IN THE CASE OF THE ASSESSEE IS THE MANNER OF FILING OF SUCH OPTION MENTIONED IN THE SAID PROVISO AND THE D ATE BY WHICH SUCH OPTION MUST BE EXERCISED. THERE IS NO MANNER PRESCRIBED FOR EXERCISING THE OPTION IN THE INCOME TAX RULES. IT WAS CONTENDED THAT EVEN IF THE RETURN HAS BEEN FILED U/S 139(4), IT CANNOT BE SAID THAT THE ASSESSEE HAS NOT EXERCISED THE OPT ION WITHIN THE DUE DATE AS PRESCRIBED UNDER RULE 5(1A). RELIANCE WAS PLACED IN THIS REGARD ON THE DECISION OF THE HON'BLE KARNATAKA HIGH COURT IN ITA NO. 435 OF 2004 IN THE CASE OF FATHIMA BAI VS. ITO. OUR ATTENTION WAS ALSO DRAWN TOWARDS THE INCOME TAX (AMENDMENT) BILL, 1998, STATEMENT OF OBJECTS AND REASONS TO STRESS THAT THE OBJECTIVE WAS THAT THERE MUST BE LOWER TAX REIMBURSEMENT BY THE STATE ELECTRICITY BOARDS . THE ASSESSEE IS NOT SUPPLYING ELECTRICITY TO THE STATE ELECTRICITY BOARD. RELIANCE WAS A LSO PLACED ON THE DECISION OF THE CHENNAI BENCH OF THE TRIBUNAL IN K.K.S.K. LEATHER PROCESSORS (P.) LTD. VS. ITO, 126 ITD 215 FOR THE PROPOSITION OF LAW THAT OPTION CAN BE EXERCISED BY MAKING CLAIM IN THE RETURN AS NO METHOD FOR EXERCISING THE OPTION HAS B EEN PRESCRIBED. RELIANCE WAS ALSO PLACED ON THE DECISION OF THE CHENNAI BENCH OF THE TRIBUNAL IN K. RAVI VS. ACIT, (2010) 2 ITR (TRIB) 752 (CHENNAI). FOLLOWING DECISIONS WERE ALSO RELIED ON : I) CIT VS. KIKANI EXPORTS P. LTD., 369 ITR 500 (MAD) II) JIND AL STEEL AND POWER LTD. VS. CIT (2007) 106 TTJ DELHI 943 6. THE LD. DR ON THE OTHER HAND RELIED ON THE ORDER OF THE TAX AUTHORITIES BELOW. 6 ITA NOS. 1242/BANG/2013 & 163/PNJ/2014 (A.Y. 2009 - 10 & 2010 - 11) 7. WE HEARD THE RIVAL SUBMISSIONS AND CAREFULLY CONSIDERED THE SAME ALONGWITH THE ORDER OF THE TAX AUTHORITIES BELOW. WE NOTED THAT IN A.Y 2009 - 10 THE ONLY ISSUE INVOLVED IN THE CASE OF THE ASSESSEE RELATES TO CLAIM OF DEPRECIATION ON THE PLANT AND MACHINERY USED FOR THE PURPOSE OF POWER GENERATION AS DETAILED IN THE ASSESSMENT OR DER ON A CAPITAL EXPENDITURE OF RS.41,98,83,440/ - . THE AO UNDER PARA 4.2 OF HIS ORDER ACCEPTED THAT THE ASSESSEE WILL BE ENTITLED TO CLAIM 80% OF THE DEPRECIATION AS ENUMERATED UNDER THE NEW APPENDIX - 1 AS PROVIDED UNDER ITEM 8(IX)(D) IF IT HAS EXERCISED T HE OPTION AS ENVISAGED U/S 32(1)(I) R.W.R 5(1A) BEFORE THE DUE DATE OF FILING OF THE RETURN. THE AO DID NOT ALLOW THE SAID DEPRECIATION AS ACCORDING TO THE AO THE ASSESSEE IS NOT FOUND TO HAVE EXERCISED THE OPTION FOR FILING THE RETURN OF INCOME/LETTER TO THAT EXTENT ON/BEFORE THE DUE DATE OF FILING THE RETURN. SIMILARLY, IN THE SUBSEQUENT YEAR THE DEPRECIATION WAS ALSO NOT ALLOWED AT THAT RATE IN VIEW OF THE THIRD PROVISO THAT SUCH OPTION ONCE EXERCISED SHALL BE FINAL AND SHALL APPLY TO ALL THE SUBSEQUEN T ASSESSMENT YEARS. THE AO, THEREFORE, APPLIED THE RATE OF DEPRECIATION AS PRESCRIBED IN APPENDIX - 1A IN CASE OF WASTE HEAT RECOVERY BOILERS/PLANTS AND RELATED EQUIPMENT AND PLANT, BUILDING ETC. (FORMING PART OF THE CO - GENERATION SYSTEM) BEING 50% OF 7.69% OF RS.41,98,83,440/ - AND DISALLOWED A SUM OF RS.16,24,10,101/ - OUT OF THE DEPRECIATION CLAIMED BY THE ASSESSEE TOTALING TO RS.17,85,54,619/ - . THE RELEVANT PROVISION OF SEC. 32(1)(I) AS WELL AS RULE 5 (1A) ARE REPRODUCED AS UNDER FOR READY REFERENCE : 32. (1) IN RESPECT OF DEPRECIATION OF ( I ) BUILDINGS, MACHINERY, PLANT OR FURNITURE, BEING TANGIBLE ASSETS; ( II ) KNOW - HOW, PATENTS, COPYRIGHTS, TRADE MARKS, LICENCES, FRANCHISES OR ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE, BEING INTANGIBL E ASSETS ACQUIRED ON OR AFTER THE 1ST DAY OF APRIL, 1998, OWNED, WHOLLY OR PARTLY, BY THE ASSESSEE AND USED FOR THE PURPOSES OF THE BUSINESS OR PROFESSION, THE FOLLOWING DEDUCTIONS SHALL BE ALLOWED 7 ITA NOS. 1242/BANG/2013 & 163/PNJ/2014 (A.Y. 2009 - 10 & 2010 - 11) ( I ) IN THE CASE OF ASSETS OF AN UNDERTAKING ENGAGED IN G ENERATION OR GENERATION AND DISTRIBUTION OF POWER, SUCH PERCENTAGE ON THE ACTUAL COST THEREOF TO THE ASSESSEE AS MAY BE PRESCRIBED; ( II ) IN THE CASE OF ANY BLOCK OF ASSETS, SUCH PERCENTAGE ON THE WRITTEN DOWN VALUE THEREOF AS MAY BE PRESCRIBED . 5 (1A) TH E ALLOWANCE UNDER CLAUSE ( I ) OF SUB - SECTION (1) OF SECTION 32 OF THE ACT IN RESPECT OF DEPRECIATION OF ASSETS ACQUIRED ON OR AFTER 1ST DAY OF APRIL, 1997 SHALL BE CALCULATED AT THE PERCENTAGE SPECIFIED IN THE SECOND COLUMN OF THE TABLE IN APPENDIX IA OF THESE RULES ON THE ACTUAL COS T THEREOF TO THE ASSESSEE AS ARE USED FOR THE PURPOSES OF THE BUSINESS OF THE ASSESSEE AT ANY TIME DURING THE PREVIOUS YEAR : PROVIDED THAT THE AGGREGATE DEPRECIATION ALLOWED IN RESPECT OF ANY ASSET FOR DIFFERENT ASSESSMENT YEARS SHALL NOT EXCEED THE ACTUA L COST OF THE SAID ASSET : PROVIDED FURTHER THAT THE UNDERTAKING SPECIFIED IN CLAUSE ( I ) OF SUB - SECTION (1) OF SECTION 32 OF THE ACT MAY, INSTEAD OF THE DEPRECIATION SPECIFIED IN APPENDIX IA, AT ITS OPTION, BE ALLOWED DEPRECIATION UNDER SUB - RULE (1) READ W ITH APPENDIX I, IF SUCH OPTION IS EXERCISED BEFORE THE DUE DATE FOR FURNISHING THE RETURN OF INCOME UNDER SUB - SECTION (1) OF SECTION 139 OF THE ACT, ( A ) FOR THE ASSESSMENT YEAR 1998 - 99, IN THE CASE OF AN UNDERTAKING WHICH BEGAN TO GENERATE POWER PRIOR TO 1ST DAY OF APRIL, 1997; AND ( B ) FOR THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH IT BEGINS TO GENERATE POWER, IN CASE OF ANY OTHER UNDERTAKING : PROVIDED ALSO THAT ANY SUCH OPTION ONCE EXERCISED SHALL BE FINAL AND SHALL APPLY TO ALL T HE SUBSEQUENT ASSESSMENT YEARS. FROM THE PERUSAL OF SEC. 32(1)(I) IT IS APPARENT THAT THE ASSESSEE SHALL BE ENTITLED TO DEPRECIATION ON THE ASSETS AS MENTIONED U/S 32(1)(I) AND (II) IF THE ASSETS ARE OWNED, WHOLLY OR PARTLY, BY THE ASSESSEE AND USED FOR THE PURPOSE OF BUSINESS OR PROFESSION IN CASE OF THE ASSETS OF AN UNDERTAKING ENGAGED IN GENERATION OR GENERATION AND DISTRIBUTION OF POWER AT SUCH PERCENTAGE ON THE ACTUAL COST THEREOF TO THE ASSESSEE AS MAY BE PRESCRIBED. IT IS NOT DENIED B Y THE REVENUE THAT THE ASSESSEES BUSINESS ACTIVITY INCLUDES GENERATION OF POWER AND THE ASSESSEE FEEDS SURPLUS POWER TO THE GRID OF KPTCL AND ADMITS RECEIPT OF RS.7,64,93,490/ - ON SALE OF POWER TO KPTCL. RULE 5(1A) HAS BEEN INSERTED W. R. E.F. 2.4.1997. T HIS RULE STATES THAT DEPRECIATION OF ASSETS ACQUIRED ON/AFTER 1.4.1997 SHALL BE CALCULATED AT THE PERCENTAGE SPECIFIED IN THE SECOND COLUMN OF THE TABLE IN APPENDIX - 1A OF THIS RULE ON THE ACTUAL COST TO THE ASSESSEE ON THE ASSETS USED FOR THE PURPOSE OF BU SINESS OF THE ASSESSEE AT ANY TIME DURING THE 8 ITA NOS. 1242/BANG/2013 & 163/PNJ/2014 (A.Y. 2009 - 10 & 2010 - 11) PREVIOUS YEAR. THE FIRST PROVISO TO THIS RULE STATES THAT THE AGGREGATE OF THE DEPRECIATION ALLOWED IN RESPECT OF THE ASSETS FOR DIFFERENT ASSESSMENT YEARS SHALL NOT EXCEED THE ACTUAL COST OF SAID ASSETS. THE SECOND PROVISO TO THIS RULE PROVIDES AN OPTION TO THE ASSESSEE, AND IN CASE THE ASSESSEE SO OPTS, HE MAY BE ALLOWED DEPRECIATION UNDER SUB - RULE (1) OF RULE 5 READ WITH APPENDIX - 1 PROVIDED THE OPTION IS EXERCISED BEFORE THE DUE DATE FOR FURNISHING THE RETU RN OF INCOME U/S 139(1). THE THIRD PROVISO OF THE SAID RULE STATES THAT ONCE THE OPTION IS EXERCISED, THAT OPTION SHALL BE FINAL AND SHALL APPLY TO ALL THE SUBSEQUENT ASSESSMENT YEARS. 8. IN THE CASE OF THE ASSESSEE, THE ASSESSEE HAS CLAIMED DEPRECIATI ON AT THE PERCENTAGE SPECIFIED IN THE SECOND COLUMN OF THE TABLE IN APPENDIX - 1 BUT THE AO HAS ALLOWED DEPRECIATION TO THE ASSESSEE AT THE PERCENTAGE SPECIFIED IN THE SECOND COLUMN OF TABLE IN APPENDIX - 1A. IT IS NOT DISPUTED THAT THE ASSESSEE HAS FILED THE RETURN OF INCOME ON 1.10.2010 WHILE THE DUE DATE FOR FILING THE RETURN WAS 30.11.2009 AND IN THE RETURN SO FILED, THE ASSESSEE CLAIMED DEPRECIATION AS PER APPENDIX - 1. WE NOTED FROM THE PROVISIONS OF SEC. 32(1)(I) THAT THE ASSESSEE IS ENTITLED TO CLAIM DE PRECIATION AT SUCH PERCENTAGE ON THE ACTUAL COST OF THE ASSETS AS MAY BE PRESCRIBED IN CASE THE ASSESSEE IS ENGAGED IN GENERATION OR GENERATION AND DISTRIBUTION OF POWER. C LAUSE (I) OF SEC. 32(1) EMPOWERS THE RULE MAKING AUTHORITY TO PRESCRIBE THE PERCENT AGE ON THE ACTUAL COST FOR ALLOWING THE DEPRECIATION. THIS CLAUSE, IN OUR OPINION, DOES NOT EMPOWER THE RULE MAKING AUTHORITY TO PUT ANY OTHER CONDITION EXCEPT PRESCRIBING THE PERCENTAGE AT WHICH THE DEPRECIATION IS TO BE ALLOWED ON ACTUAL COST TO THE ASS ESSEE. AFTER GOING THROUGH RULE 5(1) & 5(1A), WE NOTED THAT SUB - CLAUSE (I) HAS BEEN INSERTED U/S 32 W.E.F. 1.4.1998 WHILE RULE 5(1A) HAS BEEN INSERTED W. R. E.F. 2.4.1997 BY THE INCOME TAX ( 12 TH AMENDMENT ) RULES, 1997 WHEN THE PROVISION OF CLAUSE (I) WERE N OT IN THE PRESENT FORM. WE NOTED THAT THE FIRST PROVISO AS WELL AS THE IMPUGNED RULE 5(1A) PRESCRIBED THE PERCENTAGE ON THE ACTUAL COST AT WHICH THE 9 ITA NOS. 1242/BANG/2013 & 163/PNJ/2014 (A.Y. 2009 - 10 & 2010 - 11) DEPRECIATION HAS TO BE ALLOWED TO THE ASSESSEE. IT IS ONLY PROVISO (II) , WE NOTED, WHICH ALLOWS OPTION TO THE ASSESSEE TO CLAIM DEPRECIATION IN ACCORDANCE WITH APPENDIX - 1 BUT WHILE GIVING THIS OPTION THE RULE MAKING AUTHORITY HAS PRESCRIBED A CONDITION THAT SUCH OPTION MUST BE EXERCISED BY THE ASSESSEE BEFORE THE DUE DATE OF FURNISHING THE RETURN U/S 139(1). PUTTING A CONDITION OF EXERCISING THE OPTION BY AN ASSESSEE WITHIN A CERTAIN TIME , IN OUR OPINION, WILL TANTAMOUNT TO PRESCRIBING THE PERCENTAGE OF DEPRECATION ALONG WITH CERTAIN CONDITIONS. IN OUR OPINION, THIS WILL TANTAMOUNT TO SUPERSEDING THE PROVISI ONS OF THE ACT. WE NOTED THAT U/S 32 THE LEGISLATURE HAS NOT PRESCRIBED ANY SUCH CONDITION. HAD THAT BEEN AN INTENTION OF THE LEGISLATURE, THEY WOULD HAVE PROVIDED THE CONDITION THAT IN CASE THE DEPRECIATION HAS TO BE ALLOWED AS PER APPENDIX - 1 THE ASSESS EE SHOULD HAVE EXERCISED THE OPTION BEFORE THE DUE DATE OF FILING THE RETURN. WE NOTED THAT WHEREVER THE LEGISLATURE WANTS THAT SUCH A CONDITION HAS TO BE IMPOSED, THE LEGISLATURE HAS SPECIFICALLY BROUGHT IT UNDER THE SPECIFIC PROVISION AS H AS BEEN PRESCRI BED U/S 10A, 10(1A), 10A(8), 10B(8), 10AC AND EXPLANATION TO SEC. 11(1) . THE RULE MAKING AUTHORITY CANNOT PRESCRIBE SUCH CONDITION OF EXERCISING THE OPTION BEFORE DUE DATE OF FILING RETURN. THE RULE MAKING AUTHORITY CAN PRESCRIBE THE TIME OF EXERCISING T HE OPTION PROVIDED SUCH POWER IS ENTRUSTED BY THE PROVISIONS OF THE ACT. EXERCISING SUCH POWER, IN OUR OPINION, BY THE RULE MAKING AUTHORITY IS BEYOND THEIR JURISDICTION AND IS NOT BINDING ON THE ASSESSEE. IT IS THE FUNDAMENTAL PRINCIPLE OF LAW THAT THE RULE CANNOT SUPERSEDE THE PROVISIONS OF THE ACT. 9. WE NOTED THAT THE JURISDICTION HIGH COURT I.E. THE BOMBAY HIGH COURT IN THE CASE OF TRUSTEES OF TULSIDAS GOPALJI CHARITABLE A ND CHALESHWAR TEMPLE TRUST VS. CIT, 207 ITR 368 HAS IN RESPECT OF EXERCISE OF THE OPTION AS PER EXPLANATION TO SEC. 11(1) , WHICH REQUIRES THAT THE OPTION HAS TO BE EXERCISED IN WRITING BY AN ASSESSEE FOR AVAILING OF THE BENEFIT BEFORE THE EXPIRY OF THE TIME ALLOWED U/S 139(1) FOR F URNISHING OF THE RETURN OF INCOME , TOOK THE VIEW THAT IF 10 ITA NOS. 1242/BANG/2013 & 163/PNJ/2014 (A.Y. 2009 - 10 & 2010 - 11) THE RETURN IS FILED WITHIN THE TIME ALLOWED U/S 139(4) AND THE OPTION CONTEMPLATED BY EXPLANATION TO SEC. 11(1) IS EXERCISED IN WRITING ALONGWITH THE SAID RETURN, THE REQUIREMENT OF THE SAID EXPLANAT ION WILL STAND SATISFIED. 10. SIMILAR VIEW, WE NOTED, HAS BEEN TAKEN BY THE HON'BLE KARNATAKA HIGH COURT AS RELIED BY THE LD. AR IN THE CASE OF FATHIMA BAI VS. ITO IN ITA NO. 435 OF 2004 WHEREIN THE HON'BLE HIGH COURT VIDE ORDER DT. 17.10.2008 WITH REFE RENCE TO THE FOLLOWING QUESTION OF LAW : WHETHER THE TRIBUNAL JUSTIFIED IN HOLDING THAT THE DEPOSIT OF RS. 500000/ - MADE BY THE APPELLANT IN A BANK ACCOUNT BEFORE THE DUE DATE FOR FILING THE RETURN OF INCOME IS NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 54 OF THE ACT UNDER THE FACTS AND CIRCUMSTANCES OF THE APPELLANTS CASE ? AFTER DISCUSSING THE PROVISIONS OF SEC. 54(2) AS WELL AS PROVISIONS OF SEC. 139 HAS HELD AS UNDER : THE SEC. 5 4 (1) DECLARES THAT WHEN THE ASSESSEE SELLS ANY LONG TERM CAPITAL ASSET , THE ASSESSEE SHOULD PURCHASE THE BUILDING WITHIN ONE YEAR B E FORE THE TRANSFER OR WITHIN T WO YEARS AFTER T HE TRANSFER BY INVESTING CAPITAL GAINS. IN WHICH EVENT THE ASSESEE W IL L N O T B E LIABLE FOR CAPITAL GAIN TAX. THE SEC.54 ( 2) DECLARES THAT W ITHIN ONE YEAR FRO M THE DATE OF TRANSFER IF THE CAPIT A L GAIN IS NOT INVESTED IN PURCHASE OF BUI L DI N G, H E SHOULD DEPOSIT THE AMOUNT I N THE CAPITAL GAIN ACCOUNT SCHE M E OR ELSE THE ASSESSEE SHOULD I NVEST T H E CAPITAL GAINS BEFORE FILING OF RETURN WITHIN THE PERMITTED PERIOD U/S 139 . IN WHICH EVENT, THE ASSESSEE WILL NOT BE LI ABLE TO PAY CAPITAL GAIN TAX. THE SEC.139(4) DECLARES THAT THE ASSESSEE SHOULD FILE R ETUR N S WITHIN THE TIME PRESCRIBED, IF HE FAILS TO FILE RETURNS, HE MAY FILE R ETURNS FOR ANY PREVIOUS YEAR AT AN Y TIME BEFORE EXPIRY OF ONE YEAR FROM THE END OF RELEVANT ASSESSMENT YEAR. IN THE INSTANT CASE, THE DUE DATE FOR FILING OF RETURN IS 30.7.88. U/S 139(4) THE ASSESSEE WAS ENTITLED TO FILE RETURNS IN THE EXTENDED TIME, WHICH IS WITHIN 31.3.1990 . THE EXTENDED D UE DATE U/S 139(4) WOULD BE 31.3.1990. THE ASSESSEE DID NOT FILE THE RETURNS WITHIN THE EXTENDED DUE DATE, BUT FILED THE R ETURNS ON 27.2.2000 . HOWEVER, THE ASSESEE HAD UTILISED T HE ENTIRE CAPITAL GAINS BY PURCHASE OF A HOUSE PROPERTY 11 ITA NOS. 1242/BANG/2013 & 163/PNJ/2014 (A.Y. 2009 - 10 & 2010 - 11) WITHIN THE STIPULATED PERIODS OF SE C . 54(2) IE., BEFORE THE EXTENDED DUE DATE FOR RETURNS U/S 139. THE ASSESSEE TECHNICALLY MAY HAVE DEFAULTED IN NOT FILING THE RETURNS U/S 139(4). BUT HOWEVER, UTILISED T H E CAPITAL GAINS FOR PURCHASE OF PROPERTY BEFORE THE EXTE NDED DUE DATE U/S 139(4) . THE CONTENTION OF THE REVENUE THAT TH E DEPOSIT IN THE SCHEME SHOULD H A VE BEEN MADE BEFORE THE INITIAL DUE DATE AND NOT THE EXTENDED DUE DATE IS AN UNTENABLE CONTENTION. THE GAUHATI HIGH C OURT I N COMMISSIONER OF I N COME TAX VS RAJKAMAL JALAN HAS TAKE N A SIMILAR VIEW THAT THE T I ME LIMIT FOR DEPOSIT UNDER THE SCHEME OR UTILISA TIO N CAN BE MADE BEFORE THE DUE DATE FOR F I L I NG O F RETURNS U/S 139(4) . FOR THE REASONS AND DISCUSSIONS MADE ABOVE WE ANSWER THE SUBSTANTIAL QUESTION OF LAW IN FAVOUR OF THE ASSESSEE. THE APPEAL IS ALLOWED. 11. SO FAR EXERCISING OF THE OPTION IS CONCERNED, WE NOTED FROM THE PROVISO TO RULE 5(1A) THAT NOTHING HAS BEEN MENTIONED AS TO HOW THE OPTION HAS TO BE EXERCISED FOR CLAIMING THE DEPRECIATION AS PER APP ENDIX - 1. WE NOTED THAT ON THE BASIS OF THE DECISION AS RELIED BY THE LD. AR, THE CHENNAI BENCH OF THE TRIBUNAL IN THE CASE OF K.K.S.K. LEATHER PROCESSORS (P.) LTD. VS. ITO, 126 ITD 215 HAS CLEARLY LAID DOWN THAT THE CLAIM IN THE RETURN WILL TANTAMOUNT TO EXERCISING OF THE OPTION. IN THIS CASE, WE NOTED, THE CHENNAI BENCH OF THE TRIBUNAL HAS HELD AS UNDER : SECTION 32 OF THE INCOME - TAX ACT, 1961, READ WITH RULE 5 OF THE INCOME - TAX RULES, 1962 - DEPRECIATION - ALLOWANCE/RATE OF - ASSESSMENT YEARS 2001 - 02, 2003 - 04 AND 2005 - 06 - ASSESSEE FILED ITS RETURN OF INCOME CLAIMING DEPRECIATION AT RATE OF 80 PER CENT ON WINDMILLS - ASSESSING OFFICER TAKING A VIEW THAT ASSESSEE DID NOT EXERCISE OPTION UNDER SECOND PROVISO TO RULE 5(1A) BEFORE DUE DATE OF FILING RETURN OF INCOME UNDER SECTION 139(1) FOR CLAIMING HIGHER RATE OF DEPRECIATION AS PROVIDED IN APPENDIX I TO RULE 5(1A), DISALLOWED ASSESSEES CLAIM - HE, THUS, ALLOWED DEPRECIATION ONLY AT 7.69 PER CENT OF ACTUAL COST APPLYING RULE 5(1A), RATE OF DEPRECIATION AD MISSIBLE VIDE APPENDIX 1A - WHETHER SINCE THERE IS NO SPECIFIC FORM OR METHOD PRESCRIBED FOR EXERCISING OPTION, CLAIM MADE IN RETURN OF INCOME AS WELL AS REFLECTED FROM BOOKS OF ACCOUNT AND AUDIT REPORT FILED ALONG WITH RETURN OF INCOME WAS MORE THAN EXERC ISE OF OPTION AS REQUIRED UNDER SECOND PROVISO TO RULE 5(1A) - HELD, YES - WHETHER, THEREFORE, ASSESSEE WAS ENTITLED TO DEPRECIATION ON WINDMILLS AT A HIGHER RATE - HELD, YES. 12 ITA NOS. 1242/BANG/2013 & 163/PNJ/2014 (A.Y. 2009 - 10 & 2010 - 11) 12. THE HON'BLE MADRAS HIGH COURT IN THE CASE OF CIT VS. KIKANI EXPORTS P. LTD ., 369 ITR 500 (MAD) HAS HELD : - HELD ACCORDINGLY, DISMISSING THE APPEALS, THAT IF THE ASSESSES EXERCISED THE OPTION IN TERMS OF THE SECOND PROVISO TO RULE 5(1A) AT THE TIME OF FURNISHING OF RETURN, IT WILL SUFFICE AND NO SEPARATE LETTER OR REQUEST OR IN TIMATION WITH REGARD TO OF EXERCISE OF OPTION IS REQUIRED. SINCE THE RETURNS WERE FILED IN ACCORDANCE WITH SECTION 139(1) AND THE FORM PRESCRIBED THEREIN MAKES A PROVISION FOR EXERCISING AN OPTION IN RESPECT OF THE CLAIM OF DEPRECIATION, NO SEPARATE PROCE DURE IS REQUIRED. THE OPTION ONCE EXERCISED WILL CONTINUE TO ALL THE SUBSEQUENT YEARS, THE ASSESSES ARE NOT REQUIRED TO EXERCISE SUCH OPTION EACH AND EVERY YEAR SEPARATELY. 13. THE CHENNAI BENCH OF THE TRIBUNAL IN ITA NO. 2064/MAD/2008 IN THE CASE OF K. RAVI VS. ACIT, (2010) 2 ITR (TRIB) 752 (CHENNAI) HAS HELD AS UNDER: 4. WE HAVE HEARD THE LEARNED DEPARTMENTAL REPRESENTATIVE AS WELL AS THE LEARNED AUTHORISED REPRESENTATIVE AND CONSIDERED THE RELEVANT RECORD. AS PER THE PROVISIONS OF SECTION 32(1)( I), THE DEPRECIATION ON ASSET OF AN UNDERTAKING ENGAGED IN GENERATION OR GENERATION AND DISTRIBUTION OF POWER IS AT A PERCENTAGE AS PRESCRIBED AS PER THE RATES ON THE ACTUAL COST THEREOF. THUS, SUB - CLAUSE (I) OF SUB - SECTION (1) OF SECTION 32 OF THE INCOME - TAX ACT MAKES IT CLEAR THAT THE DEPRECIATION AT A PRESCRIBED RATE ON THE ASSET AS SPECIFIED IN CLAUSE (I) WOULD BE ON ACTUAL COST INSTEAD OF WRITTEN DOWN VALUE (WDV). FURTHER EXPLANATION 5 TO SUB - SECTION (1) OF SECTION 32 OF THE INCOME - TAX ACT STIPULATES T HAT THE PROVISION OF SUB - SECTION (1) SHALL APPLY IRRESPECTIVE OF ANY CLAIM MADE BY THE ASSESSEE WITH RESPECT TO DEPRECIATION IN COMPUTING HIS TOTAL INCOME. FOR BETTER UNDERSTANDING, WE NARRATE EXPLANATION 5 AS UNDER : 'FOR THE REMOVAL OF DOUBTS, IT IS HER EBY DECLARED THAT THE PROVI SIONS OF THIS SUB - SECTION SHALL APPLY WHETHER OR NOT THE ASSESSEE HAS CLAIMED THE DEDUCTION IN RESPECT OF DEPRECIATION IN COMPUTING HIS TOTAL INCOME.' 5. FROM THE PROVISIONS OF SECTION 32 READ WITH EXPLANATION 5 IT IS CLEAR THA T THE ASSESSING OFFICER IS DUTY BOUND AND UNDER OBLIGATION TO ALLOW THE DEDUCTION OF DEPRECIATION AS PER THE PROVISIONS OF SUB - SECTION (1) OF SECTION 32. SINCE TWO RATES OF DEPRECIATION ARE PRESCRIBED AS PER APPENDIX I AND APPENDIX IA TO THE INCOME - TAX RUL ES IN RESPECT OF ASSETS OF THE UNDERTAKING ENGAGED FOR GENERATION AND DISTRIBUTION OF POWER. THUS, TO MAKE IT CLEAR AND FACILITATE THE ASSESSING OFFICER AS TO WHICH OF THE RATES PROVIDED UNDER TWO DIFFERENT APPENDIXES OF DEPRECIATION SHALL BE APPLICABLE, T HE SECOND PROVISO TO RULE 5(1A) REQUIRES THE ASSESSEE TO EXERCISE ITS OPTION THAT THE DEPRECIATION BE ALLOWED AS PER APPENDIX I. THEREFORE, THE OPTION EXERCISED AS PER RULE 5(1A) IS ONLY TO FACILITATE THE ASSESSING OFFICER IN DISCHARGING 13 ITA NOS. 1242/BANG/2013 & 163/PNJ/2014 (A.Y. 2009 - 10 & 2010 - 11) HIS OBLIGATION AS PER EXPLANATION 5 TO SUB - SECTION (1) OF SECTION 32 OF THE INCOME - TAX ACT, SO THAT THE DEPRECIATION SHALL BE ALLOWED AS PER THE OPTION OF THE ASSESSEE AND NOT AT THE DISCRETION OF THE ASSESSING OFFICER. 6. IN THE CASE IN HAND, THERE IS NO DISPUTE REGARDING ENTITLEMENT OF THE ASSESSEE TO HIGHER RATE OF DEPRECIATION ON WIND MILL AS PER APPENDIX I, BUT THE ASSESSING OFFICER HAS DISALLOWED THE CLAIM ON THE GROUND THAT THE ASSESSEE IN THE EARLIER YEAR, I.E., THE ASSESSMENT YEAR 2005 - 06 DID NOT EXERCISE OPTION WI THIN THE DUE DATE OF FILING OF RETURN AS PER SECTION 139(1) OF THE INCOME - TAX ACT. THUS ON THE MERITS THERE IS NO DISPUTE ABOUT THE ENTITLEMENT OF THE ASSESSEE AT 80 PER CENT. OF DEPRECIATION ON WIND MILL BUT DUE TO TECHNICAL DEFECT IN VIEW OF THE ASSESSIN G OFFICER THE ASSESSEE WAS DENIED THE SAID CLAIM. WHEN THERE IS NO SPECIFIC FORM OR METHOD PRESCRIBED FOR EXERCISING THE SAID OPTION AS PER THE SECOND PROVISO TO RULE 5(1A), THEN THE CLAIM MADE IN THE RETURN OF INCOME AS WELL AS REFLECTED FROM THE BOOKS OF ACCOUNT AND AUDIT REPORT IS MORE THAN SUFFICIENT FOR EXERCISING THE OPTION AS REQUIRED UNDER THE SECOND PROVISO TO RULE 5(1A). IT IS AN UNDISPUTED FACT THAT THE ASSESSEE EXERCISED THE OPTION FOR THE ASSESSMENT YEAR 2005 - 06 BUT THE RETURN WAS FILED AFTER T HE DUE DATE OF FILING RETURN AS PER SECTION 139(1) OF THE INCOME - TAX ACT. IT MAY BE AN ISSUE OF EXERCISING THE OPTION AFTER DUE DATE FOR THE ASSESSMENT YEAR 2005 - 06 BUT IT CANNOT BE AN ISSUE IN DISPUTE FOR THE SUBSEQUENT YEAR. AS PER THE THIRD PROVISO TO R ULE 5(1A) WHEN AN OPTION ONCE EXERCISED SHALL BE FINAL AND SHALL APPLY TO ALL THE SUBSEQUENT ASSESSMENT YEARS ; THEN FOR THE SUBSEQUENT YEARS, THERE IS NO REQUIREMENT OF EXERCISING ANY SEPARATE OPTION. ONCE THE ASSESSEE HAS EXERCISED HIS OPTION FOR THE ASS ESSMENT YEAR 2005 - 06, THAT MAY BE BELATED FOR THAT ASSESSMENT YEAR BUT ONCE IT IS EXERCISED THEN THERE IS NO REQUIREMENT FOR FURTHER EXERCISING THE OPTION IN THE SUBSEQUENT YEAR. EVEN OTHERWISE THE OPTION EXERCISED FOR THE ASSESSMENT YEAR 2005 - 06 BECOMES F INAL AND APPLICABLE TO THE ASSESSMENT YEAR 2006 - 07, WHICH IS UNDER CONSIDERATION AND THE SAME IS WELL WITHIN TIME FOR THIS YEAR. 7. IN VIEW OF THE ABOVE DISCUSSION, WE HOLD THAT THE ASSESSEE, FOR THE YEAR UNDER CONSIDERATION, HAS SATISFIED THE REQUIREMENT OF THE SECOND PROVISO TO RULE 5(1A) AND THEREFORE, IS ENTITLED TO DEPRECIATION ON WIND MILL AS PER APPENDIX I. THE LOWER AUTHORITIES HAVE NOT TAKEN A CORRECT VIEW ON THIS ISSUE. THE ORDERS OF THE LOWER AUTHORITIES ARE SET ASIDE QUA THIS ISSUE. 14. WE NO TED THAT THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF JINDAL STEEL AND POWER LTD. VS. CIT, (2007) 106 TTJ DELHI 943 HAS HELD AS UNDER : 32. GROUND OF APPEAL NO. 2 IS DIRECTED AGAINST THE DISALLOWANCE OF DEPRECIATION ON TURBINES TO THE EXTENT OF RS . 2,2 1 ,40, 1 312 OUT OF RS. 3,80,50,138 CLAIMED BY THE ASSESSEE ON THE GROUND THAT THE ASSESSEE WAS ENTITLED TO DEPRECIATION ON S T RAIGH TLINE BASIS AND NOT ON THE WD V BASIS . THE LEARNED A O HELD THAT UNDER RULES VARIOUS 14 ITA NOS. 1242/BANG/2013 & 163/PNJ/2014 (A.Y. 2009 - 10 & 2010 - 11) POWER GENERATING TURBINES PUT TO USE DURING TH E FINANCIAL YEAR 1998 - 99 WERE ENTITLED TO DEPRECIATION ON STRAIGHTLINE METHOD . DUR ING THE COURSE OF PROCEEDINGS BEFORE THE LEARNED CIT(A), THE ASSESSEE POINTED OUT THAT UNDER R.5(1A) OF IT RULES, THE ASSESSEE WAS GIVEN AN OPTION TO CLAIM DEPRECIATION IF H E SO DESIRED ON WDV BASIS INSTEAD OF STRAIGHT LINE METHOD BASIS. SINCE THE ASSESSEE HAD OPTED FOR DEPRECIATION ON WDV BASIS, THE AO ERRED IN REDUCING THE ASSESSEES CLAIM OF DEPRECIATION TO AN AMOUNT WORKED OUT ON THE BASIS OF STRAIGHT LINE METHOD. THE LE ARNED CIT(A) HELD THAT THE ASSESSEE HAD NOT EXERCISED HIS OPTION AND, THEREFORE, THE AO RIGHTLY CALCULATED DEPRECIATION ON STRAIGHT LINE METHOD. ON CONSIDERATION OF THE MATTER WE FIND THAT AS PER SECOND PROVISO TO R. 5(1A), THE ASSESSEE MAY, INSTEAD OF THE DEPRECIATION SPECIFIED IN APPEN. IA ON HIS OPTION, BE ALLOWED DEPRECIATION UNDER SUB - R. (I) R/W APPEN. I I.E. ON WDV BASIS IF SUCH OPTION WAS EXERCISE BY THE ASSESSEE BEFORE THE DUE DATE FOR FURNISHING THE RETURN OF INCOME UNDER SECTION 139(1) OF THE ACT FOR ASST . YR . 1998 - 99 O R FOR THE ASSESSMENT RELEVANT TO THE PREVIOUS YEAR IN WHICH THE ASSESSEE BEGAN TO GENERATE POWER, WHICHEVER IS LATER. I T IS SEEN THAT NO PARTICULAR FORMAT OR PROCEDURE HAS BEEN LAID DOWN IN THE SECOND P R OVISO IN RELATION TO EXERCISE OF OPTION BY AN ASSESSEE. SECOND PROVISO ONLY SAYS THAT OPTION IS TO BE EXERCISED BEFORE THE DUE DATE FOR FURNISHING THE RETURN OF INCOME UNDER SECTION 139(1) FOR THE ASS T . YR. 1998 - 99 IN RESPECT OF POWER GENERATING UNDERTAKING THEN EXISTING AND FOR THE FI RST ASSESSMENT YEAR IN WHICH A NEW UNDERTAKING BEGINS TO GENERATE POWER . THE CASE OF THE ASSESSEE IS THAT IT BEGAN TO GENERATE POWER DURING THE PREVIOUS YEAR RELEVANT TO ASST. YR. 1999 - 2000. AS PER ANNEX. D ANNEXED TO THE C O MPUTATION OF INCOME CHARGEABLE TO TAX FILED ALON G WITH THE RETURN OF INCOME FOR ASST. YR. 1999 - 2000 , THE ASSESSEE HAD CLAIMED DEPRECIATI O N IN ACCORDANCE WITH SUB - R. ( 1 ) R/W APPEN. I. THEREAFTER THE ASSESSE E S RETURN OF INCOME WAS PROCESSED UNDER SECTION 143(1) ON 29TH SEPT., 2000 AND NO ADJUSTMENT IN THAT BEHALF WAS MADE BY THE AO. ACCORDING TO THE LEARNED COUNSEL FOR THE ASSESSEE THE RETURN OF INCOME FILED BEFORE THE DUE DATE OF FURNISHING THE RETURN UNDER SECTION 139(1) FOR ASST. YR. 1999 - 2000, MADE PROPER COMPLIANCE TO THE REQUIREMEN TS OF THE SECOND PROVISO TO R. 5(1A) OF IT RULES. ON CONSIDERATION OF THE MATTER WE ACCEPT THIS ARGUMENT. AS NOTICED EARLIER THE PROVISIONS OF IT RULES, 1962 HAVE NOT LA I D DOWN ANY PARTICULAR PROCEDURE FOR EXERCISE OF OPTION BY THE ASSESSEE. THAT BEING SO THE ASSESSEE COULD FIND THE OCCASION TO EXERCISE HIS OPTION WHILE FILING THE RETURN OF INCOME FOR ASST. YR. 1999 - 2 000 . WE DO NOT APPRECIATE THE LOGIC OF THE CONTENTION OF THE LEARNED COUNSEL CIT(A) THAT EVEN AFTER HAVING CLAIMED DEPRECIATION UNDER THE GENE RAL PROVISIONS OF APPEN. I, THE ASSESSEE HAD NOT EXERCISED HIS OP TION AS CONT E MPLATED IN THE SECOND PR O VISO. WE, THEREFORE, ALLOW ASSESSEES GROUND OF APPEAL NO. 2 AND DIRECT THE LEARNED AO TO ALLOW THE ASSESSEE DEPRECIATION AS ADMISSIBLE TO THE ASSESSEE UNDER SUB - R. (1) OF R. 5 R/W APPEN. I. 15. FROM THESE DECISIONS, IT IS APPARENT THAT RULE 5(1A) HAS NOT PRESCRIBED ANY PARTICULAR FORM OR PROCEDURE IN THE SECOND PROVISO IN RELATION TO EXERCISING 15 ITA NOS. 1242/BANG/2013 & 163/PNJ/2014 (A.Y. 2009 - 10 & 2010 - 11) OF THE OPTION BY THE ASSESSEE. THE SECOND PROVISO TO RUL E 5(1A) ONLY LAYS DOWN THAT THE OPTION HAS TO BE EXERCISED BEFORE THE DUE DATE OF FURNISHING OF RETURN OF INCOME U/S 139(1) FOR A.Y 1998 - 99 IN RESPECT OF POWER GENERATING UNDERTAKING THEN EXISTING AND FOR THE FIRST ASSESSMENT YEAR IN WHICH A NEW UNDERTAKIN G BEGINS TO GENERATE POWER. THE ASSESSEE CLAIMED DEPRECIATION IN ITS RETURN, EVEN THOUGH FILED BELATEDLY, BUT WITHIN THE DATE AS PRESCRIBED U/S 139(4) IN ACCORDANCE WITH SUB - RULE (1) READ WITH APPENDIX - 1. THE HON'BLE BOMBAY HIGH COURT, AS WE HAVE ALREADY NOTED ABOVE, WHILE INTERPRETING EXPLANATION TO SEC. 11(1) TOOK THE VIEW THAT IF THE RETURN IS FILED WITHIN THE TIME ALLOWED U/S 139(4) THE REQUIREMENT OF THE SAID EXPLANATION WILL STAND SATISFIED. SIMILAR VIEW HAS BEEN TAKEN BY THE HON'BLE KARNATAKA HIGH COURT WHILE INTERPRETING THE PROVISIONS OF SEC. 54. THE DECISION OF THE JURISDICTION HIGH COURT IS BINDING ON US. NO CONTRARY DECISION WAS BROUGHT TO OUR KNOWLEDGE. EVEN OTHERWISE ALSO, IT IS A SETTLED LAW THAT RULE CANNOT SUPERSEDE THE ACT. U/S 32 TH ERE IS NO SPECIFIC PROVISION OF EXERCISING OF THE OPTION WITHIN A PARTICULAR TIME, THEREFORE, TO THAT EXTENT THE CONDITION IMPOSED UNDER RULE 5(1A) PROVISO (II), IN OUR OPINION, IS INVALID. WE, THEREFORE, SET ASIDE THE ORDER OF CIT(A) ON THIS ISSUE AND DI RECT THE AO TO ALLOW THE DEPRECIATION TO THE ASSESSEE IN ACCORDANCE WITH APPENDIX - 1 ON THE ITEMS WHICH ARE MENTIONED UNDER COLUMN 8(IX)(D) AS PER THE RATE SPECIFIED THEREIN. THUS, GROUND NOS. 1 TO 7 IN A.YS 2009 - 10 AND 2010 - 11 ARE ALLOWED. 16. GROUND NOS . 8 TO 9 IN A.Y 2010 - 11 RELATES TO THE CLAIM OF DEDUCTION BY THE ASSESSEE U/S 43B IN RESPECT OF PURCHASE TAX PAYABLE AMOUNTING TO RS.4,62,04,825/ - . THE BRIEF FACTS OF THESE GROUNDS ARE THAT THE AO NOTED THAT THE CAN E PURCHASE TAX CLAIMED BY THE ASSESSEE R EMAINS UNPAID BY THE DUE DATE OF FILING THE RETURN. THE ASSESSEE CLAIMED THAT SINCE IT IS ELIGIBLE FOR CONVERSION OF CAN PURCHASE TAX INTO LOAN AS PER THE SCHEME OF KARNATAKA GOVT. AS PER 2009 TO 2014 INDUSTRIAL POLICY, NO DISALLOWANCE IS CALLED FOR. THE AO IN THE ABSENCE OF ANY CLEAR ORDER DISALLOWED THE SAME. CIT(A) ALSO SUSTAINED THE DISALLOWANCE. 16 ITA NOS. 1242/BANG/2013 & 163/PNJ/2014 (A.Y. 2009 - 10 & 2010 - 11) 17. WE HEARD THE RIVAL SUBMISSIONS AND CAREFULLY CONSIDERED THE SAME ALONGWITH THE ORDER OF THE TAX AUTHORITIES BELOW. WE NOTED THAT THE LIABILITY HAS A RISEN VIDE ORDER DT. 13.1.2011 FOR F.Y 2009 - 10 FOR PURCHASE TAX PAYABLE AMOUNTING TO RS. 4,78,14,963/ - . A SUM OF RS. 4,62,04,825/ - SINCE REMAINS DISALLOWED U/S 43B AS PER GROUND OF APPEAL TAKEN BEFORE US, WE, THEREFORE, RESTRICT THE GROUND TO SUM OF RS. 4 ,62,04,825/ - . WE NOTED AS PER THE GOVERNMENT ORDER OF THE STATE GOVERNMENT OF KARNATAKA DT. 29.2.2009 THERE WAS A PROVISION UNDER THE INDUSTRIAL POLICY 2009 - 10 FOR CONVERSION OF SUGAR CANE PURCHASE TAX INTO INTEREST FREE LOANS. PARA 19 OF THIS POLICY STA TES AS UNDER : NEW SUGAR FACTORIES AND EXISTING SUGAR FACTORIES WHO HAVE NOT AVAILED PURCHASE TAX DEFERMENT HAVING CO - GENERATION FACILITIES AND ETHANOL PRODUCTION WOULD BE CONSIDERED FOR CONVERSION OF PURCHASE TAX ON SUGARCANE AS INTEREST FREE LOAN ON CASE BASIS DEPENDING ON THE FINANCIAL POSITION OF THE FACTORY. IN CAS E OF EXISTING SUGAR FACTORIES WHICH ESTABLISH CO - GENERATION PLANTS, ETHANOL PLANT, SUCH INVESTMENT WILL BE TREATED AS EXPANSION FOR AVAILING INCENTIVES & CONCESSIONS AS PER THIS POLICY, BUT LIMITED TO THE INVESTMENT MADE ON SUCH ADDITIONAL PROJECTS. 18. SUBSEQUENTLY, PARA 19 OF THE SAID INDUSTRIAL POLICY HAS BEEN REPLACED BY THE GOVERNMENT ORDER NO. CI 06 SPI 2010, BANGALORE, DATED : 05/08/2011 AS UNDER : GOVERNMENT ORDER NO: CI 06 SPI 2010, BANGALORE, DATED : 05/08/2011. IN THE CIRCUMSTANCES EXPLAINED I N THE PREAMBLE, GOVT. IS PLEASED TO REPLACE PARA NO. 19 OF ANNEXURE - 2 TO THE NEW INDUSTRIAL POLICY 2009 - 14, ISSUED VIDE G.O READ AT (1) ABOVE WITH THE FOLLOWING. (A) NEW SUGAR UNITS SET UP WITH COGENERATION PLANTS WILL BE PROVIDED INTEREST FREE LOAN TO THE EXTENT OF PURCHASE TAX TO BE PAID ON THE SUGARCANE DURING FIRST 5 YEARS OF THE OPERATIONS. (B) EXISTING SUGAR FACTORIES TAKING UP EXPANSION OF THE SUGARCANE CRUSHING CAPACITY ALONG WITH SETTING UP OF COGENERATION UNIT WILL ALSO BE ELIGIBLE FOR THE INTERES T FREE LOAN DURING FIRST 5 YEARS FROM COMPLETION OF THE EXPANSION. THE INTEREST FREE LOAN WILL BE PROVIDED TO EXTENT OF THE PURCHASE TAX PAID ON THE SUGARCANE CRUSHED OVER AND ABOVE THE PRE - EXPANSION CRUSHING CAPACITY 17 ITA NOS. 1242/BANG/2013 & 163/PNJ/2014 (A.Y. 2009 - 10 & 2010 - 11) (C) REPAYMENT OF THE ABOVE LOANS WILL BE IN FIVE ANNUAL INSTALLMENTS FROM THE SIXTH YEAR. (D) THE INCENTIVE WILL BE AVAILABLE TO THE UNITS COVERED UNDER 2009 - 14 INDUSTRIAL POLICY. THE TERMS AND CONDITIONS WILL BE ISSUED SEPARATELY WITH THE APPROVAL OF SLCC. THIS ORDER IS ISSUED WITH THE CONCUR RENCE OF FINANCE DEPARTMENT VIDE U.O. 19. THE SAID INDUSTRIAL POLICY NO DOUBT ENTITLES THE ASSESSEE FOR AVAILING OF INTEREST FREE LOANS TO THE EXTENT OF PURCHASE TAX TO BE PAID ON SUGAR CANE DURING THE FIRST 5 YEARS OF ITS OPERATIONS AND IN CASE OF EXIST ING UNITS, THEY ALSO WILL BE ELIGIBLE FOR INTEREST FREE LOANS DURING THE FIRST 5 YEARS FROM COMPLETION OF THE EXPANSION. THE CLAIM OF THE ASSESSEE BEFORE US IS THAT THE PURCHASE TAX PAYABLE BY IT HAS BEEN CONVERTED INTO INTEREST FREE LOAN AND THEREFORE IT IS DEEMED TO HAVE BEEN PAID WITHIN THE DUE DATE I.E. BEFORE FILING OF THE RETURN AND THE ASSESSEE, THEREFORE, BE ALLOWED DEDUCTION AS PER PROVISIONS OF SEC. 43B. RELIANCE WAS PLACED ON THE CBDT CIRCULAR NO. 674 DT. 29.12.1993. WE NOTED THAT CIRCULAR NO. 674 DT. 29.12.1993 RELATES TO SALES TAX DEFERMENT SCHEME BROUGHT OUT BY THE VARIOUS STATE GOVERNMENTS. IN THIS REGARD, THE BOARD IN THIS CIRCULAR HAS DECIDED WHEN THE AMOUNT OF SALES TAX LIABILITY CONVERTED INTO LOAN MAY BE ALLOWED AS DEDUCTION IN THE AS SESSMENT FOR THE PREVIOUS YEAR IN WHICH SUCH CONVERSION HAS BEEN PERMITTED BY OR UNDER THE GOVERNMENT ORDER. IN THE CASE BEFORE US, EVEN THOUGH THE ASSESSEE HAS FILED ABSTRACT OF THE INDUSTRIAL POLICY AS REPRODUCED BY US HEREINABOVE, BUT HAS NOT ADDUCED A NY EVIDENCE OR MATERIAL BEFORE US WHICH MAY PROVE THAT THE PURCHASE TAX PAYABLE BY THE ASSESSEE HAS BEEN CONVERTED INTO LOAN AND THEREFORE THE LIABILITY TOWARDS THE PURCHASE TAX STAND DISCHARGED BEFORE THE DUE DATE OF FILING OF THE RETURN. IN THE INTEREST OF JUSTICE AND FAIR PLAY TO BOTH THE PARTIES, WE SET ASIDE THE ORDER OF CIT(A) AND RESTORE THIS ISSUE TO THE FILE OF THE AO WITH THE DIRECTION THAT THE AO SHALL LOOK INTO THE EVIDENCE FILED BY THE ASSESSEE WHETHER THE SAID PURCHASE TAX PAYABLE BY THE ASSESSEE GOT CONVERTED INTO LOAN AS PER THE INDUSTRIAL POLICY BEFORE THE DATE OF FILING OF THE RETURN BY THE ASSESSEE FOR THE IMPUGNED 18 ITA NOS. 1242/BANG/2013 & 163/PNJ/2014 (A.Y. 2009 - 10 & 2010 - 11) ASSESSMENT YEAR. IN CASE THE AO FINDS THAT THE PURCHASE TAX PAYABLE BY THE ASSESSEE WAS CONVERTED INTO LOAN UNDER THE KA RNATAKA GOVERNMENT SCHEME BEFORE THE DUE DATE OF FILING OF THE RETURN, THE DEDUCTION BE ALLOWED TO THE ASSESSEE, OTHERWISE NOT. THE ASSESSEE IS ALSO DIRECTED TO CO - OPERATE WITH THE AO. 20. GROUND NO. 10 IN A.Y 2010 - 11 RELATES TO CHARGING OF INTEREST U/S 234B & 234C. BOTH THE PARTIES AGREED THAT THIS GROUND IS CONSEQUENTIAL IN NATURE. ACCORDINGLY, THE AO IS DIRECTED TO RE - COMPUTE THE INTEREST AFTER GIVING EFFECT TO THE ABOVE ORDER. 21. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE FOR THE A.Y 2009 - 10 STANDS ALLOWED WHEREAS THE APPEAL FOR THE A.Y 2010 - 11 IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. 22. ORDER PRONOUNCED IN THE OPEN COURT ON 19 /02/2015. SD/ - (D.T.GARASIA) JUDICIAL MEMBER SD/ - (P.K. BANSAL) ACCOUNTANT MEMBER PLACE : PANAJI / GOA DATED : 19 /02/ 201 5 *SSL* COPY TO : (1) APPELLANT (2) RESPONDENT (3) CIT(A) CONCERNED (4) CIT CONCERNED (5) D.R (6) GUARD FILE TRUE COPY, BY ORDER ,