The ACIT,GNR Circle, Gandhinagar V. Sabarmati Gas Co.Ltd., Gandhinagar

ITA 1301/AHD/2012

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 9429 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 8 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-03-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 12-02-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 14-06-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S N SOPARKAR
• Keywords: Capital asset; Depreciation; Search and seizure; Additional depreciation; Capital receipt
• Section: 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD , (BEFORE SHRI ANIL CHATURVEDI, A.M. & SHRI S. S. GOD ARA, J.M.) ( , !'# ' $' $%& , ! '( ) ITA NOS: 2956/AHD/2010 (ASSESSMENT YEAR: 2007-08) DEPUTY COMMISSIONER OF INCOME TAX, GANDHINAGAR CIRCLE, GANDHINAGAR VS. SABARMATI GAS CO. LTD. GSPC BHAVAN, 4 TH FLOOR, SECTOR- 11, GANDHINAGAR (APPELLANT) (RESPONDENT) ITA NOS: 1301/AHD/2012 & 1259/AHD/2012 (ASSESSMENT YEAR: 2008-09) ASSTT. COMMISSIONER OF INCOME TAX, GANDHINAGAR CIRCLE, GANDHINAGAR SABARMATI GAS CO. LTD. GSPC BHAVAN, 4 TH FLOOR, SECTOR-11, GANDHINAGAR 382011 VS. & VS. SABARMATI GAS CO. LTD. GSPC BHAVAN, 4 TH FLOOR, SECTOR- 11, GANDHINAGAR 382011 DEPUTY COMMISSIONER OF INCOME TAX, GANDHINAGAR CIRCLE, GANDHINAGAR PAN: AAKCS0110N (APPELLANT) (RESPONDENT) / BY REVENUE: SHRI VIMALENDU VERMA, CIT D.R. WITH SHR I ANIL KUMAR BHARDWAJ, SR. D.R. / BY ASSESSEE: SHRI S. N. SOPARKAR, A.R. DATE OF HEARING : 12 -02 -2 016 DATE OF PRONOUNCEMENT : 02 -03 -2016 ITA NOS .2956/AHD/2010, 1301 &1259/AHD/12 FOR A.Y. 2007-08 & 2008-09 2 ( )/ ORDER PER ANIL CHATURVEDI, ACCOUNTANT MEMBER THESE THREE APPEALS OF WHICH TWO ARE FILED BY REVEN UE AND THE OTHER ONE BY ASSESSEE ARE AGAINST THE ORDER OF CIT(A), GANDHINAG AR, DATED 30.08.2010 FOR THE ASSESSMENT YEAR 2007-08 AND 17.03.2012 FOR A.Y. 200 8-09. WE FIRST PROCEED WITH A.Y. 2007-08 . 2. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERI ALS ON RECORD ARE AS UNDER: 3. THE ASSESSEE IS A JOINT VENTURE COMPANY OF GUJAR AT STATE PETROLEUM CORPORATION LTD. AND BHARAT PETROLEUM CORPORATION L TD. AND IS ENGAGED IN THE BUSINESS OF SUPPLY OF GAS TO INDUSTRIAL, DOMESTIC A ND COMMERCIAL ESTABLISHMENTS AND TO AUTOMOBILE AND OTHER INDUSTRIAL SECTORS THROUGH THE CITY GAS DISTRIBUTION NETWORK SYSTEMS. ASSESSEE ELECTRONICALLY FILED ITS RETURN OF INCOME FOR A.Y. 2007-08 ON 10.10.2007 DECLARING TOTAL INCOME OF RS.83,81,133/- . THE CASE WAS SELECTED FOR SCRUTINY AND THEREAFTER ASSESSMENT WAS FRAMED U/S.1 43(3) OF THE ACT VIDE ORDER DATED 30.11.2009 AND THE TOTAL INCOME WAS DETERMINED AT R S.6,73,46,290/-. AGGRIEVED BY THE ORDER OF A.O., ASSESSEE PREFERRED APPEAL BEFORE THE LD. CIT(A) WHO VIDE ORDER DATED 30.08.2010 (IN APPEAL NO. CIT(A)/GNR/133/2009 -10) GRANTED PARTIAL RELIEF TO THE ASSESSEE. AGGRIEVED BY THE ORDER OF LD. CIT(A), REVENUE IS NOW IN APPEAL BEFORE US. THE GROUNDS RAISED BY REVENUE IN ITA NO.2956/A HD/2010 READS AS UNDER: (1) THE LEARNED CIT(APPEALS) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION MADE ON ACCOUNT OF INITIAL CONNECTION CHARGES OF RS.5,28 ,72,901/-. (2) THE LEARNED CIT(APPEALS) HAS ERRED IN LAW AND O N FACTS IN DELETING THE ADDITION OF RS.15,97,186/-, MADE ON ACCOUNT OF ESTIMATING THE V ALUE OF CLOSING STOCK OF NATURAL GAS.. ITA NOS .2956/AHD/2010, 1301 &1259/AHD/12 FOR A.Y. 2007-08 & 2008-09 3 (3) THE LEARNED CIT(APPEALS) HAS ERRED IN LAW AND O N FACTS IN DELETING THE ADDITION OF RS.44,95,071/-, MADE ON ACCOUNT OF DISALLOWANCE OF DEPRECIATION ON METERS, INSTRUMENTS ETC. 4. FIRST GROUND IS WITH RESPECT TO DELETING THE ADD ITION MADE ON ACCOUNT OF INITIAL CONNECTION CHARGES OF RS.5,28,72,901/-. 4.1 ON PERUSING THE PROFIT & LOSS ACCOUNT AND NOTES TO FINANCIAL STATEMENTS, ASSESSING OFFICER NOTICED THAT ASSESSEE HAD INSTALL ED CERTAIN METERS AND INSTRUMENTS AT THE SITES OF CUSTOMERS TO PROVIDE THE LAST POINT C ONNECTIVITY AND HAD COLLECTED INITIAL CONNECTION CHARGES OF RS.5,28,72,901/- FROM CUSTOME RS TOWARDS THE COST OF SUCH METERS AND INSTRUMENTS. HE ALSO NOTICED THAT IT WA S NETTED OFF AGAINST RS.4,76,62,071/- BEING THE COST OF METERS AND INSTR UMENTS WHICH WERE IN THE PROCESS OF BEING TRANSFERRED TO BPCL AND WHICH WAS SHOWN UN DER THE HEAD CURRENT LIABILITIES AND THE BALANCE AMOUNT OF RS.52,58,830 /- WAS NETTED OFF FROM THE COST OF ASSETS. THE ASSESSEE WAS ASKED TO SHOW CAUSE AS TO WHY THE ENTIRE RECEIPTS ON ACCOUNT OF INITIAL CONNECTION CHARGES NOT BE CONSIDERED AS INCOME OF THE ASSESSEE TO WHICH ASSESSEE INTER ALIA SUBMITTED THAT THE METERS AND I NSTRUMENTS WERE NOT SOLD TO CUSTOMERS BUT WERE OWNED BY THE ASSESSEE AND RS.4,7 6,62,071/- WAS COLLECTED FOR AND ON BEHALF OF THE BPCL AND TILL THE TRANSFER TO BPCL , THE AFORESAID AMOUNT WAS SHOWN AS CURRENT LIABILITY IN THE ASSESSEES BOOKS OF ACC OUNTS AND THEREFORE, IT CANNOT BE CONSIDERED AS INCOME OF ASSESSEE. WITH RESPECT TO THE REMAINING AMOUNT OF RS.52,58,830/-, IT WAS SUBMITTED THAT IT WAS A CAPI TAL RECEIPT AND WAS NETTED OFF AGAINST THE VALUE OF PLANT AND MACHINERY. THE SUBMISSION O F THE ASSESSEE WAS NOT FOUND ACCEPTABLE TO THE A.O. IN VIEW OF THE FACT THAT THE BUYERS HAD PAID NON REFUNDABLE INITIAL CONNECTION CHARGES AND ACCORDING TO THE A.O ., METERS AND OTHER EQUIPMENTS REMAINED ASSESSEES PROPERTY, EVEN AFTER ITS INSTAL LATION. HE WAS THEREFORE OF THE VIEW THAT THE RECEIPTS IN THE FORM OF INITIAL CONNECTION CHARGES THAT WAS COLLECTED BY ASSESSEE WERE REVENUE RECEIPTS IN THE HANDS OF ASSE SSEE. HE, ACCORDINGLY, CONSIDERED THE AGGREGATE AMOUNT OF RS.5,28,72,901/- AS INCOME OF THE ASSESSEE. ITA NOS .2956/AHD/2010, 1301 &1259/AHD/12 FOR A.Y. 2007-08 & 2008-09 4 5. AGGRIEVED BY THE ORDER OF ASSESSING OFFICER, ASS ESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) WHO DELETED THE ADDITION MADE BY A.O. BY HOLDING AS UNDER: 2.2. I HAVE CONSIDERED THE ASSESSMENT ORDER AS WEL L AS ASSESSEES CONTENTIONS. IT IS SEEN THAT TOTAL AMOUNT OF RS.5,28,72,901/- WAS COLLECTED AS I NITIAL CONNECTION CHARGES FROM CUSTOMERS TOWARDS COST OF THE METERS AND INSTRUMENTS. OUT OF THIS AMOUNT RS.4,76,62,071/- HAVE BEEN COLLECTED ON BEHALF OF BPCL FOR THE METERS AND INST RUMENTS TO BE SUPPLIED BY THEM AND SHOWN AS CURRENT LIABILITIES BY THE APPELLANT. BALANCE AM OUNT OF RS.52,50,830/- HAS BEEN NETTED OUT OF OFF FROM THE VALUE OF COST OF PLANT AND MACHINER IES. A.O. HAS HELD THIS AMOUNT OF RS.5,28,72,901/- AS THE TAXABLE INCOME HOLDING THAT THESE ARE NON-REFUNDABLE INITIAL CONNECTION CHARGES FOR METERS AND EQUIPMENTS INSTAL LED WHICH REMAINS PROPERTY OF THE SELLER. THE ABOVE CONCLUSION OF A.O. IS NOT BASED ON FACTS OF THE CASE BECAUSE OUT OF RS. 5,28,72,901/-, RS.4,76,22,071/- ARE INITIAL CONNECT ION CHARGES COLLECTED ON BEHALF OF BPCL FOR THE EQUIPMENTS TO BE INSTALLED AND THEY HAVE BEEN R IGHTLY SHOWN AS THE CURRENT LIABILITY IN THE ASSESSEE'S CASE. THIS CANNOT BE TREATED AS INCOME O F THE ASSESSEE IN ANY CASE. AS REGARDING THE AMOUNT OF RS.52,50,830/- ASSESSEE HAS TREATED I T AS THE CAPITAL RECEIPT AND HAS REDUCED THE VALUE OF PLANT & MACHINERY BY THIS AMOUNT. THIS IS APPROPRIATE AS THE SAID AMOUNT HAS BEEN RECEIVED TOWARDS THE INSTALLATION OF PIPELINE, METERS AND EQUIPMENTS I.E. CAPITAL ASSETS FOR SUPPLYING GAS TO THE CLIENTS. THIS AMOUNT IS ON ACCOUNT OF BRINGING INTO PLACE THE PLANT & MACHINERY AND APPELLANT HAS ALREADY CLAIMED THE RED UCED DEPRECIATION TO THIS EXTENT. SUCH CONCLUSION IS DULY SUPPORTED BY DECISION OF HON'BLE SUPREME COURT IN THE CASE OF HOSHIARPUR ELECTRIC SUPPLY CO. VS CIT 41 ITR 608 (SC) WHERE TH E RECOUPMENT OF EXPENDITURE FOR BRINGING INTO EXISTENCE A CAPITAL ASSET HAS BEEN HE LD AS CAPITAL IN NATURE. THIS IS FURTHER SUPPORTED BY THE DECISIONS IN THE CASES OF CIT VS P OONA ELECTRIC SUP-PLY CO., LTD 14 ITR 622 (BOM) AND MONGHYR ELECTRIC SUPPLY CO. LTD VS CIT 26 ITR 15 (PATNA). ACCORDINGLY, THIS GROUND OF APPEAL IS ALLOWED AND T HE ADDITION OF RS.5,28,72,901/- IS DELETED. 6. AGGRIEVED BY THE ORDER OF LD. CIT(A), REVENUE IS NOW IN APPEAL BEFORE US. 6.1 BEFORE US, LD. D.R. TOOK US THROUGH THE OBSERVA TIONS AND FINDING OF A.O. AND SUPPORTED HIS ORDER. HE FURTHER SUBMITTED THAT THE CASE LAWS RELIED UPON BY THE ASSESSEE BEFORE LD. CIT(A) ARE DISTINGUISHABLE ON F ACTS. LD. A.R. ON THE OTHER HAND REITERATED THE SUBMISSIONS MADE BEFORE THE A.O. AND LD. CIT(A) AND FURTHER SUBMITTED THAT OF THE TOTAL AMOUNT OF RS.5,28,72,901/- THAT W AS COLLECTED FROM THE CUSTOMERS, RS.4,76,22,071/- WAS COLLECTED FOR ON BEHALF OF THE BPCL AND WAS SHOWN AS CURRENT LIABILITY IN THE BOOKS OF ACCOUNT AND RS.52,50,830/ - THAT WAS COLLECTED ON ITS OWN BEHALF WAS TREATED AS CAPITAL RECEIPTS AND WAS NETT ED OFF AGAINST THE VALUE OF PLANT AND MACHINERY. HE FURTHER SUBMITTED THAT THE AMOUNT WH ICH WAS COLLECTED ON BEHALF OF THE ASSESSEE WAS REDUCED FROM THE BLOCK OF ASSETS AND I T HAD CLAIMED REDUCED DEPRECIATION ITA NOS .2956/AHD/2010, 1301 &1259/AHD/12 FOR A.Y. 2007-08 & 2008-09 5 AND ON THE AMOUNT THAT WAS COLLECTED ON BEHALF OF B PCL, ASSESSEE HAD NOT REDUCED THE BLOCK OF ASSETS. HE FURTHER PLACED RELIANCE ON THE DECISIONS CITED BY ASSESSEE BEFORE THE LD. CIT(A) AND, THUS, SUPPORTED THE ORDER OF LD . CIT(A). 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT CASE IS ABOUT THE TAXABILITY O F INITIAL CONNECTION CHARGES COLLECTED BY THE ASSESSEE. WE FIND THAT LD. CIT(A) AFTER HAV ING CONSIDERED THE SUBMISSIONS OF THE ASSESSEE, HAS GIVEN A FINDING THAT RS.4.76 CROR ES WAS INITIAL CONNECTION CHARGES COLLECTED ON BEHALF OF THE BPCL FOR THE EQUIPMENTS AND WAS RIGHTLY SHOWN AS CURRENT LIABILITY BY THE ASSESSEE AND COULD NOT BE TREATED AS INCOME OF THE ASSESSEE AND WITH RESPECT TO THE BALANCE AMOUNT OF RS.52,50,830/- HE HAS GIVEN A FINDING THAT SINCE THE AMOUNT WAS RECEIVED TOWARDS THE INSTALLATION OF PIP ELINES, METERS AND EQUIPMENTS WHICH ARE ASSETS OF THE ASSESSEE, THE SAID AMOUNT W AS A CAPITAL RECEIPT AS IT WAS FOR BRINGING IN PLANT AND MACHINERY AND ASSESSEE HAS CL AIMED DEPRECIATION AFTER REDUCING THE AFORESAID AMOUNT FROM THE AGGREGATE COST OF ASS ETS. BEFORE US, REVENUE HAS NOT PLACED ANY MATERIAL ON RECORD TO CONTROVERT THE FIN DING OF LD. CIT(A), NOR HAS POINTED OUT AS TO HOW THE DECISIONS RELIED UPON BY ASSESSEE WOULD NOT BE APPLICABLE TO THE PRESENT FACTS. IN VIEW OF THE AFORESAID FACTS, WE FIND NO INFIRMITY WITH THE ORDER OF LD. CIT(A). THUS, THIS GROUND OF REVENUE IS DISMISSED. 8. SECOND GROUND IS WITH RESPECT TO ESTIMATING THE VALUE OF CLOSING STOCK OF NATURAL GAS. 8.1 THE A.O., ON PERUSING THE FINANCIAL ACCOUNTS, N OTICED THAT ASSESSEE HAS SHOWN THE CLOSING STOCK OF NATURAL GAS AT RS.NIL. THE AS SESSEE WAS ASKED TO EXPLAIN AS TO WHY THE QUANTITY OF GAS IN THE PIPELINES BE NOT CON SIDERED AS CLOSING STOCK AND ADDED TO THE INCOME OF ASSESSEE, TO WHICH, ASSESSEE INTER ALIA SUBMITTED THAT THE QUANTITY OF SALE OF GAS IS MORE THAN THE QUANTITY OF PURCHASE O F GAS ON ACCOUNT OF MEASUREMENT TOLERANCES AND HENCE, THE QUESTION OF CLOSING STOC K DOES NOT ARISE. THE SUBMISSION OF THE ASSESSEE WAS NOT FOUND ACCEPTABLE TO THE A.O. A.O. HELD THAT THE ASSESSEE DID NOT ITA NOS .2956/AHD/2010, 1301 &1259/AHD/12 FOR A.Y. 2007-08 & 2008-09 6 FURNISH THE DETAILS OF CLOSING STOCK. A.O., THEREA FTER, PROCEEDED TO ESTIMATE THE VALUE OF CLOSING STOCK, BEING THE GAS IN PIPELINE AT 1% O F THE TOTAL PURCHASES AND ACCORDINGLY MADE AN ADDITION OF RS.15,97,186/-. 9. AGGRIEVED BY THE ORDER OF A.O., ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) WHO DELETED THE ADDITION BY HOLDING AS UNDER : 5.3 I HAVE CONSIDERED THE ASSESSMENT ORDER AS WELL AS ASSESSEE'S CONTENTIONS. THE OBSERVATION OF THE AO IS THAT ASSESSEE HAS NOT FURN ISHED THE DETAILS OF CLOSING STOCK. WHILE THE APPELLANT HAS SUBMITTED A COPY OF LETTER SUBMITTED TO THE AO ON 10/11/2009 AS MENTIONED ABOVE GIVING THE DETAILS OF PURCHASES & SALES AND C LOSING STOCK BEING NIL. IN FACT SALES ARE MUCH MORE THAN PURCHASES AS EXPLAINED TO A.O, (PARA . 5.2) AND ACCEPTED BY A.O. THE APPELLANT HAS EXPLAINED THAT IT IS PURCHASING GAS F ROM GSPC, GSPC TRANSMITS GAS FROM CROSS COUNTRY PIPELINE LAID BY GSPL TO VARIOUS PLACES IN GANDHI NAGAR, SABARKANTHA & MEHSANA TO WHICH APPELLANT CATERS TO. THE GAS IS PURCHASED BY IT AT 'DELIVERY POINT' OR TAP OFF' THE DELIVERY POINT AND PURCHASE POINT ARE THE SAME AND IT IS A BACK TO BACK ARRANGEMENT FOR PURCHASE BY THE APPELLANT AND SALE TO THE CUSTOMERS . FROM THE SAID DELIVERY POINT GAS IS SOLD TO THE CUSTOMERS AS PER PRE-DETERMINED AGREEMENT WI TH THE CUSTOMERS AS PER THEIR REQUIREMENTS IN INDUSTRIES/ESTABLISHMENTS. IT HAS B EEN STATED THAT ONLY THAT MUCH QUANTITY OF GAS IS PURCHASED AS REQUIRED BY THE CUSTOMERS. IN F ACT ASSESSEE DOES NOT HAVE ANY STORAGE FACILITY. THE PURCHASE AND SALE FIGURES HAVE BEEN A CCEPTED BY THE A.O. AS PER EXPLANATION SUBMITTED BY APPELLANT WHERE WHOLE OF PURCHASES ARE STATED TO HAVE BEEN SOLD. IT IS SEEN THAT IN THE CASE OF GSPC FINDINGS ON SIMILAR ISSUE ARE A S UNDER: '6.6. THE ISSUE HAS BEEN GIVEN DUE CONSIDERATION. FIRSTLY, THERE IS THE ISSUE OF CONSISTENCY AND THE MANNER OF RECORDING OF CLOSING STOCK IN THE APPELLANT'S BOOKS. THE APPELLANT HAD FOLLOWED A PARTICULAR METHOD IN A .Y. 2005-06, WHICH HAVE NOT BEEN OBJECTED TO BY THE ASSESSING OFFICER. THE PRE SENT METHOD FOLLOWED IS CONSISTENT WITH THAT AND UNLESS THE METHOD ADOPTED FOR A.Y. 2005- 06 IS CHANGED, THE VALUE OF OPENING AND CLOSING STOCK FOR THE YEAR CAN NOT BE ARRIVED AT AND THE RESULT OF THE INCOME CANNOT BE FOUND OUT. FURTHER, WHAT COM ES OUT CLEARLY IS THAT THE GAS IN THE PIPELINES DOES NOT BELONG TO THE ASSESSEE AND T HE TITLE OF THE GAS PASSES FROM THE SELLER TO THE APPELLANT ONLY AT THE 'DELIVERY POINT '. IN FACT, AT THE SAME 'DELIVERY POINT' THE ASSESSEE FURTHER TRANSFERS THE TITLE OF THE GAS TO THE ULTIMATE BUYERS. THE BILLING BOTH WAYS SEEMS TO BE ON THE BASIS OF MEASU REMENT DONE AT THE 'DELIVERY POINT'. THEREFORE, IN THE TECHNO-COMMERCIAL ASPECT OF THESE TRANSACTIONS, THE POSSIBILITY OF THERE BEING SOME GAS BELONGING TO TH E APPELLANT IN THE PIPELINES, EITHER OF THE SUPPLIER OR THE ULTIMATE BUYER, APPEARS TO B E VERY LOW. IN THE FACE OF THIS SITUATION, THE ONUS WAS ON THE ASSESSING OFFICER TO DISPROVE THE STAND TAKEN BY THE ASSESSEE, BOTH WITH RESPECT TO THE METHOD FOLLOWED AS ALSO THE QUANTUM OF THE CLOSING STOCK, WHICH HAS NOT BEEN DONE BY HIM. THE ESTIMATE MADE, I AM AFRAID, IS PURELY HYPOTHETICAL AND IS NOT RELATED EITHER TO TECHNICAL OR HISTORICAL FACTS OF THE ASSESSEE.' FROM THE FACTS OF THE CASE AND DECISION ON SIMILAR ISSUE MENTIONED ABOVE, ADDITION OF RS.15,98,186/- IS DELETED AND THIS GROUND OF APPEAL IS ALLOWED. 10. AGGRIEVED BY THE ORDER OF LD. CIT(A), REVENUE I S NOW IN APPEAL BEFORE US. ITA NOS .2956/AHD/2010, 1301 &1259/AHD/12 FOR A.Y. 2007-08 & 2008-09 7 10.1 BEFORE US, LD. D.R. SUPPORTED THE ORDER OF A.O . AND FURTHER SUBMITTED THAT SINCE THE ASSESSEE DID NOT FURNISH THE DETAILS OF CLOSING STOCK, A.O. HAD NO OTHER ALTERNATIVE BUT TO ESTIMATE THE VALUE OF CLOSING STOCK AND IN S UCH CIRCUMSTANCES, THE ESTIMATION OF STOCK WAS REASONABLE. HE, THUS, SUPPORTED THE ORDE R OF A.O. LD. A.R. ON THE OTHER HAND REITERATED THE SUBMISSION MADE BEFORE THE A.O . AND LD. CIT(A) AND FURTHER SUBMITTED THAT ASSESSEE IS GETTING THE GAS PURCHASE S AT A DELIVERY POINT OR TAP OFF AND FROM THE SAID DELIVERY POINT OR TAP OFF PO INT, THE GAS IS SOLD TO CUSTOMERS AND THAT THE DELIVERY POINTS AND PURCHASE POINTS ARE SA ME AND THEREFORE THERE IS NO QUESTION OF CLOSING STOCK. HE FURTHER SUBMITTED TH AT QUANTITY OF SALE OF GAS IS MORE THAN QUANTITY OF PURCHASE OF GAS ON ACCOUNT OF MEAS UREMENT TOLERANCE AND HENCE, QUESTION OF CLOSING STOCK DOES NOT ARISE. HE, THUS , SUPPORTED THE ORDER LD. CIT(A). 11. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIAL ON RECORD. WE FIND THAT LD. CIT(A) WHILE DELETING THE ADDITION HA S GIVEN A FINDING THAT ASSESSEE PURCHASED GAS FROM GSPC WHICH IS TRANSMITTED THROUG H PIPELINES AND THAT GAS IS PURCHASED BY IT AT THE DELIVERY POINT OR TAP OFF POINT AND IT IS SAME AS THE POINT AT WHICH IT IS SOLD TO THE CUSTOMERS AND IT IS A BACK TO BACK ARRANGEMENT FOR PURCHASE BY THE ASSESSEE AND SALE TO ITS CUSTOMERS AND THE QUAN TITY PURCHASED BY ASSESSEE IS SAME THAT IS SOLD BY ASSESSEE. BEFORE US, REVENUE HAS N OT PLACED ANY MATERIAL ON RECORD TO CONTROVERT THE ABOVE FINDINGS OF LD. CIT(A). IN VI EW OF THE AFORESAID FACTS, WE FIND NO REASON TO INTERFERE WITH THE ORDER OF LD. CIT(A) AN D THUS, THIS GROUND OF REVENUE IS DISMISSED. 12. GROUND NO.3 IS WITH RESPECT TO DELETING THE ADD ITION ON ACCOUNT OF DEPRECIATION ON METERS AND INSTRUMENTS. 12.1 THE A.O. ON PERUSING THE DEPRECIATION CHART NO TICED THAT ASSESSEE HAS CLAIMED DEPRECIATION OF RS.44,95,071/- ON THE PLANT AND MAC HINERY. A.O. WAS OF THE VIEW THAT SINCE IT IS ASSESSEES SUBMISSION THAT IT IS NOT TH E OWNER OF METERS AND INSTRUMENTS AND ITA NOS .2956/AHD/2010, 1301 &1259/AHD/12 FOR A.Y. 2007-08 & 2008-09 8 THEREFORE, IN THE CASE OF ASSESSEE, THE BASIC REQUI REMENT OF OWNERSHIP OF ASSETS FOR ALLOWANCE OF DEPRECIATION WAS NOT EXISTING AND THER EFORE ASSESSEE WAS NOT ELIGIBLE FOR DEPRECIATION. HE, ACCORDINGLY, DENIED THE CLAIM OF DEPRECIATION OF RS.44,95,071/-. 13. AGGRIEVED BY THE ORDER OF A.O., ASSESSEE CARRIE D THE MATTER BEFORE THE LD. CIT(A) WHO DELETED THE ADDITION BY HOLDING AS UNDER : 6.3 I HAVE CONSIDERED THE ASSESSMENT ORDER AS WELL AS ASSESSEE'S CONTENTIONS. THE AO HAS DISALLOWED DEPRECIATION OF RS,44,95,071/- HO LDING THAT ASSESSEE IS NOT THE OWNER OF THE METERS AND INSTRUMENTS ETC REPRESENTI NG THE PLANT & MACHINERY. IT IS SEEN FROM RECORDS THAT APPELLANT IS THE OWNER OF TH E METERS, INSTRUMENTS, PLANT AND MACHINERY AND HAS SHOWN THE SAME IN THE BOOKS OF AC COUNTS IN SCH. 3 OF THE FIXED ASSETS TO THE ANNUAL REPORTS, DEPRECIATION CHART WA S DULY FILED WITH THE RETURN SHOWING THE VALUE OF PLANT AND MACHINERY OF RS.5,99 ,34,281/- ON WHICH DEPRECIATION OF RS.44,,95,071/- HAS BEEN CLAIMED AFTER REDUCING THE AMOUNT OF INITIAL CONNECTION CHARGES OF RS.52,50,830/- RECOUPED FROM THE CUSTOME RS. THE DETAILED CHART OF PLANT AND MACHINERY SHOWING VARIOUS ITEMS, SELLERS, PURCH ASE VALUE WAS SUBMITTED TO THE AO VIDE ASSESSEE'S LETTER DATED 14/10/2009 WHICH HA S NOT BEEN DISPUTED BY A,O. IN VIEW OF SUCH DETAILED EXPLANATION AND EVIDENCES SUB MITTED, THERE IS NO REASON TO DISALLOW DEPRECIATION. ACCORDINGLY, THE DEPRECIAT ION OF RS.44,95,071/- IS ALLOWED. 14. AGGRIEVED BY THE ORDER OF LD. CIT(A), REVENUE I S NOW IN APPEAL BEFORE US. 14.1 BEFORE US, LD. D.R. SUPPORTED THE ORDER OF A.O . LD. A.R. ON THE OTHER HAND REITERATED THE SUBMISSIONS MADE BEFORE THE A.O. AND LD. CIT(A) AND SUPPORTED THE ORDER OF LD. CIT(A). 15. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIAL ON RECORD. WE FIND THAT LD. CIT(A) WHILE DELETING THE ADDITION HA S GIVEN A FINDING THAT ASSESSEE IS THE OWNER OF METERS AND INSTRUMENTS THAT HAS BEEN SHOWN AS PLANT AND MACHINERY IN THE BOOK OF ACCOUNTS AND THAT ASSESSEE HAS CLAIMED DEPR ECIATION AFTER REDUCING THE AMOUNT OF INITIAL CONNECTION CHARGES WHICH HAS BEEN COLLEC TED FROM CUSTOMERS. HE, THEREFORE, HELD THAT ASSESSEE WAS ELIGIBLE FOR DEPRECIATION. BEFORE US, REVENUE HAS NOT PLACED ANY MATERIAL ON RECORD TO CONTROVERT THE ABOVE FIND INGS OF LD. CIT(A). IN VIEW OF THE AFORESAID FACTS, WE FIND NO REASON TO INTERFERE WIT H THE ORDER OF LD. CIT(A) AND THUS, THIS GROUND OF REVENUE IS DISMISSED. ITA NOS .2956/AHD/2010, 1301 &1259/AHD/12 FOR A.Y. 2007-08 & 2008-09 9 16. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. WE NOW PROCEED WITH THE APPEALS FOR A.Y. 2008-09. 17. ASSESSEE FILED ITS RETURN OF INCOME FOR A.Y. 20 08-09 ON 26.09.2008 DECLARING TOTAL INCOME AT RS.5,03,57,400/-. THE CASE WAS SEL ECTED FOR SCRUTINY AND THEREAFTER ASSESSMENT WAS FRAMED U/S.143(3) OF THE ACT VIDE OR DER DATED 23.12.2010 AND THE TOTAL INCOME WAS DETERMINED AT RS.15,32,73,710/-. AGGRIE VED BY THE ORDER OF ASSESSING OFFICER, ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) WHO VIDE ORDER DATED 17.03.2012 (IN APPEAL NO. CIT(A)-GNR/228/2010-11) G RANTED PARTIAL RELIEF TO THE ASSESSEE. AGGRIEVED BY THE ORDER OF LD. CIT(A), RE VENUE AND ASSESSEE ARE NOW IN APPEAL BEFORE US. THE GROUNDS RAISED BY REVENUE IN ITA NO.1301/AHD/2012 READS AS UNDER: (1) THE LEARNED CIT(APPEALS) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION MADE ON ACCOUNT OF INITIAL CONNECTION CHARGES OF RS.9,32 ,12,585/-. (2) THE LEARNED CIT(APPEALS) HAS ERRED IN LAW AND O N FACTS IN DELETING THE ADDITION MADE BY THE AO IN RESPECT OF CLOSING STOCK OF RS.15,67,7 17/-. 17.1 AS FAR AS APPEAL OF ASSESSEE IN ITA NO.1259/AH D/2012 IS CONCERNED, BEFORE US, AT THE OUTSET ON POINTING OUT THAT THE GROUNDS RAIS ED BY THE ASSESSEE ARE ARGUMENTATIVE IN NATURE AND NOT INCONSONANCE WITH RULE 8 OF INCOM E TAX (APPELLATE TRIBUNAL), RULES, 1963, LD. A.R. SUBMITTED THAT THE PRAYER RAI SED IN THE GROUNDS BE CONSIDERED TO BE THE GROUNDS OF APPEAL. THE EFFECTIVE PRAYERS RA ISED BY THE ASSESSEE IN THE GROUNDS READ AS UNDER: (I) THE PROCESS OF COMPRESSION OF NATURAL GAS FOR THE USE AS A FUEL BE CONSIDERED AS MANUFACTURE (II) THE DECISION OF THE LEARNED CIT(A) TO UPHOLD T HE DECISION OF THE LEARNED A.O REGARDING DISALLOWANCE OF THE ADDITIONAL DEPRECIATI ON RS.80,87,323/- MAY KINDLY BE DELETED. ITA NOS .2956/AHD/2010, 1301 &1259/AHD/12 FOR A.Y. 2007-08 & 2008-09 10 (III) THE DECISION OF THE LEARNED CIT(A) TO UPHOLD THE DECISION OF THE LEARNED A.O REGARDING ADDITION OF THE LIQUIDATED DAMAGES RS.48, 689/- MAY KINDLY BE DELETED. WE FIRST PROCEED WITH REVENUES APPEAL IN ITA NO.1301/AHD/2012 18. BEFORE US, AT THE OUTSET, BOTH THE PARTIES SUBM ITTED THAT GROUNDS RAISED IN THE PRESENT APPEAL OF REVENUE ARE IDENTICAL TO THAT OF GROUND NO.1 & 2 RAISED IN REVENUES APPEAL IN A.Y. 2007-08 AND THE SUBMISSION MADE BY T HEM WHILE ARGUING THE APPEAL OF REVENUE FOR A.Y. 2007-08 ARE ALSO APPLICABLE TO THE GROUNDS RAISED IN A.Y. 2008-09. IN VIEW OF THE AFORESAID SUBMISSIONS MADE BEFORE US BY BOTH THE PARTIES, WE FOR REASONS AS STATED HEREINABOVE WHILE DECIDING THE GR OUND NOS. 1 & 2 OF REVENUES APPEAL FOR A.Y.2007-08 AND FOR SIMILAR REASONS DISM ISS THE GROUNDS OF REVENUE. 19. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. WE NOW PROCEED WITH ASSESSEES APPEAL IN ITA NO. 12 59/AHD/2012 20. GROUND NOS. 1 & 2 ARE INTERCONNECTED, WHICH ARE WITH RESPECT TO NOT TREATING THE PROCESS OF COMPRESSION OF NATURAL GAS AS MANUFACTUR E. 20.1 ON PERUSING THE STATEMENT OF DEPRECIATION, A.O . NOTICED THAT ASSESSEE HAS CLAIMED ADDITIONAL DEPRECIATION AT 20% AMOUNTING TO RS.80,87,323/-. A.O. WAS OF THE VIEW THAT THE NECESSARY CONDITION FOR CLAIMING ADDI TIONAL DEPRECIATION IS THAT ASSESSEE SHOULD BE ENGAGED IN MANUFACTURING OR PRODUCTION OF ANY ARTICLE OR THING. ACCORDING TO THE A.O., THE ASSESSEE HAS CLAIMED BENEFIT OF AD DITIONAL DEPRECIATION ON THE PREMISES THAT THE PROCESS OF COMPRESSION OF NATURAL GAS AMOUNTS TO MANUFACTURE. THE A.O. WAS OF THE VIEW THAT IN THE CASE OF CNG, THERE WAS NO CONSUMPTION OF ANY ARTICLE TO CONVERT THE NATURAL GAS INTO CNG AND IN THE GAS PLANTS, NATURAL GAS WAS CONVERTED TO CNG BY PRESSING NATURAL GAS AT A VERY HIGH PRESSURE . HE WAS THEREFORE OF THE VIEW THAT THE PROCESS OF COMPRESSION OF NATURAL GAS CANN OT BE CONSIDERED AS MANUFACTURING ITA NOS .2956/AHD/2010, 1301 &1259/AHD/12 FOR A.Y. 2007-08 & 2008-09 11 ACTIVITY FOR THE PURPOSE OF CLAIMING ADDITIONAL DEP RECIATION U/S.32(IIA) OF THE ACT. HE, ACCORDINGLY, DENIED THE CLAIM OF ADDITIONAL DEPRECI ATION OF RS.80,87,323/-. 21. AGGRIEVED BY THE ORDER OF A.O., ASSESSEE CARRIE D THE MATTER BEFORE THE LD. CIT(A) WHO UPHELD THE ORDER OF A.O. BY OBSERVING AS UNDER: 5.2 I HAVE CAREFULLY GONE THROUGH THE FACTS OF THE CASE, THE ASSESSMENT ORDER, THE APPELLANT CONTENTIONS, THE PROVISIONS OF THE ACT AN D THE DECIDED LAW ON THE ISSUE. AFTER THOROUGH CONSIDERATION THE FOLLOWING PERTINENT OBSE RVATIONS ARE MADE: A) ADMITTEDLY THERE IS NO CHANGE IN THE COMPOSITION OR PROPERTIES OF THE GAS WHEN IT IS COMPRESSED. IN FACT, THE GAS IS COMP RESSED ONLY TO FACILITATE ITS EASY STORAGE IN LARGER QUANTITIES IN SMALLER SPACE AND THEREFORE EASY TRANSPORTATION. IN FACT, THE PROCESS IS SIMILAR TO AIR BEING COMPRESSED TO FILL IN TUBES/TYRES OF VEHICLES AND IT WOULD BE BEYOND IMAGINATION TO SAY THAT IT IS UNDERGOING MAN UFACTURE. B) ANOTHER IMPORTANT FACTOR IS THAT THE GAS IS AGA IN DECOMPRESSED BEFORE USE BY JUST PASSING THROUGH A NOZZLE. THE WORD 'MANUFACTURE' HAS VARIOUS SHADES OF MEANIN G AND ORDINARILY INVOLVES APPLICATION OF SOME LABOUR, RESULTING IN A FINAL PR ODUCT, WHICH IS COMMERCIALLY DIFFERENT FROM THE ARTICLE TO WHICH THE LABOUR WAS APPLIED. AN ARTICLE IS SAID TO BE COMMERCIALLY DIFFERENT IF IT HAS 'DISTINCT CHARACTE R, NAME AND USE AFTER THE PROCESS TO WHICH IT IS SUBJECTED'. THIS IS NOT THE CASE HERE. THERE IS NO COMMERCIALLY DIFFERENT USE. USE IS THE SAME. ONLY DENSITY HAS CHANGED FOR EASY TRANSPORTATION AND STORAGE. ALL THE PROCESS DOES NOT AMOUNT TO MANUFACTURE/PROD UCTION. THE HON'BLE SUPREME COURT IN THE CASE OF IDANDAS V. ANANT RAMCHANDRA PH ADKE AIR 1982 SC 127, HAS LAID DOWN THREE TESTS AS TO WHAT CONSTITUTES MANUFACTURE , THEY ARE - (I) A CERTAIN COMMODITY SHOULD HAVE BEEN PRODUCED; (II) THE PROCE SS OF PRODUCTION MUST INVOLVE EITHER LABOUR OR MACHINERY; AND (III) THE END PRODU CT SHOULD HAVE A DISTINCT CHARACTER, NAME AND USE. AS PER BLACK'S LAW DICTIONARY MANUFACTURE' IS AS FOLLOWS: 'THE PROCESS OF OPERATION OF MAKING GOODS OR ANY MA TERIAL PRODUCED BY HAND BY MACHINERY OR BY OTHER AGENCY. THE PRODUCTION OF ARTICLES FOR USE FROM RAW OR PREPARED MATERIALS BY GIVING SUCH MATERIALS NEW FORMS, QUALITIES, PROPERTIES OR COMBINATIONS, WHETHER BY HAND LABOUR OR MACHINE.' ACCORDING TO THE WEBSTER'S DICTIONARY, 'MANUFACTURE ' MEANS; '(A ) TO MAKE OR FASHION BY HAND OR MACHINERY, (B) TO WORK INTO USEFUL FORM, (C) TO PRODUCE IN A MECHANICAL WAY, (D) TO PRODUCE GOODS BY HAND OR BY INDUSTRIAL ART OR PROCESSES, ETC.'. THE HON'BLE SUPREME COURT HELD, APPROVING THE DICTIONAR Y MEANING, 'MANUFACTURE' MEANS 'WORK UP MATERIALS INTO FORMS SUITABLE FOR US E'. THE WORD 'MATERIAL' DOES NOT NECESSARILY MEAN THE ORIGINAL RAW MATERIAL, FOR A F INISHED ARTICLE MAY HAVE TO GO ITA NOS .2956/AHD/2010, 1301 &1259/AHD/12 FOR A.Y. 2007-08 & 2008-09 12 THROUGH SEVERAL MANUFACTURING PROCESSES BEFORE IT I S FIT AND MADE READY FOR THE MARKET. WHAT IS ITSELF A MANUFACTURED' COMMODITY MA Y CONSTITUTE A 'MATERIAL' FOR WORKING IT UP INTO A DIFFERENT PRODUCT. IN THE CASE OF CIT V. TATA LOCOMOTIVE & ENGG. CO. LTD. [1968] 68 ITR 325 (BOM.), THE HIGH COURT H ELD THAT THE WORD 'MANUFACTURE' HAS WIDER AND NARROWER CONNOTATION. THE HON'BLE HIG H COURT HELD AS UNDER: 'THE WORD 'MANUFACTURE' HAS A WIDER AND ALSO A NARR OWER CONNOTATION. IN THE WIDER SENSE IT SIMPLY MEANS TO MAKE, OR FABRICATE O R BRING INTO EXISTENCE AN ARTICLE OR A PRODUCT EITHER BY PHYSICAL LABOUR OR B Y POWER, AND THE WORD 'MANUFACTURER' IN ORDINARY PARLANCE WOULD MEAN A PERSON WHO MAKES, FABRICATES OR BRINGS INTO EXISTENCE A PRODUCT OR AN ARTICLE BY PHYSICAL LABOUR OR POWER. THE OTHER SHADE OF MEANING, WHICH IS THE NARROWER MEANING, IMPLIES TRANSFORMING RAW MATERIALS INTO A COMMERCIA L COMMODITY OR A FINISHED PRODUCT WHICH HAS AN ENTITY BY ITSELF, BUT THIS DOES NOT NECESSARILY MEAN THAT THE MATERIALS WITH WHICH THE COMMODITY IS SO MANUFACTURED MUST LOSE THEIR IDENTITY. THUS, BOTH THE WORDS 'MANUFACT URE AND PRODUCE' APPLY TO THE BRINGING INTO EXISTENCE OF SOMETHING WHICH IS D IFFERENT FROM ITS COMPONENTS. ...' (P. 325) THE HON'BLE ITAT, SPL. BENCH, PUNE IN THE CASE OF B . G. CHITALE [116 TTJ (SB)658] HAS HELD THAT IN THE PROCESS OF PASTEURIZATION, THE MILK PASSES THROUGH VARIOUS STAGES OF 'PROCESSING'. DEFECTIVE RAW MILK IS ELIMINATED, ODOUR AND SMELL TEST IS CARRIED OUT. THE RAW MILK IS PASSED THROUGH FINE DUPLEX FILTERS AGAIN TO REMOVE THE IMPURITIES. AT THE NEXT STAGE, PREDETERMINED QUANTITY OF COW'S MIL K IS BLENDED WITH BUFFALO'S MILK AND PUMPED TO A FLOW CONTROLLER, MAINTAINING CONSTANT F LOW THROUGH THE PASTEURIZER. IT IS HEATED TO 45C AND THEN GOES TO FILTRATION STAGE. T HEN THE MILK ENTERS HERMETIC CREAM SEPARATOR, AT' WHICH STAGE THE STANDARDIZATION OF T HE FAT CONTENT IS DONE, I.E., A PROCESS OF ADJUSTMENT OF FAT CONTENT OF MILK BY ADDING CREA M OR SKIMMED MILK SO AS TO OBTAIN APPROPRIATE SPECIFIED CONSTANT FAT CONTENT. THE MIL K IS AGAIN HEATED TO 70.5C AND THEN IT IS COOLED USING GLYCOL CHILLER TO 1 DEGREE C/2 DEGREE C. IN SPITE OF ALL THE PROCESS, THE NAME 'MILK' CONTINUES AND IT IS TREATE D AS SUCH IN THE MARKET, THOUGH THE NATURAL RATIO OF COMPONENTS CHANGES; IT IS USED FOR THE SAME PURPOSE AS IT WOULD HAVE BEEN USED IN ITS ORIGINAL STAGE ITSELF. MERE VALUE ADDITION IS NOT SUFFICIENT TO TREAT IT AS A SEPARATE COMMODITY. SUCH PROCESS HAS TO BE TREATE D AS AN INDEPENDENT PROCESS ELIGIBLE FOR THE CLAIM THE ASSESSEE HAD MADE. [PARA 17]. THE RATIO OF THE DECISION OF THIS CASE OF THE SPECIAL BENCH IS SQUARELY APPLICABLE AS THE USE OF THE COMPRESSED GAS (WHICH AGAIN IS DECOMPRESSED) IS ESSENTIALLY TH E SAME AS BEFORE THE SO CALLED PROCESS OF COMPRESSION. THE HON'BLE SPECIAL BENCH OF CALCUTTA ITAT IN THE C ASE OF SHAW SCOTT DISTILLERIES 70TTJ (SB) 321 HAS DECIDED THAT WHEN ASSESSEE USED TO PURCHASE POTABLE SPIRIT AND BY PROCESSING IT PRODUCED IMFLS LIKE BRANDY, WHISKY AND RUM ETC. BY ADDING CERTAIN PERCENTAGE OF WATER, COLOUR AND ESSENCE ; THEN THER E IS NO DIFFERENCE BETWEEN POTABLE SPIRIT AND BRANDY OR WHISKY. IT ALSO HELD THAT THER EFORE, NO DISTINCT ARTICLE OR THING COULD BE SAID HAVE BEEN PRODUCED BY ASSESSEE AS ALC OHOL REMAINED ALCOHOL THROUGHOUT PROCESSING STAGE TILL IT WAS MARKETED. I N THE INSTANT CASE EVEN BLENDING IS NOT THERE. ITA NOS .2956/AHD/2010, 1301 &1259/AHD/12 FOR A.Y. 2007-08 & 2008-09 13 THE HON'BLE JURISDICTIONAL ITAT, AHMEDABAD A, BENCH IN THE CASE OF AQUA MINERALS PVT LTD 96 ITD 417 HAS ALSO ADJUDICATED ON SIMILAR PRINCIPLES. THE GIST OF THE DECISION IS AS FOLLOWS: 'MANUFACTURE IS MORE COMPREHENSIVE AND EXTENSIVE AN D EVERY PROCESS OR INDEED EVEN A SERIES OF PROCESSES, MAY NOT LEAD TO MANUFACTURE. AND IT IS ONLY WHERE A NEW AND COMMERCIALLY DISTINCT ARTICLE, WITH AN IDENTITY OF ITS OWN, COMES INTO EXISTENCE, THAT 'MANUFACTURE' CAN BE SAI D TO HAVE TAKEN PLACE. THE 'NEWNESS' OR THE 'DISTINCTIVENESS' OF THE PRODUCT T HAT EMERGES, THAT INFORMS, AND, THUS, DEFINES MANUFACTURE, IS NOT ABSTRACT, BU T ONE AMENABLE TO DEFINITIVE TESTS IN TERMS OF THE NAME, USE AND CHARACTER OF TH E END PRODUCT, WHICH TOGETHER LEAD IT TO BE RECOGNIZED AS SUCH IN THE CO MMERCIAL CIRCLES. [PARA 4] THE LAW IN THE MATTER, THUS, HAVING BEEN BROUGHT FO RTH WITH SUFFICIENT CLARITY, WHAT NEEDS TO BE SEEN TO DECIDE THE ISSUE, WAS AS TO WHETHER THE END PRODUCT, I.E. THE TREATED WATER, WHICH IS A PURIFIE D AND DEMINERALISED (TO THE EXTENT REQUIRED) VERSION OF THE NORMAL TAP WATER AS SUPPLIED BY THE MUNICIPAL CORPORATION, CAN BE SAID TO HAVE ACQUIRED THE 'NEWN ESS' OR 'DISTINCTIVENESS' TO THE DEGREE WHERE IT IS RECOGNIZED AS SEPARATE PRODU CT FROM THE RAW/BASE MATERIAL, IN TERMS OF ITS NAME, CHARACTER AND USE, I.E., AN IDENTITY OF ITS OWN. RECOGNITION HAS TO BE IN THE TRADE CIRCLES OF THE M ARKET WHERE IT IS BOUGHT AND SOLD. IF THE MARKET PERCEIVES IT AS A NEW AND DISTI NCT PRODUCT, IT HAS TO BE SO RECOGNIZED. SECTION 80-I, APPLIES ONLY WHERE ARTICL E OR THING (NOT FALLING UNDER THE NEGATIVE LIST) IS MANUFACTURED' AND 'PRODUCED' AND NOT 'PROCESSED', WHICH TERM, AS WOULD BE EVIDENT, HAS A NARROWER CONNOTATI ON, AND IN WHICH CATEGORY THE ASSESSEE'S CASE, WITHOUT DOUBT, FALLS. [PARA 9. 2] THOUGH BY THE PROCESS TO WHICH WATER IS SUBJECT, IT IS RENDERED FREE OF IMPURITIES, MINERALS (PRESENT EITHER FREE OR IN THE FORM OF THEIR SALTS), AND MICRO ORGANISMS AND, THUS, MADE MORE HYGIENIC AND S UITABLE FOR HUMAN CONSUMPTION YET DESPITE THIS TRANSFORMATION, IT REM AINS ONLY DRINKING WATER, I.E., WHAT IT WAS AT THE RAW MATERIAL STAGE. THERE CAN BE NO DOUBT THAT ITS NAME, CHARACTER AND USE IS ONLY OF DRINKING WATER A ND NO MORE AND THE BUYING PUBLIC, AS WELL AS THOSE WHO DEAL IN IT, REGARD IT AS SUCH. IN FACT, THAT IS ITS USP, I.E., ON THE BASIS OF WHICH ITS SOLD AND MARKE TED - AS A PURE AND, THUS, SAFE, WATER FOR HUMAN CONSUMPTION. THE WATER 'CONSU MED' IN THE PROCESS I.E., TAP WATER, IS ALSO DRINKING WATER WHICH SATISFIES T HE DRINKING NEEDS OF A LARGE MAJORITY OF OUR PEOPLE, AS INDEED IT HAS FOR THE PA ST MANY DECADES. AS SUCH, IT IS DIFFICULT TO SEE LOW A NEW PRODUCT HAS COME INTO EXISTENCE. IT MAY BE THAT THE TREATED WATER AS PRODUCED IS A BETTER OR SUPERIOR F ORM OF DRINKING WATER. BUT THAT WOULD NOT ALTER THE RATIO AFORE STATED, FOR TH AT MATTER, A RANGE OF QUALITIES FOR EACH PRODUCT BEING SOLD IN THE MARKET. BUT THIS WOULD NOT MAKE THEM, FOR THAT REASON, TO BE RECOGNIZED AS SEPARATE (GENERIC) PRODUCTS SO THAT THE MARKET STRIVES TO ATTRACT CUSTOMERS BY BUILDING A BRAND NA ME/IMAGE AROUND IT ON THE STRENGTH OF ANY OF ITS DISTINCTIVE OR SUPERIOR ATTR IBUTES' ITA NOS .2956/AHD/2010, 1301 &1259/AHD/12 FOR A.Y. 2007-08 & 2008-09 14 THE PRESENT CASE IS EVEN MORE CLEARLY NOT INVOLVES MANUFACTURE AS COMPOSITION DOESN'T CHANGE AT ALL; WHEREA S WHEN EVEN IMPURITIES, UNDESIRABLE MINERALS ETC., ARE REMOVED IN THE ABOVE CASE; THE PRODUCT WAS HELD TO BE ESSENTIALLY THE SAME EVEN THOUGH A BRAND IMAGE WAS SOUGHT TO BE BUILT FOR ITS SUPERIOR ATTRIBUTES. THE APPELLANT HAS RELIED ON THE DEFINITION OF MANUF ACTURE IN THE CENTRAL EXCISE ACT. THE INCOME-TAX ACT DOES NOT DEFINE MANUFACTURE TO I NCLUDE 'PROCESS' AS DONE BY THE CENTRAL EXCISE ACT, WHEREIN IT HAS BEEN WIDENED TO EVEN INCLUDE PROCESSES INCIDENTAL OR ANCILLARY TO THE COMPLETION OF MANUFACTURED PROD UCT. IN FACT THE DEFINITION OF MANUFACTURE AS PER THE CENTRAL EXCISE HAS BEEN FURT HER WIDENED BY SPECIFIC GOODS AS PER THE SCHEDULE. EVEN CERTAIN PACKAGING OR REPACKI NG HAVE BEEN INCLUDED. THEREFORE, THE MEANING OF MANUFACTURE WHICH HAS BEE N SPECIFICALLY MADE BROADER FOR THE SPECIFIC PURPOSE CANNOT BE IMPORTED HERE. THE H ON. SUPREME COURT IN MANY CASES INCLUDING IDANDAS V. ANANT RAMCHANDRA PHADKE AIR 19 82 SC 127 DISCUSSED EARLIER AND SACS EAGLES CHICORY 255 ITR 178 HAS DEFINED THE TERM 'MANUFACTURE' IN MUCH SPECIFIC CONNOTE THAN A MERE PROCESS. ONE MORE INTERESTING ASPECT OF THIS CASE IS THAT TH E APPELLANT ITSELF HAS NEVER CLAIMED DEDUCTION U/S 80IB ALTHOUGH IT HAS BEEN COM PRESSING GAS FOR LAST MANY YEARS KNOWING THAT IT IS NOT MANUFACTURING ANYTHING . THEREFORE, IT IS HELD THAT THE MERE PROCESS OF COMP RESSION EMPLOYED BY THE APPELLANT DOES NOT LEAD TO MANUFACTURE. THE DECISIO N OF THE AO IN DENYING THE CLAIM OF ADDITIONAL DEPRECIATION IS THEREFORE, UPHELD AND THE RELATED GROUND OF APPEAL AND IT SUB-PARTS ARE DISMISSED. 22. AGGRIEVED BY THE ORDER OF LD. CIT(A), ASSESSEE IS NOW IN APPEAL BEFORE US. 22.1 BEFORE US, LD. A.R. REITERATED THE SUBMISSIONS MADE BEFORE THE A.O. AND LD. CIT(A) AND FURTHER SUBMITTED THAT THE ISSUE IS NOW COVERED IN FAVOUR OF THE ASSESSEE, IN VIEW OF THE DECISION OF CO-ORDINATE BENCH OF TRI BUNAL IN CASE OF GSPC GAS COMPANY LTD. VS. JT. CIT IN ITA NO.3117/AHD/2010 & OTHERS, ORDER DATED 11.04.2014 AND THE DECISION OF MUMBAI TRIBUNAL IN C ASE OF HINDUSTAN PETROLEUM CORPN. LTD. VS. DCIT REPORTED IN [2012] 26 TAXMANN. COM 220 (MUMBAI). HE ALSO POINTED TO THE RELEVANT PARAS OF THE TRIBUNALS ORD ERS. HE THUS SUBMITTED THAT IN VIEW OF AFORESAID DECISIONS, ASSESSEE HAD RIGHTLY CLAIME D ADDITIONAL DEPRECIATION AND ITA NOS .2956/AHD/2010, 1301 &1259/AHD/12 FOR A.Y. 2007-08 & 2008-09 15 THEREFORE SAME SHOULD BE ALLOWED TO IT. LD. D.R. O N THE OTHER HAND SUPPORTED THE ORDER OF A.O. AND LD. CIT(A). 23. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT CASE IS AS TO WHETHER THE ACTI VITY OF COMPRESSION OF GAS TO CNG AMOUNTS TO MANUFACTURE FOR CLAIMING ADDITIONAL DEPR ECIATION U/S.32(IIA) OF THE ACT. WE FIND THAT CO-ORDINATE BENCH OF TRIBUNAL IN CASE OF GSPC GAS COMPANY LTD.(SUPRA) ON IDENTICAL FACTS HAS DECIDED THE ISSU E IN FAVOUR OF ASSESSEE BY HOLDING AS UNDER: 16. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED T HE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELO W. WE FIND THAT THIS ISSUE IS TO BE EXAMINED WHETHER THE ASSESSEE IS ENTITLED FOR ADDIT IONAL DEPRECIATION CLAIMED @ 20% ON PLANT & MACHINERY. BOTH THE AO AND LD.CIT(A) HAV E REJECTED THE CLAIM ON THE BASIS THAT COMPRESSION OF CONVERSION OF PNG TO CNG DOES NOT TANTAMOUNT TO MANUFACTURE, THEREFORE, THE ASSESSEE IS NOT ENTITLE D FOR THE ADDITIONAL DEPRECIATION CLAIMED AS THERE IS ONLY CHANGE OF FORM BUT BASIC I NGREDIENTS REMAIN SAME. 16.1. THE HON'BLE APEX COURT IN THE CASE OF RENDERE D IN THE CASE OF INCOME TAX OFFICER VS. ARIHANT TILES & MARBLES (P) LTD. REPORT ED AT (2010) 320 ITR 79 HAS HELD AS UNDER:- '21. BEFORE CONCLUDING, WE WOULD LIKE TO MAKE ONE O BSERVATION. IF THE CONTENTION OF THE DEPARTMENT IS TO BE ACCEPTED, NAM ELY THAT THE ACTIVITY UNDERTAKEN BY THE RESPONDENTS HEREIN IS NOT A MANUF ACTURE, THEN, IT WOULD HAVE SERIOUS REVENUE CONSEQUENCES. AS STATED ABOVE, EACH OF THE RESPONDENTS IS PAYING EXCISE DUTY, SOME OF THE RESPONDENTS ARE JOB WORKERS AND THE ACTIVITY UNDERTAKEN BY THEM HAS BEEN RECOGNISED BY VARIOUS G OVERNMENT AUTHORITIES AS MANUFACTURE. TO SAY THAT THE ACTIVITY WILL NOT A MOUNT TO MANUFACTURE OR PRODUCTION UNDER S. 80-IA WILL HAVE DISASTROUS CONS EQUENCES, PARTICULARLY IN VIEW OF THE FACT THAT THE ASSESSEES IN ALL THE CASE S WOULD PLEAD THAT THEY WERE NOT LIABLE TO PAY EXCISE DUTY, SALES-TAX ETC. BECAU SE THE ACTIVITY DID NOT CONSTITUTE MANUFACTURE. KEEPING IN MIND THE ABOVE F ACTORS, WE ARE OF THE VIEW THAT IN THE PRESENT CASES, THE ACTIVITY UNDERTAKEN BY EACH OF THE RESPONDENTS CONSTITUTES MANUFACTURE OR PRODUCTION AND, THEREFOR E, THEY WOULD BE ENTITLED TO THE BENEFIT OF S. 80-IA OF THE IT ACT, 1961. 22. FOR THE AFORE-STATED REASONS, CIVIL APPEALS FIL ED BY THE DEPARTMENT STAND DISMISSED WITH NO ORDER AS TO COSTS.' 16.2. RESPECTFULLY FOLLOWING THE RATIO LAID DOWN IN THE CASE OF INCOME TAX OFFICER VS. ARIHANT TILES & MARBLES (P) LTD. (SUPRA), IN OUR OP INION, THE AUTHORITIES BELOW WERE NOT JUSTIFIED IN REJECTING THE CLAIM OF THE ASSESSE E FOR ADDITIONAL DEPRECIATION. THUS, ITA NOS .2956/AHD/2010, 1301 &1259/AHD/12 FOR A.Y. 2007-08 & 2008-09 16 THE ADDITION MADE IN THIS REGARD IS HEREBY DELETED. THUS, GROUND NO.2 OF ASSESSEE'S APPEAL IS ALLOWED. WE ALSO FIND THAT THE CO-ORDINATE BENCH OF TRIBUNAL IN THE CASE OF HINDUSTAN PETROLEUM CORPN. LTD. (SUPRA) HELD THE ACTIVITY OF PROCESS OF BOTTLING OF LPG TO BE MANUFACTURING. THE RELEVANT HELD PORTION OF THE OR DER, AS REPORTED IN (2012) 26 TAXMANN.COM 220 READS AS UNDER: HELD-I ACTIVITY OF FILLING UP CYLINDER WITH LPG THERE IS NO DISPUTE THAT THE LPG PRODUCED IN THE RE FINERY CANNOT BE DIRECTLY SUPPLIED TO THE CONSUMER FOR DOMESTIC USE BECAUSE OF VARIOUS REASONS OF HANDLING, STORAGE AND SAFETY. LPG BOTTL ING OR FILLING THE GAS IN THE CYLINDER IS NOT A SIMPLE ACTIVITY AND CANNOT BE PERFORMED UNDER NORMAL CONDITIONS. THIS IS A HIGHLY TECHNICAL AND COMPLEX ACTIVITY WHICH REQUIRES PRECISE FUNCTIONS OF TECHNICALLY EXPERT PERSONS OR MACHINES. [PARA 6] EVEN PRIOR TO THE PROCESS OF FILLING THE GAS INTO C YLINDER, THERE ARE CERTAIN MEASURES TO ENSURE THAT THE CYLINDER IS ENTIRELY EM PTY; WITHOUT ANY AIR OR OTHER PARTICLES, DIRT AND GREASE OR ANY OTHER SUBST ANCE. IN ORDER TO PREPARE THE CYLINDER READY TO FILL UP WITH THE GAS, THE AIR INSIDE THE CYLINDER IS REMOVED BY USING VACUUM PUMPS AND THEN FILLED WITH A FEW GRAMS OF LPG. THE CYLINDERS WILL THEN BE WASHED BY MEDIUM P RESSURE WATER JETS TO REMOVE ALL THE DIRT AND GREASE FROM THE CYLINDER SU RFACE. THE CYLINDERS ARE THEN FILLED WITH LPG BY AUTOMATIC FILLING CAROUSEL. AFTER FILLING THE GAS, THE CYLINDER IS CHECKED FOR THE CORRECTNESS AND TO ENSURE THAT NO CYLINDER IS REMAINED UNDER FILLED OR OVER FILLED. THE CYLINDER S ARE THEN SENT FOR IN-LINE TEST BOTH FOR CHECKING THE VALVE BUNG LEAK AND THE BODY LEAKS. THE DEFECTIVE CYLINDERS ARE SEPARATED AND SENT FOR THE VALUATION. ALL THE GOOD CYLINDERS ARE THEN SENT TO HOT AIR SEALING UNIT WHE RE THE CYLINDERS ARE SEALED WITH THE PVC SEAL BY HOT CRIMPLING. [PARA 6.1] FURTHER, AS PER NOTIFICATION NUMBER 627 ISSUED UNDE R SECTION 80-IB, DATED 4-8-1999, GAS DISTRIBUTION AND BOTTLING ACTIVITIES ARE TREATED AS MANUFACTURE OR PRODUCING INDUSTRY. [PARA 7.3] AS PER THE GAS CYLINDERS RULE, 2004, FILLING OF CYL INDER WITH THE COMPRESSED GAS INCLUDING TRANSFER OF COMPRESSED GAS FROM ONE CYLINDER TO OTHER CYLINDER IS TREATED AS MANUFACTURE. UNDER EX CISE ACT, COMPRESSED NATURAL GAS MARKETING IS TREATED AS MANUFACTURE. T HOUGH THE ASSISTANT COMMISSIONER CENTRAL EXCISE VIDE HIS DECISION ORDER DATED 23-10-1998 HAS HELD THE BOTTLING OF LPG CYLINDER AS MANUFACTUR E; HOWEVER, IN THE ABSENCE OF THE STATUS OF THE FINALITY OF THE SAID O RDER ONE CANNOT LAY MUCH RELIANCE ON THE SAME. BOTTLING PLANT OF LPG IS AN ESSENTIAL PROCESS FOR RENDERING THE PRODUCT MARKETABLE AND USEABLE FOR TH E END CONSUMER. [PARA 7.4] ITA NOS .2956/AHD/2010, 1301 &1259/AHD/12 FOR A.Y. 2007-08 & 2008-09 17 WORD PRODUCTION AS USED IN SECTIONS 80HH, 80-IA IT IS TO BE NOTED THAT THAT THE TERM USED IN THE SE CTIONS 80HH, 80-I/80-IA IS MANUFACTURING OR PRODUCTION. IT IS SETTLED PROPOSI TION OF LAW, THAT THE WORD PRODUCTION AS USED IN THESE SECTIONS HAS A WIDER CONNOTATION IN COMPARISON TO THE WORD MANUFACTURE. THUS, EVERY MANUFACTURE CAN BE CHARACTERIZED AS PRODUCTION; BUT EVERY PRODUCTION N EED NOT AMOUNT TO MANUFACTURE. THE ACTIVITY, WHICH BRINGS THE COMMER CIALLY NEW PRODUCT INTO EXISTENCE, CONSTITUTES PRODUCTION. [PARA 7.5] THE PROCESS OF BOTTLING OF LPG MAKES THE LPG CAPABL E OF BEING MARKETED AND USED BY THE INDIVIDUAL CONSUMERS AS A DOMESTIC KITCHEN FUEL. AS DISCUSSED EARLIER, THE PROCESS BY WHICH THE LPG IS FILLED UP IN THE CYLINDER MAKES IT POSSIBLE AND VIABLE COMMERCIAL PRODUCT. [P ARA 7.6] IN VIEW OF THE ABOVE IT HAS TO BE HELD THAT THE BOT TLING PLANT WHEREIN THE LPG IS FILLED IN THE CYLINDERS FOR DOMESTIC AND NON -DOMESTIC KITCHEN USE INVOLVES VARIOUS SPECIALIZED PROCESS AND THEREFORE, IT IS AN ACTIVITY OF MANUFACTURE/PRODUCTION. ACCORDINGLY, THE ASSESSEE S CLAIM FOR DEDUCTION HAS TO BE ALLOWED. [PARA 7.7] BEFORE US, REVENUE HAS NOT PLACED ANY CONTRARY BIND ING DECISION ON RECORD NOR HAS POINTED OUT AS TO HOW THE RATIO OF AFORESAID DECISI ONS OF CO-ORDINATE BENCH OF TRIBUNAL BE NOT APPLICABLE TO THE PRESENT FACTS. I N VIEW OF THE AFORESAID FACTS, AND FOLLOWING THE DECISIONS OF CO-ORDINATE BENCHES CITE D HEREINABOVE, WE DIRECT THE A.O. TO ALLOW THE CLAIM OF ADDITIONAL DEPRECIATION OF AS SESSEE. THUS, GROUND NOS. 1 & 2 OF ASSESSEE ARE ALLOWED. 24. GROUND NO.3 IS WITH RESPECT TO THE ADDITION OF LIQUIDATED DAMAGES. 24.1 THE A.O., ON PERUSING THE COMPUTATION OF INCOM E, NOTICED THAT AMOUNT OF RS.48,689/- WHICH WAS RECEIVED AS LIQUIDATED DAMAGE S FROM SUPPLIERS AND VENDORS OF MACHINERY, AS COMPENSATION FOR DELAY IN DELIVERING MACHINERY, WAS CONSIDERED AS CAPITAL RECEIPT BY THE ASSESSEE. A.O. WAS OF THE V IEW THAT THE RECEIPTS WERE OF REVENUE IN NATURE. HE ACCORDINGLY ADDED THE SAME TO THE IN COME OF ASSESSEE. AGGRIEVED BY THE ORDER OF A.O., ASSESSEE CARRIED THE MATTER BEFO RE THE LD. CIT(A) WHO UPHELD THE ORDER OF A.O. AND DIRECTED THE A.O. TO GRANT DEPREC IATION ON THE SAME BY HOLDING AS UNDER: ITA NOS .2956/AHD/2010, 1301 &1259/AHD/12 FOR A.Y. 2007-08 & 2008-09 18 9.3 I HAVE GONE THROUGH THE FACTS OF THE CASE AND THE DECISIONS CITED BY THE AO AND THE APPELLANT. I AM INCLINED TO AGREE WITH THE AO T HAT THE LIQUIDATED DAMAGES IN THIS CASE ARE RELATED TO LOSS OF PROFIT. AS IN THE CASE OF SHRI DIGVIJAY CEMENT CO. LTD AS DECIDED BY THE HON'BLE JURISDICTIONAL HIGH COURT, T HE LOSS COMPENSATED IN THIS CASE APPARENTLY IS RELATED TO LOSS OF PROFIT PARTICULARL Y BECAUSE THE DELAY IN SUPPLYING ACCESSORIES OF MACHINES ALREADY INSTALLED AND RUNNI NG IS ALSO INCLUDED. IT IS TO BE SEEN THAT THE BUSINESS WAS ALREADY RUNNING AND IT I S NOT THE CASE THAT NEW MACHINERY WOULD HAVE RESULTED IN COMMENCEMENT OF PRODUCTION T HEREAFTER. WITH DUE RESPECT IT IS SUBMITTED THAT THE DECISION OF THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF SAURASHTRA CEMENT (SUPRA) IS DISTINGUISHABLE ON FAC TS. THE COMPENSATION RECEIVED IS HELD TO BE REVENUE IN NATURE AND THE DECISION OF TH E AO IS ACCORDINGLY UPHELD. THE APPELLANT HAS REDUCED THE COMPENSATION FROM THE COS T FOR WORKING THE DEPRECIATION. THE AO IS DIRECTED TO ALLOW THE ENHANCED DEPRECIATI ON BY REVERSING THIS ENTRY. THE GROUND IS DECIDED AS ABOVE. 25. AGGRIEVED BY THE ORDER OF LD. CIT(A), ASSESSEE IS NOW IN APPEAL BEFORE US. 26. BEFORE US, LD. A.R. SUBMITTED THAT ISSUE IS COV ERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE CO-ORDINATE BENCH OF TRIBUNAL I N THE CASE OF GSPC (SUPRA) WHEREIN ON IDENTICAL FACTS THE ADDITION HAS BEEN DE LETED. HE POINTED TO THE RELEVANT PARAS OF THE ORDER. HE, THUS, SUBMITTED THAT THE A DDITION BE DELETED. LD. D.R., ON THE OTHER HAND, SUPPORTED THE ORDERS OF A.O. AND LD. CI T(A). 27. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT CASE IS THE TREATMENT TO BE GI VEN TO THE LIQUIDATED DAMAGES I.E. WHETHER IT IS REVENUE RECEIPT OR CAPITAL RECEIPT. IT IS AN UNDISPUTED FACT THAT LIQUIDATED DAMAGES WERE RECEIVED BY THE ASSESSEE FROM THE SUPP LIERS AND VENDORS OF MACHINERY AS COMPENSATION FOR DELAY IN DELIVERY OF THE MACHIN ERIES TO THE ASSESSEE. WE FIND THAT ON IDENTICAL FACTS, THE CO-ORDINATE BENCH OF TRIBUN AL IN THE CASE OF GSPC (SUPRA) AND AFTER PLACING RELIANCE ON THE VARIOUS DECISIONS CIT ED THEREIN, HAD DELETED THE ADDITION BY HOLDING AS UNDER: 23. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED T HE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELO W. WE FIND THAT THE AO HAS OBSERVED THAT THE ASSESSEE HAS CREDITED THE LIQUIDA TED DAMAGE OF RS.2,25,88,566/- HOWEVER, IN THE COMPUTATION OF INCOME, IT HAS REDUC ED THIS AMOUNT. THE AO RELIED ON THE JUDGEMENT OF THE HON'BLE GUJARAT HIGH COURT REN DERED IN THE CASE OF SHREE DIGVIJAY CEMENT CO.LTD. VS. CIT(1982) 138 ITR 45 (G UJ.) AND THE JUDGEMENT OF ITA NOS .2956/AHD/2010, 1301 &1259/AHD/12 FOR A.Y. 2007-08 & 2008-09 19 HON'BLE CALCUTTA HIGH COURT RENDERED IN THE CASE OF CIT VS. ROHTAS INDUSTRIES LTD. (1981) 130 ITR 292 (CAL.). THE AO HAS OBSERVED THAT ON EXAMINATION OF THE LEDGER ACCOUNT OF LIQUIDATED DAMAGE INCOME, THESE ARE RECE IPTS ON VARIOUS DATES BY THE SUPPLIERS OR VENDORS FOR DELAY IN DELIVERY OF VARIO US TYPES OF MACHINERIES AND ACCESSORIES TO THE ASSESSEE. THE HON'BLE HIGH COURT IN THE CASE OF SHREE DIGVIJAY CEMENT CO.LTD. VS. CIT (1982) 138 ITR 45 (GUJ.) HAS HELD AS UNDER:- 'HELD, THAT THE ACTUAL COST OR PRICE OF THE MACHINE RY AND COMPENSATION PAYABLE TO THE ASSESSEE-COMPANY WERE TWO DIFFERENT AND DISTINCT THINGS. COMPENSATION WAS PAID TO SET OFF OR REDUCE THE LOSS WHICH THE ASSESSEE SUFFERED AS A RESULT OF DELAY IN SUPPLY OF MACHINER Y. IT HAS NOTHING TO DO WITH THE COST OF MACHINERY. THOUGH ADJUSTED AGAINST THE COST OF MACHINERY, IT WAS NONE THE LESS COMPENSATION. THE ACTUAL COST OF MACH INERY COULD NOT BE REDUCED BY RS.5,72,216 AND DEPRECIATION AND DEVELOP MENT REBATE HAD TO BE ALLOWED ON THE ENTIRE COST OF MACHINERY AS PER THE AGREEMENT.' 23.1. THE HON'BLE HIGH COURT OF CALCUTTA IN THE CAS E OF CIT VS. ROHTAS INDUSTRIES LTD. (1981) 130 ITR 292 (CAL.) HAS HELD AS UNDER:- 'HELD, THAT NO PART OF THE ACTUAL COST OF THE MACHI NERY HAD BEEN MET BY THE GERMAN FIRM. THE PAYMENT WAS COMPENSATION FOR LOW O UTPUT BECAUSE THE MACHINERY WAS DEFECTIVE. FURTHERMORE, THERE WAS NO REDUCTION OF THE COST OF THE MACHINERY ALREADY SUPPLIED AND THE AMOUNT WHICH THE ASSESSEE HAD RECEIVED ON ACCOUNT OF LOW OUTPUT HAD BEEN TREATED AS A REVENUE RECEIPT AND TAXED AS SUCH. THE AMOUNT OF REBATE RECOVERABLE FRO M THE FOREIGN SUPPLIERS WAS NOT DEDUCTIVE IN DETERMINING THE ACTUAL COST OF THE MACHINERY UNDER S.43(1).' 23.2. HOWEVER, THE HON'BLE SUPREME COURT IN THE CAS E OF CIT VS. SAUARASHTRA CEMENT LTD. (2010) 233 CTR 209:: (2010) 325 ITR 422(SC) HA S HELD AS UNDER:- '13. WE HAVE CONSIDERED THE MATTER IN THE LIGHT OF THE AFORENOTED BROAD PRINCIPLE. IT IS CLEAR FROM CLAUSE NO. 6 OF THE AGR EEMENT DT. 1ST SEPT., 1967, EXTRACTED ABOVE, THAT THE LIQUIDATED DAMAGES WERE T O BE CALCULATED AT 0.5 PER CENT OF THE PRICE OF THE RESPECTIVE MACHINERY AND E QUIPMENT TO WHICH THE ITEMS WERE DELIVERED LATE, FOR EACH MONTH OF DELAY IN DEL IVERY COMPLETION, WITHOUT PROOF OF THE ACTUAL DAMAGES THE ASSESSEE WOULD HAVE SUFFERED ON ACCOUNT OF THE DELAY. THE DELAY IN SUPPLY COULD BE OF THE WHOL E PLANT OR A PART THEREOF BUT THE DETERMINATION OF DAMAGES WAS NOT BASED UPON THE CALCULATION MADE IN RESPECT OF LOSS OF PROFIT ON ACCOUNT OF SUPPLY OF A PARTICULAR PART OF THE PLANT. IT IS EVIDENT THAT THE DAMAGES TO THE ASSESSEE WAS DIRECTLY AND INTIMATELY LINKED WITH THE PROCUREMENT OF A CAPITAL ASSET I.E. THE CEMENT PLANT, WHICH WOULD OBVIOUSLY LEAD TO DELAY IN COMING INTO EXISTE NCE OF THE PROFIT MAKING APPARATUS, RATHER THAN A RECEIPT IN THE COURSE OF P ROFIT EARNING PROCESS. COMPENSATION PAID FOR THE DELAY IN PROCUREMENT OF C APITAL ASSET AMOUNTED TO STERILIZATION OF THE CAPITAL ASSET OF THE ASSESSEE AS SUPPLIER HAD FAILED TO SUPPLY THE PLANT WITHIN TIME AS STIPULATED IN THE AGREEMEN T AND CLAUSE NO. 6 THEREOF ITA NOS .2956/AHD/2010, 1301 &1259/AHD/12 FOR A.Y. 2007-08 & 2008-09 20 CAME INTO PLAY. THE AFORE-STATED AMOUNT RECEIVED BY THE ASSESSEE TOWARDS COMPENSATION FOR STERILIZATION OF THE PROFIT EARNIN G SOURCE, NOT IN THE ORDINARY COURSE OF THEIR BUSINESS, IN OUR OPINION, WAS A CAP ITAL RECEIPT IN THE HANDS OF THE ASSESSEE. WE ARE, THEREFORE, IN AGREEMENT WITH THE OPINION RECORDED BY THE HIGH COURT ON QUESTION NOS. (I) AND (II) EXTRACTED IN PARA 1 (SUPRA) AND HOLD THAT THE AMOUNT OF RS. 8,50,000 RECEIVED BY THE ASS ESSEE FROM THE SUPPLIERS OF THE PLANT WAS IN THE NATURE OF A CAPITAL RECEIPT.' 23.3. WE FIND THAT THE FACTS BEFORE THE HON'BLE APE X COURT WERE THAT THE ASSESSEE ENGAGED IN THE MANUFACTURE OF CEMENT, ETC. ENTERED INTO AN AGREEMENT WITH M/S.WALCHANDNAGAR INDUSTRIES LIMITED, BOMBAY FOR PU RCHASE OF ADDITIONAL CEMENT PLANT FROM THEM FOR A TOTAL CONSIDERATION OF RS.1,7 0,00,000/-. AS PER THE TERMS OF CONTRACT, THE AMOUNT OF CONSIDERATION WAS TO BE PAI D BY THE ASSESSEE IN FOUR INSTALLMENTS. AS PER THE CLAUSE IN THE AGREEMENT, I N THE EVENT OF DELAY CAUSED IN DELIVERY OF THE MACHINERY, THE ASSESSEE WAS TO BE C OMPENSATED AT THE RATE OF 0.5 PER CENT OF THE PRICE OF THE RESPECTIVE PORTION OF THE MACHINERY FOR DELAY OF EACH MONTH BY WAY OF LIQUIDATED DAMAGES BY THE SUPPLIER, WITHOUT PROOF OF ACTUAL LOSS. HOWEVER, THE TOTAL AMOUNT OF DAMAGES WAS NOT TO EXCEED 5 PERCENT OF THE TOTAL PRICE OF THE PLANT AND MACHINERY. THE SUPPLIER DEFAULTED AND FAILED TO SUPPLY THE PLANT AND MACHINERY ON THE SCHEDULED TIME AND, THEREFORE, AS PER THE TE RMS OF CONTRACT, THE ASSESSEE RECEIVED AN AMOUNT OF RS.8,50,000/- FROM THE SUPPLI ER BY WAY OF LIQUIDATED DAMAGES. DURING THE COURSE OF ASSESSMENT PROCEEDINGS FOR THE RELEVANT ASSESSMENT YEAR, A QUESTION AROSE WHETHER THE SAID AMOUNT RECEIVED BY THE ASSESSEE AS DAMAGES WAS A CAPITAL OR A REVENUE RECEIPT. THE AO NEGATIVED THE CLAIM OF THE ASSESSEE THAT THE SAID AMOUNT SHOULD BE TREATED AS A CAPITAL RECEIPT. ACCO RDINGLY, HE INCLUDED THE SAID AMOUNT IN THE TOTAL INCOME OF THE ASSESSEE. AGGRIEV ED, THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A), BUT WITHOUT ANY SUCCESS. THE ASS ESSEE CARRIED THE MATTER FURTHER IN APPEAL TO THE TRIBUNAL. RELYING ON THE RATIO OF THE DECISIONS OF THIS COURT IN CIT VS. RAI BAHADUR JAIRAM VALJI & ORS. (1959) 35 ITR 148 ( SC) AND KETTLEWELL BULLEN & CO. LTD. VS. CIT AIR 1965 SC 65, THE TRIBUNAL CAME TO THE CONCLUSION THAT THE SAID AMOUNT COULD NOT BE TREATED AS A REVENUE RECEIPT. A CCORDING TO THE TRIBUNAL, THE PAYMENT OF LIQUIDATED DAMAGES TO THE ASSESSEE BY TH E SUPPLIER WAS INTIMATELY LINKED WITH THE SUPPLY OF MACHINERY I.E. A FIXED ASSET ON CAPITAL ACCOUNT, WHICH COULD BE SAID TO BE CONNECTED WITH THE SOURCE OF INCOME OR PROFIT MAKING APPARATUS RATHER THAN A RECEIPT IN COURSE OF PROFIT EARNING PROCESS AND, TH EREFORE, IT COULD NOT BE TREATED AS PART OF RECEIPT RELATING TO A NORMAL BUSINESS ACTIV ITY OF THE ASSESSEE. THE TRIBUNAL ALSO OBSERVED THAT THE SAID RECEIPT HAD NO CONNECTI ON WITH LOSS OR PROFIT BECAUSE THE VERY SOURCE OF INCOME VIZ., THE MACHINERY WAS YET T O BE INSTALLED. ACCORDINGLY, THE TRIBUNAL ALLOWED THE APPEAL AND DELETED THE ADDITIO N MADE ON THIS ACCOUNT. BEING DISSATISFIED WITH THE DECISION OF THE TRIBUNAL, AS STATED ABOVE, AT THE INSTANCE OF THE REVENUE, THE TRIBUNAL REFERRED THE AFORENOTED QUEST IONS OF LAW FOR THE OPINION OF THE HIGH COURT. THE REFERENCE HAVING BEEN ANSWERED AGAI NST THE REVENUE AND IN FAVOUR OF THE ASSESSEE. 23.4. IN THE PRESENT CASE ALSO, THE ASSESSEE HAS RE CEIVED LIQUIDATED DAMAGES ON ACCOUNT OF DELAY IN SUPPLY OF MACHINERY. THEREFORE, RESPECTFULLY FOLLOWING THE RATIO LAID DOWN BY THE HON'BLE APEX COURT IN THE CASE OF CIT VS. SAUARASHTRA CEMENT LTD. ITA NOS .2956/AHD/2010, 1301 &1259/AHD/12 FOR A.Y. 2007-08 & 2008-09 21 (2010) 233 CTR 209:: (2010) 325 ITR 422(SC), WE HER EBY DIRECT THE AO TO DELETE THE ADDITION MADE IN THIS REGARD. THUS, THIS GROUND OF ASSESSEE'S APPEAL IS ALLOWED. 28. IN THE PRESENT CASE, WE ARE OF THE VIEW THAT TH E FACTS OF THE PRESENT CASE ARE IDENTICAL TO THAT OF GSPC GAS (SUPRA). WE, THEREFO RE, FOLLOWING THE DECISION OF CO- ORDINATE BENCH IN THE CASE OF GSPC (SUPRA) DIRECT T HAT THE ADDITION MADE THEREIN ON ACCOUNT OF LIQUIDATED DAMAGES RECEIVED BY THE ASSES SEE FROM THE SUPPLIERS OF THE EQUIPMENTS BE DELETED. SINCE, THE ADDITION ITSELF IS DELETED, THE QUESTION OF GRANTING DEPRECIATION ON THE AMOUNT AS DIRECTED BY LD. CIT(A ) DOES NOT ARISE. WE, THEREFORE, DIRECT THE A.O. TO DELETE THE ADDITION OF LIQUIDATE D DAMAGES AND REVERSE THE DEPRECIATION (AS DIRECTED BY LD. CIT(A)) IF ALLOWED TO THE ASSESSEE. THUS, THIS GROUND OF ASSESSEE IS ALLOWED. 29. IN THE RESULT, THE APPEAL OF ASSESSEE IS ALLOWE D. 30. IN THE RESULT, REVENUES APPEALS IN ITA NOS. 29 56/AHD/2010 & 1301/AHD/2012 ARE DISMISSED AND ASSESSEES APPEAL IN ITA NO.1259/ AHD/2012 IS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 02 -03- 2016. SD/- SD/- (S. S. GODARA) (ANIL CHATURVEDI) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD: DATED. 02/03/2016 TRUE COPY S K SINHA COPY OF THE ORDER FORWARDED TO:- 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHMEDABAD