DCIT, Virudhunagar V. M/s. Madras Cements Ltd., Rajapalayam

ITA 1392/CHNY/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 61318 (ITAT-CHENNAI)
• Duration Of Justice: 11 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-07-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 24-07-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 05-08-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANIRUDH RAI IRS
• Assessee Lawyers: V JAGADISAN
• Keywords: Depreciation
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI BEFORE DR. O.K. NARAYANAN, VICE-PRESIDENT, AND SHRI VIKAS AWASTHY, JUDICIAL MEMBER ITA NOS.1391, 1392 & & 1655/MDS/2011 (ASSESSMENT YEARS: 2006-07, 2007-08 & 2008-09) DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-1, KATCHERI ROAD, VIRUDHUNAGAR-626 001. VS. M/S. MADRAS CEMENTS LTD., V.JAGADISAN, C.A., 245, TTK ROAD, RESIDENCY APARTMENTS, ALWARPET, CHENNAI-600 018. PAN:AABCM8375L (APPELLANT) (RESPONDENT) APPELLANT BY : MR. ANIRUDH RAI, IRS, CIT DR RESPONDENT BY : MR. V.JA GADISAN, C.A., DATE OF HEARING : 24 TH JULY, 2012 DATE OF PRONOUNCEMENT : 24 TH JULY 2012 O R D E R PER VIKAS AWASTHY, JUDICIAL MEMBER: THE PRESENT THREE SET OF APPEALS I.E. ITA NO.1391/MDS/2011, 1392/MDS/2011 & 1655/MDS/2011 RELEVANT TO THE ASSESSMENT YEARS 2006-07, 2007-08 & 2008- 09 RESPECTIVELY HAVE BEEN FILED BY THE REVENUE ASS AILING THE ORDERS OF THE CIT(A) FOR THE RESPECTIVE ASSESSMENT YEARS. SINCE IN ALL THE THREE APPEALS COMMON ISSUES ARE IN VOLVED, THE APPEALS ARE TAKEN UP TOGETHER FOR DISPOSAL ON M ERITS. ITA NO. 1391, 1392 & 1655/MDS/2011 2 2. THE COMMON GROUND WHICH HAS BEEN ASSAILED BY THE REVENUE IN ALL THE THREE APPEALS IS DELETION OF ADDITIONS/DISALLOWANCES MADE BY THE ASSESSING OFFIC ER ON ACCOUNT OF COST OF TRANSFORMER AND CIVIL WORKS DONE IN CONNECTION WITH WINDMILLS TREATING THEM AS INDIVIDU AL ITEMS AND NOT FORMING PART OF WINDMILL AND THE RATE OF D EPRECIATION ON THE AFORESAID ITEMS TO BE CHARGED AT 15% AND SU CH ITEMS ARE NOT ELIGIBLE FOR HIGHER RATE OF DEPRECIATION AS IN THE CASE OF WINDMILL. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS ENGAGED IN THE BUSINESS OF MANUFACTURE AND SALE OF CEMENT. IT HAS ALSO SET UP WINDMILLS. THE ASSESSEE MADE A C LAIM OF HIGHER DEPRECIATION ON WINDMILL ON THE TOTAL AMOUNT FOR WHICH INVOICE WAS RAISED BY THE SUPPLIER INCLUDING ITEMS LIKE ELECTRICAL EQUIPMENT, CIVIL CONSTRUCTION WORK FOR E LECTRICAL YARD, INNER ROAD LAID FOR CRANE MOVEMENT ETC. THE ASSESSI NG OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS HELD TH AT THE ASSESSEE WAS NOT ENTITLED TO HIGHER RATE OF DEPRECI ATION ON CIVIL WORKS AND COST OF ELECTRICAL TRANSFORMER. TH E ASSESSING OFFICER WAS OF THE VIEW THAT THE ASSESSEE CANNOT CL UB SUCH ITA NO. 1391, 1392 & 1655/MDS/2011 3 ITEMS TO TAKE ADVANTAGE OF HIGHER DEPRECIATION. EL ECTRICAL TRANSFORMER CANNOT BE TAKEN AS PART OF THE WINDMILL AND THE INNER APPROACH ROADS ARE NOT ENTITLED FOR DEPRECIAT ION AT HIGHER RATES. THE ASSESSING OFFICER REWORKED THE DE PRECIATION AND ALLOWED DEPRECIATION TO THE TUNE OF 15% ON COST OF ELECTRICAL EQUIPMENT I.E. TRANSFORMER AND METER AND 5% ON APPROACH ROAD. ON THE BASIS OF THE AFORESAID OBSERV ATIONS, THE ASSESSING OFFICER DISALLOWED THE HIGHER RATE OF DEPRECIATION ON THE COST OF TRANSFORMERS AND CIVIL WORKS IN THE ASSESSMENT YEAR 2006-07, 2007-08 AND 2008-09. AGGRIEVED AGAINST THE ASSESSMENT ORDERS PASSED IN T HE RESPECTIVE ASSESSMENT YEARS, THE ASSESSEE PREFERRED APPEAL BEFORE THE CIT(A)-II, MADURAI, INTER-ALIA, ASSAILIN G THE DISALLOWANCES/ADDITIONS MADE BY THE ASSESSING OFFI CER. THE CIT(A), MADURAI PARTLY ALLOWED THE APPEALS OF THE A SSESSEE HOLDING THAT THE COST OF TRANSFORMER AND APPROACH ROADS ARE INTEGRAL PART OF THE WINDMILL, THEREFORE, THE SAME ARE ENTITLED FOR HIGHER RATE OF DEPRECIATION. NOW, THE REVENUE I S IN SECOND APPEAL BEFORE THE TRIBUNAL IMPUGNING THE ORDERS OF THE CIT(A)-II, MADURAI. ITA NO. 1391, 1392 & 1655/MDS/2011 4 4. THE AUTHORIZED REPRESENTATIVE APPEARING ON BEHAL F OF THE ASSESSEE SUBMITTED THAT THE AFORESAID GROUND RA ISED BY THE REVENUE IN ALL THE THREE APPEALS HAS ALREADY BE EN DECIDED BY THE CO-ORDINATE BENCH OF THE TRIBUNAL IN FAVOUR OF THE ASSESSEE IN ITA NO.2291/MDS/2008 RELEVANT TO TH E ASSESSMENT YEAR 2005-06 IN THE CASE OF M/S.ASIAN HA NDLOOM VS. DCIT., TRICHY VIDE ORDER DATED 20 TH NOVEMBER, 2009. 5. THE D.R REPRESENTING THE REVENUE WHEN CONFRONTED WITH THE SITUATION COULD NOT BRING ANY LAW CONTRARY TO THE ISSUE ALREADY SETTLED BY THE TRIBUNAL IN THE AFOREMENTION ED CASE. HOWEVER, THE D.R. SUBMITTED THAT SINCE THE REVENUE HAS FILED AN APPEAL BEFORE THE HONBLE HIGH COURT, AGAINST TH E AFOREMENTIONED ORDER OF THE TRIBUNAL, THE ORDER HAS NOT ATTAINED FINALITY. 6. WE HAVE PERUSED THE ORDER OF THE TRIBUNAL IN TH E CASE OF ASIAN HANDLOOM (SUPRA). THE CO-ORDINATE BENCH OF THE TRIBUNAL IN THE SAID CASE HAS OBSERVED AS UNDER:- 12. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE ORDER. THERE CAN BE NO DISPUTE THAT A WIND MILL IS AN APPARATUS THAT HARNESSES WIND POWER, FOR A VARIETY OF USES LIKE PUMPING WATER, DRIVING OF SAW MILL, GRINDING CONE AND/OR DRIVING ITA NO. 1391, 1392 & 1655/MDS/2011 5 ELECTRICAL TURBINES. A TYPICAL WIND MILL, AS INSTALLED BY THE ASSESSEE, WHICH IS OF SUZLON CORPORATION, WOULD CONSIST OF A SPECIALIZED FOUNDATION, ON WHICH THE WIND BLADES ARE ATTACHED THROUGH A POST. THE BLADES CONNECTED IN THE TOP IS A REVOLVING APPARATUS TO WHICH DIFFERENT NUMBERS OF ARMS ARE ATTACHED. WHEN IT IS USED FOR PRODUCING ELECTRICITY, THESE ARE CALLED WIND TURBINES AND SERVES AS A SIGNIFICANT SOURCE OF ELECTRICAL ENERGY. BEING A NON-CONVENTIONAL SOURCE OF ENERGY WITH RENEWABLE INPUTS AND WHICH IS NATURE FRIENDLY, WORLD OVER, WINDMILLS HAVE BEEN GIVEN SPECIAL STATUS, IMPORTANCE AND ENCOURAGEMENT. THERE IS NO DOUBT THAT FOR A WINDMILL TO BE SUSTAINABLE IT HAS TO BE ERECTED IN A PLACE WHERE SUSTAINABLE WIND FLOW IS AVAILABLE WITH A LAND SUITABLE TO A FOUNDATION ON WHICH, A STRUCTURE STRONG ENOUGH TO WITHSTAND A POWERFUL THRUST OF AIR AT ANY POINT OF TIME. SPECIALIZED FOUNDATION AND SPECIALIZED AREA SPECIFICALLY EAR- MARKED TO FACILITATE A FLOW OF WIND WITHOUT HINDRANCE, AND SPECIALIZED ELECTRICAL FITTINGS AND HIGH TENSION LINES ARE ALL BASIC REQUIREMENTS FOR A WIND MILL PLANT. NONE OF THESE REQUIREMENTS INCLUDING THE PREMISES CAN BE SEEN DETACHED FROM WHAT IS CALLED A WIND MILL SINCE A WIND MILL TO WORK THESE ARE ESSENTIAL. ALL THESE ARE NECESSARY INPUTS GOING INTO ULTIMATE COST OF SUCH WIND MILL. THE FOUNDATION STRUCTURE OR THE SPECIALLY DEMARCATED APPURTENANT THERETO CANNOT BE CONSIDERED AS EQUIVALENT TO A HOTEL OR A CINEMA BUILDING WHICH IS ADJUNCT TO CARRYING ON A HOTEL BUSINESS OR THEATRE BUSINESS. ON THE OTHER HAND THESE CAN BE DEEMED ONLY A PART OF A WINDMILL FOR ITA NO. 1391, 1392 & 1655/MDS/2011 6 HARNESSING WIND ENERGY. IN COMING TO THIS CONCLUSION WE ARE FORTIFIED BY DECISION OF HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT V. KARNATAKA POWER CORPORATION (247 ITR 268) WHERE IT WAS HELD THAT WHETHER A THE BUILDING CAN BE TREATED AS A PLANT WAS A QUESTION OF FACT AND WHEN IT IS FOUND AS A FACT THAT THE BUILDING HAS BEEN SO PLANNED AND CONSTRUCTED AS TO SERVE THE ASSESSEES SPECIAL TECHNICAL REQUIREMENT, IT WOULD QUALIFY TO BE TREATED AS A PLANT. IN OUR OPINION, THE EXPENSES RELATING TO THE LAND AND FOUNDATION SPECIALLY INCURRED WITH A VIEW TO SERVE THE TECHNICAL REQUIREMENTS WOULD ALSO BECOME A PART OF THE PLANT IN A CASE THAT OF A WIND MILL. IF WE LOOK AT APPENDIX I TO THE INCOME-TAX RULES, PRESCRIBING THE RATES OF DEPRECIATION, IT CAN BE SEEN THAT LEGISLATURE HAS GIVEN HIGHER DEPRECIATION RATE OF 80% ON ANTI-POLLUTION DEVICES, ENERGY SAVING AND RENEWABLE ENERGY DEVICES. APPARENTLY, THESE HIGHER RATE HAVE BEEN GIVEN NOT SOLELY FOR OFF- SETTING THE IMPAIRMENT IN VALUE OF SUCH ASSETS ON ACCOUNT OF USE BUT ALSO TO ENCOURAGE SUCH ENTREPRENEUAL VENTURES WHICH RESULTS IN ENERGY SAVINGS OR UTILIZATION OF RENEWABLE ENERGY SOURCES, OR PREVENTION OF POLLUTION. IF A VERY LIMITED MEANING IS GIVEN TO THESE TERMS USED IN APPENDIX I OF THE I.T. RULES, IT WOULD DEFEAT THE VERY PURPOSE FOR WHICH SUCH ENHANCED DEPRECIATION WAS PROVIDED FOR. THEREFORE, IN OUR OPINION, ASSESSEES CLAIM FOR DEPRECIATION SHOULD NOT BE RESTRICTED IN THE MANNER MADE BY THE ASSESSING OFFICER. THEREFORE, DISALLOWANCE OF RS. 1,17,00,000/-, 13 LAKHS, 23,51,576/- AND RS. 5,73,824/- ON ACCOUNT ITA NO. 1391, 1392 & 1655/MDS/2011 7 OF DEPRECIATION CLAIM STANDS CANCELLED. GROUND NOS. 5 TO 19 OF THE ASSESSEE STAND ALLOWED. 7. THE ISSUE IN HAND IS SQUARELY COVERED BY THE ORD ER OF THE CO-ORDINATE BENCH OF THE TRIBUNAL PASSED IN THE CASE OF M/S. ASIAN HANDLOOM(SUPRA). THEREFORE, RESPECTFULLY FOLLOWING THE SAME, WE DISMISS THE AFORESAID GROUND IN ITA NO.1391, 1392 AND 1655/MDS/2011 OF THE REVENUE. 8. IN APPEAL NO.1655/MDS/2011 RELEVANT TO THE ASSESSMENT YEAR 2008-09, THE SECOND GROUND AGITATED BY THE REVENUE IS WITH REGARD TO DELETION OF DISALLOWANCE UNDER SECTION 14A AMOUNTING TO ` 2,95,287/-. THE ASSESSING OFFICER VIDE ASSESSMENT ORDER DATED 30.12.2010 DISALLOWED 2 % OF ` 1,47,64,357/- AS EXPENDITURE INCURRED FOR EARNING E XEMPTED INCOME (DIVIDEND INCOME). 9. AGGRIEVED AGAINST THE ASSESSMENT ORDER, THE ASSE SSEE PREFERRED AN APPEAL BEFORE THE CIT(A) ASSAILING THE ORDER OF THE CIT(A), INTER-ALIA, ON ACCOUNT OF DISALLOWANC E UNDER SECTION 14A. THE CIT(A) VIDE ORDER DATED 14.7.2011 ALLOWED THE GROUND OF APPEAL OF THE ASSESSEE BY OBSERVING T HAT IN VIEW OF THE SMALLNESS OF QUANTUM OF NEW INVESTMENTS MADE ITA NO. 1391, 1392 & 1655/MDS/2011 8 DURING THE RELEVANT ASSESSMENT YEAR TO THE TUNE OF ` 1,61,124/-, NO ADDITION IS WARRANTED AND DIRECTED T O DELETE THE ADDITION OF ` 2,95,287/- MADE UNDER SECTION 14A. WE SEE NO INFIRMITY IN THE FINDINGS OF THE CIT(A) ON THIS ISSUE, KEEPING IN MIND THE MEAGER AMOUNT INVOLVED. WE CONFIRM THE FINDINGS OF THE CIT(A). THEREFORE, THIS GROUND OF APPEAL OF THE REVENUE IS ALSO DISMISSED. 10. IN THE RESULT, ALL THE THREE APPEALS OF THE REV ENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT AT THE TIME OF HEARING ON TUESDAY, THE 24 TH DAY OF JULY, 2012 AT CHENNAI. SD/- SD/- (DR. O.K.NARAYANAN) (VIKAS AWASTHY) VICE PRESIDENT JUDICIAL MEMBER CHENNAI, DATED THE 24 TH JULY, 2012. SOMU COPY TO: (1) APPELLANT (4) CIT(A) (2) RESPONDENT (5) D.R. (3) CIT (6) G.F.