M/s. Asian Handlooms, Karur V. DCIT, Trichy

ITA 176/CHNY/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 61286 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 4 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-07-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 29-05-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 17-02-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DR YOGESH KAMAT
• Assessee Lawyers: S SRIDHAR
• Keywords: Depreciation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI BEFORE SHRI N.S.SAINI, ACCOUNT ANT MEMBER AND SHRI VIKAS AWASTHY, JUDICIAL MEMBER ITA NO.176/MDS/2010 (ASSESSMENT YEAR: 2006-07) M/S. ASIAN HANDLOOMS C/O. S.SRIDHAR, ADVOCATE, NEW NO.14, OLD NO.82, FLAT NO.5 1 ST AVENUE, INDIRA NAGAR, ADYAR, CHENNAI-600 020. PAN:AABFA0568Q VS. DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-II, TRICHY. (APPELLANT) (RESPONDENT) APPELLANT BY : MR. S.SRIDHAR, ADVOCATE RESPONDENT BY : DR. YOGE SH KAMAT, JCIT DATE OF HEARING : 29 TH MAY, 2012 DATE OF PRONOUNCEMENT : 6 TH JULY, 2012 O R D E R PER VIKAS AWASTHY, JUDICIAL MEMBER: THE PRESENT APPEAL HAS BEEN FILED BY THE ASSESSEE IMPUGNING THE ORDER OF THE CIT(A), TIRUCHIRAPALLI DATED 25.01.2010. 2. THE ASSESSEE IS A PARTNERSHIP FIRM. FOR THE ASS ESSMENT YEAR 2006-07, THE ASSESSEE FILED ITS RETURN OF INCO ME ON 30.04.2007 ADMITTING TOTAL INCOME OF ` 2,80,140/-. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY AND NOTICE U NDER SECTION 143(2) OF THE INCOME TAX ACT, 1961 WAS ISS UED TO THE ITA NO.176/MDS/ 2010 2 ASSESSEE. THE ASSESSING OFFICER VIDE ASSESSMENT ORD ER DATED 30.12.2008 MADE CERTAIN ADDITIONS/DISALLOWANC ES IN THE INCOME OF THE ASSESSEE. AGGRIEVED AGAINST THE ASSE SSMENT ORDER, THE ASSESSEE FILED AN APPEAL BEFORE THE CIT( A), TIRUCHIRAPALLI. THE CIT(A) PARTLY ALLOWED THE APPE AL OF THE ASSESSEE VIDE ORDER DATED 25.01.2010. WHILE PARTLY ALLOWING THE APPEAL, THE CIT(A) UPHELD THE FINDINGS OF THE A SSESSING OFFICER WITH RESPECT TO THE DEPRECIATION ON WINDMIL LS AS WELL AS DISALLOWANCE OF EXPENSES RELATING TO DYEING, TAILOR ING WAGES, STITCHING CHARGES, WEAVING AND PACKAGING CHARGES ET C. THE CIT(A) FURTHER CONFIRMED THE ORDER OF THE ASSESSING OFFICER WITH REGARD TO DISALLOWANCE OF MENDING AND CHECKING CHARGES BY APPLYING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. AGGRIEVED AGAINST THE ORDER OF THE CIT(A), THE ASSE SSEE HAS COME IN SECOND APPEAL BEFORE THE TRIBUNAL. 3. THE COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE CASE OF THE ASSESSEE IS SQUARELY COVERED BY THE ORDER OF TH E CO- ORDINATE BENCH OF THE TRIBUNAL IN THE ASSESSEES OW N CASE PASSED IN ITA NO.2291/MDS/2008 DATED 29 TH NOVEMBER, 2009 RELEVANT TO THE ASSESSMENT YEAR 2005-06. HE SUBMITT ED THAT ITA NO.176/MDS/ 2010 3 GROUNDS OF APPEAL NO.2 TO 6 RELATING TO DEPRECIATIO N ON WINDMILL AS WELL AS GROUNDS NO.11 TO 13 WITH REGARD TO CLAIM OF DEPRECIATION AND DISALLOWANCE OF EXPENSES HAS ALRE ADY BEEN ADJUDICATED BY THE TRIBUNAL IN THE CASE OF THE ASSE SSEE IN THE AFOREMENTIONED APPEAL RELEVANT TO THE ASSESSMENT YE AR 2005-06. HE FURTHER SUBMITTED THAT ISSUES NO.7 & 8 WITH REGARD TO DISALLOWANCE OF EXPENSES CLAIMED RELATING TO DYEING, TAILORING WAGES, STITCHING CHARGES ETC. HAS ALSO BEEN DECIDED BY THE TRIBUNAL IN THE AFOREMENTIONED APPEA L. HE PLACED ON RECORD A PHOTOSTAT COPY OF THE ORDER OF T RIBUNAL IN ITA NO.2291/MDS/2008 DATED 20 TH NOVEMBER, 2009 RELEVANT TO THE ASSESSMENT YEAR 2005-06. HE FURTHER CONTEND ED THAT AS REGARDS DISALLOWANCE UNDER THE PROVISIONS OF SEC TION 40(A)(IA) IS CONCERNED, THE ASSESSING OFFICER AND C IT(A) HAS NOT PASSED SPEAKING ORDER, SO THE SAME MAY BE REMIT TED BACK TO THE ASSESSING OFFICER TO DECIDE THIS ISSUE AFRESH. 4. THE D.R. FAIRLY CONCEDED THAT GROUNDS NO.2 TO 13 EXCEPT GROUNDS NO.9 & 10 ARE SQUARELY COVERED BY THE ORDER OF THE CO-ORDINATE BENCH OF THE TRIBUNAL IN ITA NO.2291/MD S/2008. THEREFORE, THE APPEAL OF THE ASSESSEE CAN BE DISPOS ED OF ITA NO.176/MDS/ 2010 4 ACCORDINGLY. HOWEVER, WITH REGARD TO GROUND NO.9 & 10 RELATING TO THE DISALLOWANCE UNDER SECTION 40(A)(IA ), THE DR SUBMITTED THAT THE ASSESSING OFFICER HAS PASSED SP EAKING ORDER THEREON AND THE SAME MAY BE SUSTAINED. 5. WE HAVE HEARD THE SUBMISSIONS MADE BY THE PARTIE S AND HAVE GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AS WELL AS THE ORDER DATED 20 TH NOVEMBER, 2009 PASSED BY THE CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF TH E ASSESSEE IN ITA NO.2291/MDS/2008 RELEVANT TO THE ASSESSMENT YEAR 2005-06. GROUNDS NO.2 TO 6 AND 11 TO 13 IN THE PRES ENT APPEAL RELATES TO DEPRECIATION. IN PARA NO.12 OF TH E ORDER IN ITA NO.2291/MDS/2008, THE TRIBUNAL HAS HELD AS UNDE R:- 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 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 ITA NO.176/MDS/ 2010 5 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 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 ITA NO.176/MDS/ 2010 6 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 OF DEPRECIATION CLAIM STANDS CANCELLED. GROUND NOS. 5 TO 19 OF THE ASSESSEE STAND ALLOWED. RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE CO -ORDINATE BENCH OF THE TRIBUNAL, WE ALLOW THESE GROUNDS OF TH E APPEAL. THE ASSESSEE IS ENTITLED TO ENTIRE AMOUNT CLAIMED A S ITA NO.176/MDS/ 2010 7 DEPRECIATION ON WINDMILL. THE ORDER OF THE CIT(A) O N THE ISSUE IS SET ASIDE. 6. THE ISSUE RELATING TO CLAIM OF THE ASSESSEE CLA IMING TAILORING CHARGES, STITCHING CHARGES ETC., THE SAME HAS ALSO BEEN ADJUDICATED BY THE CO-ORDINATE BENCH OF THE TR IBUNAL IN THE AFOREMENTIONED APPEAL, WHEREIN THE TRIBUNAL REL YING ON ITS EARLIER ORDER IN ANOTHER CASE I.E. ITA NO.1818 TO 1821/MDS/2008 DATED 21.4.2009 HELD THAT 1% DISALLOWANCE WOULD BE FAIR IN THE INTEREST OF JUSTICE, HENCE WE DIRECT THE ASSESSING OFFICER TO RESTRICT THE DISALLOWANCE TO 1 %. THE RELEVANT EXTRACT OF THE AFORESAID ORDER IS REPRODUC ED HEREIN BELOW:- 5. IN PARA 10 OF ITS ORDER DATED 21.04.2009, IN ITA NOS. 1818 TO 1821/MDS/2008, IT WAS HELD AS UNDER: WE HAVE HEARD THE RIVAL SUBMISSIONS. THE ASSESSEE IS ENGAGED IN MANUFACTURE AND EXPORT OF COTTON FABRICS IN KARUR. THE PROCESS OF MANUFACTURING OF COTTON FABRICS INVOLVES PROCURING AND PROCESSING OF YARN AND GIVING THEM TO WEAVERS. DURING THE RELEVANT ASSESSMENT YEAR THE ASSESSEE DEBITED CERTAIN EXPENSES LIKE WEAVING CHARGES, TAILORING, WINDING, DYEING, PROCESSING, PACKING CHARGES, COOLIE, SAMPLE AND MANUFACTURING EXPENSES IN THE PROFIT AND LOSS ACCOUNT. THESE ITA NO.176/MDS/ 2010 8 EXPENSES WERE VOUCHED. HOWEVER, SOME DEFECTS WERE POINTED OUT IN THE VOUCHERS. THE ASSESSING OFFICER DISALLOWED 2% OF SUCH EXPENSES CLAIMED ON THE VOUCHERS DIRECTLY WITHOUT SUPPORTED BY ANY BILL. THE ASSESSEE CLAIMED WEAVING, TAILORING, SAMPLES AND PACKING CHARGES TO THE TUNE OF RS. 3.36 CRORES IN ITS PROFIT AND LOSS ACCOUNT. THE ASSESSING OFFICER DISALLOWED 2% OF SUCH EXPENDITURE AMOUNTING TO RS. 6,72,089/-. THE LD. CIT(A) CONFIRMED THE ADDITION. IT WAS SUBMITTED BEFORE US THAT FOR THE ASSESSMENT YEAR 2005-06 ON IDENTICAL FACTS THE ASSESSING OFFICER DISALLOWED 1% FO SUCH EXPENSES ON ESTIMATE BASIS ON A TURNOVER OF RS. 4.04 CRORES. IT WAS CLAIMED THAT HAVING REGARD TO THE NATURE OF BUSINESS IT IS NOT POSSIBLE TO MAINTAIN ALL THE BILLS AND VOUCHERS. HOWEVER, THE ASSESSEE MAINTAINED METICULOUSLY ALL THE RECORDS AND THE EXPENSES WERE DULY RECORDED IN THE INTERNAL DEBIT VOUCHERS. WE HAVE CONSIDERED THE ARGUMENTS AND EXAMINED THE RECORDS. IN OUR OPINION DISALLOWANCE OF 1% OF SUCH EXPENSES WOULD MEET THE ENDS OF JUSTICE. WE DIRECT THE ASSESSING OFFICER TO RESTRICT THE ADDITION TO 1%. WE ARE OF THE CONSIDERED OPINION THAT THE GROUND OF APPEAL RELATING TO DISALLOWANCE OF EXPENSES RELATING TO DY EING & TAILORING WAGES, PACKING CHARGES ETC. IS SQUARELY C OVERED BY THE ABOVE ORDER OF THE TRIBUNAL. MORE SO, WHEN THE DR HAS NOT BEEN ABLE TO CONTROVERT THE SAME. RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE CO-ORDINATE BENCH OF THE TRIBUNAL, ITA NO.176/MDS/ 2010 9 WE ALLOW THIS GROUND OF APPEAL OF THE ASSESSEE AND DIRECT THE ASSESSING OFFICER TO RESTRICT THE ADDITION TO 1% OF SUCH EXPENSES. 7. AS REGARDS THE ISSUE RELATING TO DISALLOWANCE UN DER THE PROVISIONS OF SECTION 40(A)(IA) IS CONCERNED, WE OB SERVE THAT ASSESSING OFFICER AS WELL AS CIT(A) HAS NOT PASSED SPEAKING ORDER. WE THEREFORE REMIT THIS ISSUE BACK TO THE AS SESSING OFFICER TO DECIDE THE SAME AFRESH AFTER AFFORDING S UFFICIENT OPPORTUNITY OF HEARING TO THE ASSESSEE IN ACCORDANC E WITH LAW. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED IN THE ABOVE SAID TERMS. ORDER PRONOUNCED IN THE OPEN COURT ON FRIDAY, THE 6 TH DAY OF JULY, 2012 AT CHENNAI. SD/- SD/- ( N.S. SAINI ) ( VIKAS AWASTHY ) ACCOUNTANT MEMBER JUDICIAL MEMBER CHENNAI, DATED THE 6 TH JULY , 2012. SOMU COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT (4) CIT(A) (5) D.R. (6) G.F .