DCIT, CHENNAI V. M/s. Chettinad Cement Corporation Ltd., CHENNAI

ITA 2219/CHNY/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 7930 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2016
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2012-2013
• Appeal Filed On: 25-07-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PATHLAVATH PEERYA
• Assessee Lawyers: S SRIDHAR
• Keywords: Depreciation; Additional depreciation; Proportionate interest; Bad and doubtful debts

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH: CHENNAI .. . , !. . ' # $, & '( BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI D.S.SUNDER SINGH, ACCOUNTANT MEMBER ./ I.T.A.NOS.2217, 2218 & 2219/MDS/2016 /ASSESSMENT YEARS:2007-08, 2009-10 & 2012-13 DY. COMMISSIONER OF INCOME TAX, LARGE TAXPAYER UNIT-2, CHENNAI 600 101. VS. M/S. CHETTINAD CEMENT CORP. LTD., CHENNAI-06 ( /APPELLANT) [PAN:AAACC3130A] ( /RESPONDENT) / APPELLANT BY : SHRI PATHLAVATH PEERYA, CIT /RESPONDENT BY : SHRI S. SRIDHAR, ADVOCATE /DATE OF HEARING : 03.11. 2016 /DATE OF PRONOUNCEMENT ! : 30 .11. 2016 / O R D E R PER D.S.SUNDER SINGH , ACCOUNTANT MEMBER THIS IS AN APPEAL FILED BY THE REVENUE AGAI NST THE COMMON ORDER DATED 30.03.2016 IN ITA NOS.53, 50(A) & 73/14-15/CI T(A)-17 OF COMMISSIONER OF INCOME TAX (APPEALS)-17, CHENNAI, FOR ASSESSMENT YEARS 2007-08, 2009-10 & 2012-13. SINCE THE ISSUES INVOLVED IN THESE THR EE APPEALS ARE COMMON, FOR THE SAKE OF CONVENIENCE AND BREVITY ALL THE THREE A PPEALS ARE DISPOSED IN COMMON ORDER. 2. FIRST ISSUE IN THIS APPEAL OF THE REVENUE FOR TH E AY 2007-08 IS RELATING TO THE DISALLOWANCE OF PROPORTIONATE INTEREST EXPENDIT URE AMOUNTING TO RS.106.52 ITA NOS.2217, 2218 & 2219/MDS/2016 :- 2 -: LAKHS TOWARDS 80IA UNIT. THE ASSESSEE DEBITED TO A N AMOUNT OF RS.1725 LAKHS TOWARDS INTEREST AND CLAIMED THE ENTIRE EXPENDITURE FROM NON-80IA UNIT. THE AO HELD THAT THE EXPENDITURE WAS COMMON AND APPORTI ONED BETWEEN 80IA/NON- 80IA UNITS. THE ASSESSEE WENT ON APPEAL BEFORE THE LD.CIT(A) AND LD.CIT(A) ALLOWED THE RELIEF AND REVENUE IS IN APPEAL BEFORE US. 3. APPEARING FOR THE REVENUE SHRI PATHLAVATH PEERYA , LD.D.R SUBMITTED THAT THE ASSESSEE HAS INCURRED A SUM OF RS.1725 LAKHS AS INTEREST EXPENDITURE AND CLAIMED THE ENTIRE EXPENDITURE FROM THE INCOME OF T HE UNITS NOT ENTITLED FOR DEDUCTION U/S.80IA INSTEAD OF ALLOCATING THE EXPEND ITURE TO ALL THE UNITS, SINCE THE EXPENDITURE WAS COMMON IN NATURE. THE LD.DR ARG UED THAT THE EXPENDITURE REQUIRED TO BE ALLOCATED AMONG THE 80IA UNITS ALSO PROPORTIONATELY. ACCORDING TO THE LD.DR THE ASSESSEE OVERSTATED THE PROFITS OF 80 IA UNITS WITHOUT ALLOCATING THE INTEREST EXPENDITURE AND CLAIMED EXCESS DEDUCTI ON U/S.80IA WITHOUT PAYMENT OF TAXES. ACCORDING TO THE LD.DR IN THE ABS ENCE OF ANY EVIDENCE TO PROVE THAT UTILIZATION OF BORROWED FUNDS WERE USED BY NON-80IA UNITS, THE LD.CIT(A) IS NOT CORRECT IN HOLDING THAT THE LOAN BORROWED BY THE ASSESSEE WAS NOT USED BY UNITS ELIGIBLE FOR DEDUCTION U/S.80IA. 4. ON THE CONTRARY, SHRI S. SRIDHAR, THE LD. COUNSE L OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS FURNISHED THE DETAI LS BEFORE AO EVIDENCING THAT USAGE OF LOANS AND THE INTEREST BEARING FUNDS WERE USED BY THE COMPANY FOR CEMENT PLANT WHICH IS NON-80IA UNIT AND THEREFORE T HE ASSESSEE HAS RIGHTLY CLAIMED THE DEDUCTION FORM THE INCOME OF CEMENT PLA NT. THE ASSESSEE EXCLUSIVELY BORROWED THE LOAN FOR THE CEMENT PLANT AND NO PART OF THE LOAN WAS USED FOR THE POWER PLANT PROJECT. ACCORDING TO THE LD.COUNSEL THERE IS NO QUESTION OF ANY DISALLOWANCE ON PROPORTIONATE BASIS SINCE THE BORROWED FUNDS ITA NOS.2217, 2218 & 2219/MDS/2016 :- 3 -: WERE EXCLUSIVELY USED FOR THE CEMENT PLANT. LD. CO UNSEL ALSO SUBMITTED THAT SEPARATE BOOKS OF ACCOUNTS ARE MAINTAINED FOR ELIGI BLE AND NON-ELIGIBLE UNITS. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE ASSESSEE HAS BOR ROWED THE LOAN FOR SETTING UP OF CEMENT PROJECT AND NO LOAN WAS BORROWED FOR THE PURPOSE OF POWER PLANT PROJECT. THE ASSESSEE EXCLUSIVELY BORROWED INTERES T FREE LOAN FROM SIPKART FOR INSTALLATION OF POWER PLANT. WHEN THE ASSESSEE BOR ROWED LOANS FOR DIFFERENT PURPOSES AND THE BALANCE SHEET OF THE ASSESSEE CLEA RLY SHOWS THE CLASSIFICATION OF THE SECURED LOANS, THIS TRIBUNAL IS OF THE CONSI DERED OPINION THAT THE DISALLOWANCE OF PROPORTIONATE INTEREST BETWEEN THE ELIGIBLE AND NON-ELIGIBLE UNITS IS NOT JUSTIFIED. THE FACTS OF THE CASE ARE IDENTI CAL TO THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2011-12 IN ITA NO.1492/MDS/2015 DATED 24.03.2016 AND THE HONBLE ITAT ALLOWED THE CLAIM OF THE ASSESSEE ON THE SAME FACTS. THEREFORE, WE DO NOT FIND ANY REASON TO DEVIATE FRO M THE EARLIER ORDERS OF THIS TRIBUNAL CITED SUPRA. ACCORDINGLY, WE CONFIRM THE ORDER OF THE LD.CIT(A) AND THE REVENUES APPEAL ON THIS GROUND IS DISMISSED. 6. THE SECOND ISSUE OF APPEAL FOR THE ASSESSMENT YE ARS 2007-08, 2009-10, 2012-13 IS EXCESS DEPRECIATION ON CEMENT SILOS. TH E AO DISALLOWED THE EXCESS DEPRECIATION ON CEMENT SILOS FOR THE ASSESSMENT YEA RS 2007-08, 2009-10 & 2012-13 TO THE TUNE OF RS.32,848/-, RS.1,91,80,723/ - AND RS.3,77,79,919/- RESPECTIVELY. THE ASSESSEE CLAIMED THE DEPRECIATIO N ON CEMENT SILOS TREATING IT AS PLANT AND MACHINERY @15%. THE AO HELD THAT CEME NT SILOS ARE BUILDINGS AND THE DEPRECIATION WAS RESTRICTED TO 10% AS APPLICABL E TO BUILDINGS AND NO ADDITIONAL DEPRECIATION WAS ALSO ALLOWED. ITA NOS.2217, 2218 & 2219/MDS/2016 :- 4 -: 7. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE W ENT ON APPEAL BEFORE THE LD.CIT(A) AND SUBMITTED THAT THE CEMENT SILOS ARE S PECIFICALLY DESIGNED FOR PRESERVING THE CEMENT, WHICH SHOULD NOT COME IN INT O CONTACT WITH WATER OR MOISTURE TILL IT IS PUT TO USE. CEMENT SILOS ARE N OT MERE SUPERSTRUCTURES WHICH CAN BE USED FOR BUSINESS AS WELL AS RESIDENCE AND T HEY ARE SPECIFICALLY DESIGNED STRUCTURES TO KEEP THE FINISHED PRODUCTS INTACT TIL L ITS DISPOSAL FROM THE CEMENT PLANT. THE LD.CIT(A) CONSIDERED THE SUBMISSIONS MA DE BY THE ASSESSEE AND HELD THAT THE CEMENT SILOS ARE NOT THE BUILDINGS, T HEY ARE TO BE TREATED AS PLANT AND MACHINERY AND ALLOWED THE DEPRECIATION @15% AS CLAIMED BY THE ASSESSEE. 8. AGGRIEVED BY THE ORDER OF THE LD.CIT, THE DEPART MENT IS IN APPEAL BEFORE US. APPEARING FOR THE REVENUE, THE LD.DR, SHRI PATHLAV ATH PEERYA, CIT, SUBMITTED THAT THE CEMENT SILOS ARE THE BUILDINGS W HICH SHOULD BE CATEGORIZED AS BUILDINGS OTHER THAN THOSE USED FOR RESIDENTIAL PUR POSES AND NOT COVERED BY ITEMS @5% OF DEPRECIATION AND THE AO IS RIGHTLY ALL OWED THE DEPRECIATION @10% AS APPLICABLE TO BUILDINGS. ACCORDING TO THE LD.DR , DEPRECIATION ON CEMENT SILOS ARE TO BE ALLOWED @10%. ON THE OTHER HAND, THE LD. COUNSEL SUBMITTED A DETAILED NOTE ON CONSTRUCTION OF CEMENT SILOS AS UN DER: THE STORAGE OF CEMENT IS IMPORTANT FOR PACKI N G THE VERITY O F CEMENT IN OUR MO D ER N CEMENT WO R KS . THE VARIOUS PRODUCTS HOLDI N G UP TO 1500 TO 6000 TONS OF CEMENT PER SILO , MUST BE SO DESIGNED THAT CAN BE EFFICIENTLY OPERATE D WITH PROCEDURES FOR PRESERVING TH E Q UALITY OF CEMENT AND DISPATCHING THE SAME FOR THE PLAN T . THE NUMBER AND SIZE OF THE CEMENT SILOS WILL DEPEND ON THE OPERATING A N D DESPATCH CONDITIONS OF THE PLANT . THE SILOS WERE PREFERABLY INSTALLED AT GROUND LEVEL . T H E CEMENT IS EXTRACTED FROM THE SILO AND TRANSPORTED T HROU G H THE AIRSIDES TO LOADING MACHINE TO PACK THE CEMENT WITH BAGS BY SACK FILLING MACHINES OR BY THE BULK LOADING TO THE TRUCKS TO THE CUSTOMER. ITA NOS.2217, 2218 & 2219/MDS/2016 :- 5 -: THE CEMENT SILO CONSIST OF VARIOUS DEVICES FOR FILL ING THE CEMENT TO SILO AND EXT R AC T ION BINS PROVIDED INSIDE THE SI L O WITH C LOSED CONVEYING SYSTEM AND THE BOTTOM DISCHARGE ARRANGEMENTS USED IN OUR MODERN C EMENT SILOS . OUR CEMENT SILOS ARE INVARIABLY EQUIPPED WIT H PNEUMATIC HANDLING SYS T EMS AND P N EUMATIC DISCHARGE AND FLOW REGULATING DEVI C ES . BLOWERS AND COMP R ESSED AIR FOR M AN INT E G R A L FEATURE FOR EXTRACTING THE CEMENT FROM THE SILO. THE AIR IS SUPPLIED BY ROTARY PISTON BLOWERS AT PRE SSURES RAN G ING FROM ABOUT 50 0 0 MM W . G . DEPENDING ON THE SILO EMPTYING S Y STEM, THE AIR SUPPLY RATE FOR ATTAINING A CER T AIN CEMENT DISCHARGE RATE VARIES. THE BLOWER A I R IS ADMITTED AT THE SILO BOTTOM WITH DISCHARGE A I RSIDES TO EXTRACT THE CEMENT CONT I NUOUSLY FROM THE SILO . A PRINCIPLE THA T ALL PNEUMATIC EMPTYING SYST E MS HAVE IN COMMON IS THAT THE A I R BLOWN INTO THE SILO IS AUTOMATICALLY SWITCHED CYCLI CALLY F R OM SECTOR TO SECTOR OF THE BOTTOM BY A SPECIAL DISTRIBUTING DEVICE IN CONJUNCT ION WITH PNEU M ATICALLY OPERATED VALVES WHICH AR E OPENED AND CLOSED AS PER THE REQUIREMENT . ALL THE AE R ATING SECTORS OF THE SILO SHOULD B E ACTIVATED UNIFORMLY IN ORDER TO ENSURE THA T THE MATE R IAL LEVEL GOES DOWN AT A REGULAR R ATE OVER THE ENTIRE SILO CROSS-SECTION . FLOW REGULATING VAL V ES CONTROL RATE OF CEMENT DISCHARGE FROM THE SILO . FURTHER, THE BINDING PROPERTY AND STRENGTH OF CEMEN T DEPENDS UPON ITS CAPACITY FO R CHEMICAL REACTION, WHICH CAN TAKE PLACE IN THE PRES EN C E OF WATER. CEMENT IF NOT STORED PROPERLY CAN ABSORB MOISTURE FROM THE AT MOSPHERIC AIR OR ANY OTHER SOURCE AND REACT WITH I T C H EMICALLY. THE STRENGTH OF SUCH TYPE OF CEMENT WHEN USED WOULD BE ADVERSELY AFFECTED TO THE EXTENT SUCH REACTION WOULD HAVE TAKEN PLACE. BASIC REQUIREMENT IS THAT CEMENT SHOULD NOT COME IN CONTACT WITH WATER OR MOISTURE OR MOISTURE TILL IT IS PUT TO USE. IF IT C OMES IN CONTACT, IT WILL REACT AND FORM LUMPS. T HEN IT LOSES ITS REACTIVITY AND THIS IN TURN WILL R ESULT IN LESS STRENGTH. PRESERVING THE QUALITY OF TH E PRODUCT IS ONE OF THE MANDATORY REQUIREMENTS PRESCR I B ED BY THE BUREAU OF INDIAN STAN D ARD . HENCE, CEMENT SHOULD BE STORED IN SUCH A MANNER TH A T NO MOISTURE OR DAMPNE S S IS ALLOWE D TO REACH CEMENT EITHER FROM THE GROUND OR F ROM THE ENVIRONMENT . OUR SILOS ARE INSTALLED IN ORDER TO MEET ALL TH E ABOVE REQUIREMENTS AND QUALITY S TANDARDS OF THE PRODUCT ' . CONSIDERING THE SPECIAL STATUS OF THE STRUCTURES UN DER CONSIDERATION AND FURTHER CO N SIDERING THE CRUCIAL ROLE PLAYED BY THE SAID STRUCT URES I N THE MANUFACTURING AND MAINTE N AN C E OF THE QUALITY AS PRESCRIBED BY BUREAU OF INDIAN S TANDARDS OF THE RAW MATERIALS A N D FINISHED PRODUCTS, THE SAID STRUCTURES WHICH FORM ED PA R T OF THE MANUFACTURING PROCESS OF T H E CEMENT WOULD BE ELIGIBLE FOR THE DEPRECIATION AT TH E R ATES PRESCRIBED TO THE P L ANT & M AC H INERY AT 15% . ITA NOS.2217, 2218 & 2219/MDS/2016 :- 6 -: 9. THE LD.AR ALSO RELIED ON SUPREME COURT JUDGEMENT IN THE CASE OF KARNATAKA POWER CORPORATION REPORTED IN 247 ITR 268 .ACCORDING TO THE LD.COUNSEL, THE CEMENT SILOS ARE PLANTS AND THE DEP RECIATION IS TO BE ALLOWED @15%. 10. WE HAVE CONSIDERED THE SUBMISSIONS MADE BY BOTH THE PARTIES AND PERUSED THE LOWER AUTHORITIES ORDERS AND MATERIAL ON RECORD. AS PER DEPRECIATION SCHEDULE, THE DEPRECIATION IS ALLOWED ON BUILDINGS @5% FOR WHICH THE BUILDINGS ARE MAINLY USED FOR RESIDENTIAL PURPO SES EXCEPT HOTELS AND BOARDING HOUSES. THE DEPRECIATION IS ALLOWED @10% ON BUILDINGS USED MAINLY FOR RESIDENTIAL PURPOSES AND NOT COVERED BY THE CAT EGORY OF 5% DEPRECIATION. THE REMAINING TWO ITEMS ARE 100% DEPRECIATION CATEG ORY. THE CEMENT SILOS ARE STRUCTURES SPECIFICALLY DESIGNED FOR PRESERVING THE CEMENT FROM DAMPENING AND TO KEEP THE FINISHED PRODUCT INTACT. ANY LEAKAGE O F WALL, THE PRODUCTS WILL BE GOT DAMAGED AND CANNOT BE PUT TO USE AND THE ENTIRE PRO DUCTION GETS SPOILED. THEREFORE, THE CEMENT SILOS ARE REQUIRED SPECIFIC D ESIGN AND CONSTRUCTION AND CAN BE USED ONLY FOR THE PURPOSE OF PRESERVING THE FINI SHED PRODUCT OF CEMENT. SUCH STRUCTURES CANNOT BE USED FOR RESIDENTIAL PURPOSES BY HUMAN BEINGS. THEREFORE, CEMENT SILOS CANNOT FALL UNDER THE CATEGORY OF BUIL DINGS FOR THE PURPOSE OF DEPRECIATION. AS HELD BY HONBLE SUPREME COURT IN 247 ITR 268, THE BUILDINGS SPECIFICALLY DESIGNED AND INTEGRAL PART OF GENERATI NG STATION SHOULD BE CONSIDERED AS PLANTS ENTITLED FOR HIGHER DEPRECIATION. SIMILA RLY, THE CEMENT SILOS ARE TO BE TREATED AS INTEGRAL PART OF THE CEMENT PLANT FOR ST ORAGE AND DISTRIBUTION OF FINAL PRODUCT. THEREFORE WE ARE OF THE CONSIDERED THE OPI NION THAT THE CEMENT SILOS ARE TO BE TREATED AS PLANT AND ELIGIBLE FOR HIGHER RATE OF DEPRECIATION. ITA NOS.2217, 2218 & 2219/MDS/2016 :- 7 -: ACCORDINGLY, WE CONFIRM THE ORDER OF THE LD.CIT(A) AND DISMISS THE REVENUES APPEAL. 11. THE NEXT ISSUE OF REVENUES APPEAL IS MAT CREDI T. THE LD.CIT(A) HAS ALLOWED THE MAT CREDIT PLACING RELIANCE ON THE ORDE R OF THIS ITAT IN THE ASSESSEES OWN CASE IN ITA NO.1085 & 448/MDS/2012 A ND 468/MDS/2014.THE ISSUE DECIDED BY THE ITAT IN THE CITED ORDER WAS BA D AND DOUBTFUL DEBTS BUT NOT THE MAT CREDIT. THE MAT CREDIT AROSE IN ASSESSEES CASE FOR EXCLUSION OF SURCHARGE AND EDUCATION CESS AND NOT BECAUSE OF BAD AND DOUBTFUL DEBTS. IT IS AN INDEPENDENT AND DIFFERENT ISSUE WHICH SHOULD BE ADDRESSED BY THE LD.CIT(A) SEPARATELY AND THE LD.CIT(A) HAS NOT ADJUDICATED UP ON. THEREFORE, WE REMIT THE ISSUE BACK TO THE FILE OF LD.CIT(A) ON THIS ISSUE A ND DIRECT THE CIT(A) TO RE- ADJUDICATE THE ISSUE ON MERITS. THIS GROUND OF AP PEAL OF REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. 12. THE NEXT ISSUE OF APPEAL IN THIS CASE WAS ADDIT IONAL DEPRECIATION. AS PER SEC.32(1) (IIA) OF IT ACT, THE AO DISALLOWED THE AD DITIONAL DEPRECIATION CLAIMED BY THE ASSESS ON CEMENT SILOS HOLDING THAT THE CEME NT SILOS AS BUILDINGS BUT NOT THE PLANT AND MACHINERY. FOR THE REASONS DISCUSSE D IN THE EARLIER PARAGRAPHS OF THIS ORDER, THIS TRIBUNAL HELD THAT THE CEMENT SILO S AS PLANT AND MACHINERY BUT NOT THE BUILDINGS AND ALLOWED THE DEPRECIATION AS A PPLICABLE IN THE CASE OF PLANT AND MACHINERY. THEREFORE, WE HOLD THAT THE CEMENT SILOS ARE THE PLANT AND MACHINERY AND ELIGIBLE FOR ADDITIONAL DEPRECIATION AS PER SECTION 32(1)(IIA) OF INCOME TAX ACT. ACCORDINGLY, WE CONFIRM THE ORDER OF THE LD.CIT(A). 13. IN ORIGINAL GROUNDS FILED ALONG WITH FORM-36 FO R THE AY 2009-10 & AND 2012-13 THE REVENUE HAS RAISED THE OBJECTION RELATI NG TO ADDITIONAL DEPRECIATION ITA NOS.2217, 2218 & 2219/MDS/2016 :- 8 -: FOR POWER GENERATION PLANT WHICH WAS EFFECTIVE FROM 01.04.2013. IN THE ASSESSEES CASE, THE ADDITIONAL DEPRECIATION WAS CL AIMED IN THE CASE OF CEMENT PLANT ON CEMENT SILOS BUT NOT ON POWER GENERATION P LANT. THEREFORE, THE REVENUES GROUND ON ADDITIONAL DEPRECIATION FOR POW ER PLANT IS INFRUCTUOUS AND HENCE DISMISSED. 14. IN THE RESULT, THE APPEALS OF THE REVENUE ARE PARTLY ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH NOVEMBER, 2016, AT CHENNAI. SD/- SD/- ( ' # # ' #! $% ) (N.R.S. GANESAN) & !'( /JUDICIAL MEMBER ( )* . ' . &' +, ) (D.S.SUNDER SINGH) '( /ACCOUNTANT MEMBER -& /CHENNAI .' /DATED: 30 TH NOVEMBER, 2016 TLN '%!! +/!0/ /COPY TO: 1. /APPELLANT 4. ! 1 /CIT 2. /RESPONDENT 5. /2$! 3 /DR 3. ! 1! 4 5 /CIT(A) 6. $*!6 /GF