ACIT, Sangli V. Mahabal Auto Ancillaries P. Ltd, Sangli

ITA 2325/PUN/2012

• Counselvise Citation: 232524514 RSA 2012
• Duration Of Justice: 1 year(s) 3 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 26-11-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S P WALIMBE
• Keywords: Depreciation
• Section: 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B , PUNE BEFORE: SHRI R.S. PADVEKAR, JUDICIAL MEMBER AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NO S. 2325 & 2326 /PN/20 1 2 ASSESSMENT YEAR S : 200 6 - 07 & 200 7 - 08 THE ASSTT. COMM ISSIONER OF INCOME TAX, CIRCLE - 2, SANGLI VS. MAHABAL AUTO ANCILLARIES PVT. LTD., G.M. INDUSTRIAL ESTATE MIRAJ, DISTT. - SANGLI (APPELLANT) (RESPONDENT) PAN NO. AABCM8805D APPELLANT BY: SHRI S.P. WALIMBE RESPONDENT BY: SHRI C.H. NANIWADEKAR D ATE OF HEARING : 2 7 - 0 2 - 2014 DATE OF PRONOUNCEMENT : 28 - 0 2 - 2014 ORDER P ER R.S. PADVEKAR , JM : - TH ESE T WO APPEALS BY THE REVENUE ARE DIRECTED AGAINST THE ORDER S OF THE LD. CIT(A) , KOLHAPUR DATED 12 - 09 - 2012 FOR THE A.YS. 200 6 - 07 & 2007 - 08. THE FACTS AS WELL ISSUES ARE COMMON HENCE, THESE APPEALS ARE DISPOSED OF BY THIS CONSOLIDATED ORDER. 2. THE ISSUE IS THE RATE OF DEPRECIATION ON THE COST OF WINDMILL FOUNDATION , ERECTION AND INSTALLATION. WE FIRST TAKE THE A.Y. 2006 - 07. THE ASSESSEE IS IN MANUFACT URING AND SALE OF AUTO SPARE PARTS. THE ASSESSEE HAS INSTALLED WINDMILL OF 1.25 MWS WHICH HAS BEEN SUPPLIED AND INSTALLED BY SUZLON INFRASTRUCTURE LIMITED. THE TOTAL COST OF THE WINDMILL DECLARED BY THE ASSESSEE WAS RS.6,13,26,466/ - . THE ASSESSING OFFIC ER HAS GIVEN THE DETAILS OF THE COST BY BIFURCATING THE SAME ON PAGE NO. 4 OF THE ASSESSMENT ORDER. SO FAR AS THE COST OF WIND TURBINE GENERATOR, FINAL TESTING AND COMMISSIONING, M EDA PROCESSING FEES AND INFRASTRUCTURE DEVELOPMENT CH ARGES WHICH WORKED OUT TO RS.5,66,97,250/ - , T HE ASSESSING OFFICER ALLOWED THE DEPRECIATION @ 80% BUT IN RESPECT OF THE FOLLOWING TWO COMPONENTS: 2 ITA NO S. 2325 & 2326/PN/2012, MAHABAL AUTO ANCILLARIES PVT. LTD., SANGLI (I) COST OF CIVIL WORK CONSISTING OF FOUNDATION/GROUND WORK FOR TRANSFORMER : :RS.31,96,616/ - (II) COST OF ERECTION AND COMMISSI ONING OF THE WINDMILL : RS.14,32,600/ - THE ASSESSING OFFICER DID NOT ALLOW THE DEPRECIATION @ 80%. SO FAR AS THE COST OF CIVIL WORK OF FOUNDATION, GROUND WORK IS CONCERNED THE SAME WAS TREATED UNDER THE BLOCK OF BUILDING AND THE ASSESSING OFFICER ALLOWED THE DEPRECIATION @ 10% . I N RESPECT OF THE COST OF ERECTION AND COMMISSIONING OF THE WINDMILL, THE SAID ITEM IS CONSIDERED UNDER THE BLOCK OF ASSETS PLANT AND MACHINERY AND ALLOWED THE DEPRECIATION @ 15%. 3. IN SUM AND SUBSTANCE THE ASSESSING OF FICER BIFURCAT ED THE COST OF THE WINDMILL AS SHOWN BY THE ASSESSEE INTO THREE COMPONENTS I.E. (I) COST OF WINDMILL (WIND TURBINE GENERATOR, F INAL TESTING AND COMMISSIONING ETC.) , (II) COST OF CIVIL WORK OF FOUNDATION AND GROUND WORK AND (III) EXPENDITURE OF ERECTION AND COMMISSIONING OF THE WINDMILL . THE ASSESSING OFFICER ACCORDINGLY DISALLOWED THE DEPRECIATION PARTLY ON THE COST OF CIVIL WORK CONSISTING OF WINDMILL FOUNDATION AND GROUND WORK FOR TRANSFORMER ETC. AND EXPENDITURE ON INSTALLATION AND ERECT ION OF THE WINDMILL WHICH IS RESTRICTED TO 10% AND 15% RESPECTIVELY WHICH RESULTED INTO THE ENHANCEMENT OF THE PROFIT. THE ASSESSEE CHALLENGED THE ISSUE BEFORE THE LD. CIT(A) AND LD. CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE THAT WINDMILL IS TO BE CONSIDER ED AS A SINGLE UNIT AND EXPENDITURE INCURRED ON FOUNDATION, SUPPLY AND INSTALLATION OF THE H.T. ELECTRICAL YARD AND COMMISSIONING IS TO BE TREATED AS AN INTEGRAL PART OF THE WINDMILL COST. THE LD. CIT(A) RELIED ON THE DECISION IN THE CASE OF COOPER FOUNDR Y PVT. LTD. VS. DCIT, SATARA CIRCLE, SATARA WHICH HAS BEEN AFFIRMED BY THE HON'BLE HIGH COURT OF BOMBAY, CIT VS. KARNATAK POWER CORPORATION 247 ITR 268 AND POONAWALA FINVEST & AGRO PRIVATE LTD. VS. ACIT 118 TTJ (PUNE) 68. THE LD. CIT(A) FOLLOWED HIS OWN D ECISION OF 3 ITA NO S. 2325 & 2326/PN/2012, MAHABAL AUTO ANCILLARIES PVT. LTD., SANGLI M/S. CHAPHALKAR B RO THERS, APPEAL NO. SLI/330/10 - 11 DATED 12 - 09 - 2011 AND HELD AS UNDER: 11. THUS, SINCE THE ISSUE INVOLVED BEING IDENTICAL, THE DECISION GIVEN IN M/S . CHAPHALKAR BROTHERS, WILL APPLY TO THE INSTANT CASE AS WELL. IN THE PRESENT CAS E, THE APPELLANT HAS PROVIDED THE COSTS OF VARIOUS COMPONENTS WHICH HAVE BEEN INCLUDED BY IT IN THE COST OF WINDMILL AS DETAILED BELOW: SR. NO. PARTICULARS AMOUNT 1. COST OF WIND TURBINE GENERATOR (INCLUDING COSTS OF COMPONENT & ACCESSORY (COOPER WOUND W ITH ACCESSORIES), COMPONENT FOR GENERATOR OF ELECTRICITY SUPPLY OF ROTOR BLADE AND ELECTRICAL ITEMS, COMPONENTS OF RE DEVICE AND TUBULAR TOWER) RS. 49125000 2. COST OF WORK INCLUDING FOUNDATION WORK RS. 3196616 3. LABOUR RELATED COST A) INSTALLATION ON WINDMILL 1432600 B) INSTALLATION OF ELECTRICAL LINE FOR POWER TRANSMISSION AND METER 3093500 C) FINAL TESTING AND COMMISSIONING 100000 4. REIMBURSEMENT OF POWER EVACUATION FACILITY AND CREATION OF INFRASTRUCTURE RS. 3750000 5. MISCELLAN E OUS A) TRANSPORTATION CHARGES B) PROCESSING CHARGES 628750 C) INTEREST ON LOAN CAPITALIZED UPTO 17/01/2008 D) PROFESSIONAL FEES E) REGISTRATION FEES F) SUBSTATION CHARGES G) FRANKING CHARGES TOTAL RS. 61326466 12. I FIND THAT THE APPELLANT HAS CLAIMED AN AMOUNT OF RS. 37,50,000/ - AS REIMBURSEMENT TOWARDS POWER EVACUATION FACILITY AND CREATION OF INFRASTRUCTURE WHICH IS INCLUDED IN THE COST OF WTGS BY THE APPELLANT. THE BREAKUP OF POWER EVACUATION COST AND INFRASTRUCTURE CREATION COST IS NOT GIVEN. SINCE THE INFRASTRUCTURE CREATION COST WOULD INCLUDE THE COST OF MAKING OF ROADS PROVIDING FREE ACCESS AND KEEPING THE SURROUNDING AREA VACANT, THE SAME WOULD BE TREATED AS A BUILDING AND HENCE, DEPRECIATION @ 10% WOULD BE APPLICABLE. SINCE NOTHING HAS BEEN PROVIDED BY THE 4 ITA NO S. 2325 & 2326/PN/2012, MAHABAL AUTO ANCILLARIES PVT. LTD., SANGLI APPELLANT, IT WOULD ONLY BE FAIR TO ASSUME THAT 60% OF THIS COST IS INCURRED TOWARDS THESE EXPENSES AND 40% TOWARDS POWER EVACUATION FACILITY. THEREFORE, DEPRECIATION ALLOWABLE ON CIVIL CONST RUCTION OUT OF COMPOSITE INFRASTRUCTURE AND POWER EVACUATION COST WILL BE RS. 22,50,000/ - . THE ASSESSING OFFICER IS DIRECTED TO RECOMPUTE THE DEPRECIATION ACCORDINGLY IN RESPECT OF THE NEW WINDMILL. 13. IN RESPECT OF ITEM NO. 5, BEING MISCELLANEOUS EXPENSE S OF RS.6,28,750/ - , THE EXPENSES WILL BE BIFURCATED ON PRORATA BASIS IN ACCORDANCE WITH THE RATIO OF THE COST OF WINDMILL AND COST OF OTHER CIVIL WORK. 14. IN VIEW OF THE ABOVE DISCUSSION, I DIRECT THE ASSESSING OFFICER TO RE - COMPUTE THE DEPRECIATION ALLOW ABLE ON NEW WINDMILL ON THE BASIS OF THE FOLLOWING: I) COST OF NEW WINDMILL WILL BE INCLUSIVE OF ALL ITEMS MENTIONED AT 1 TO 3 ABOVE. II) COST OF POWER EVACUATION FACILITY AND INFRASTRUCTURE WILL BE APPORTIONED BETWEEN THE RATES APPLICABLE TO B UILDING/ROADS AND WINDMILL IN 60 : 40 RATIO (SEE PARAGRAPH 12). III) COST OF OTHER MISCELLANEOUS EXPENSES WILL BE APPORTIONED ON PRORATA BASIS BETWEEN WINDMILL AND INFRASTRUCTURE FACILITIES. THE ASSESSING OFFICER IS DIRECTED TO RE - COMPUTE DEPRECI ATION FOR THE ASSESSMENT YEAR 2007 - 08 ON THE BASIS OF REVISED FIGURES ARRIVED AT AS PER DIRECTIONS GIVEN BY ME HEREINABOVE. THE APPEAL ON THIS GROUND IS PARTLY ALLOWED. 4. SO FAR AS THE A.Y. 2007 - 08 IS CONCERNED, AGAIN THE ISSUE IS IN RESPECT OF RATE OF D EPRECIATION ON THE COST OF WINDMILL FOUNDATION, ERECTION AND INSTALLATION. THE FACTS ARE IDENTICAL AS IN THE A.Y. 2006 - 07 AND THIS YEAR IS ONLY THE CONSEQUENTIAL. IN THE A.Y. 2007 - 08 , THE ASSESSING OFFICER HAS MERELY FOLLOWED THE ASSESSMENT ORDER FOR THE A.Y. 2006 - 07 AND RESTRICTED THE DEPRECIATION ON THE COST OF CIVIL WORK OF FOUNDATION , WORK FOR TRANSFORMER ETC. @ 10% , DEPRECIATION ON THE COST OF ERECTION AND INSTALLATION OF THE WINDMILL @ 15% TREATING THE SAME IN THE BLOCK OF PLANT AND MACHINERY. ON P ERUSAL OF THE ASSESSMENT ORDER, WE 5 ITA NO S. 2325 & 2326/PN/2012, MAHABAL AUTO ANCILLARIES PVT. LTD., SANGLI FIND THAT THERE IS NO ADDITION TO THE COST OF WINDMILL AND THE ASSESSING OFFICER HAS WORKED OUT THE DEPRECIATION ON WDV. IN THIS YEAR ALSO THE LD. CIT(A) FOLLOWING HIS ORDER FOR THE A.Y. 2006 - 07 PARTLY ALLOWED THE APPEAL OF THE ASSESSEE, FOLLOWING HIS DECISION IN THE CASE OF M/S. CHAPHALKAR BROTHERS. NOW FOR BOTH THE ASSESSMENT YEARS, THE REVENUE IS IN APPEAL BEFORE US. 5. WE HAVE HEARD THE PARTIES. THE LD. COUNSEL SUBMITS THAT THE ISSUE STANDS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HON'BLE HIGH COURT OF BOMBAY IN THE CASE OF CIT - III, PUNE VS. COOPER FOUNDARY PVT. LTD. , INCOME TAX APPEAL 1326 OF 2010 JUDGMENT DATED 14 - 06 - 2011 AND DY. CIT, CIRCLE - 1, SANGLI VS. AMINITY DEVELOPERS & BUILDERS ITA NO. 150 5/PN/2011 ORDER DATED 12 - 12 - 2012. IN THE CASE OF COOPER FOUNDARY PVT. LTD. (SUPRA) THE ISSUE BEFORE THE IR LORDSHIP WAS WHETHER THE FOUNDATION IS THE INTEGRAL PART OF THE WINDMILL AND RATE OF DEPRECIATION APPLICABLE TO THE WINDMILL IS TO BE APPLIED FOR THE CASE OF THE FOUNDATION AND THE ISSUE HAS BEEN ANSWER ED IN FAVOUR OF THE ASSESSEE. 6. IN THE CASE OF AMINITY DEVELOPERS & BUILDERS (SUPRA) THE OPERATIVE PART OF THE DECISION IS AS UNDER: 3. IN THE CASE OF POONAWALA FINWEST & AGRO (P) LTD. (SUPRA), THE FOL LOWING COST WAS INCLUDED AS A PART OF WIND MILL : (1) COST OF LABOUR WORK FOR SITE DEVELOPMENT 2) CIVIL WORK CONTROL ROOM 3) INTERNAL ROAD DEVELOPMENT 4) TRANSFORMER UP TO DP STRUCTURE THE ASSESSEE HAS CATEGORIZED THE COST OF LABOUR WORK, CONSTRUCTION OF CONTROL ROOM AND THE EXPENDITURE ON INTERNAL ROAD AND HAD CLAIMED THE DEPRECIATION ON THE SAID COST AT THE RATE APPLICABLE TO THE WIND MILL. AS PER THE FACTS RECORDED IN THE SAID DECISION, THE ISSUE OF FOUNDATION AND INSTALLATION AND COMMISSION WAS NOT BEFORE THE TRIBUNAL. IN PARA NO. 12, THE TRIBUNAL HAS OBSERVED AS UNDER : SO THE EMPHASIS FOR GRANTING HIGHER RATE OF DEPRECIATION AS PER BD CONSTRUCTION IS CONCERNED THE 6 ITA NO S. 2325 & 2326/PN/2012, MAHABAL AUTO ANCILLARIES PVT. LTD., SANGLI NECESSITY IS TO EXAMINE THE FUNCTIONAL TEST OF THE STRUCTURE, A CATEGORICAL EVI DENCE HAS TO BE PLACED THAT THE STRUCTURE IS NOT A BUILDING, BUT IT IS AN INTEGRAL PART OF PLANT & MACHINERY. SUCH AN EVIDENCE AND FOUNDATION IS ABSENT IN THIS APPEAL. HOWEVER, IN THE CASE OF CIT V. ABAD HOTELS PVT. LTD., 251 ITR 2004 (SC), THE HONBLE S UPREME COURT HAS HELD THAT THE HOTEL BUILDING WAS NOT A BUILDING, WAS NOT A PLANT AND SO THE ASSESSEE WAS NOT ENTITLED TO EXTRA DEPRECIATION ALLOWANCE. IN THE PRESENT APPEAL, NOTHING IS ON RECORD TO ESTABLISH ON THE TOUCH STONE OF FUNCTIONAL TEST, THE CO NTROL ROOM AND SITE DEVELOPMENT EXPENDITURE OR EVEN INTERNAL ROADS WERE SO DESIGNED THAT THEY CAN ONLY BE USED FOR POWER GENERATION AS DONE BY THE WIND MILL AND MEANT FOR NO OTHER USE. THERE IS NOTHING ON RECORD SUCH AS THE REPORT FROM THE QUALIFIED PER SONS TO ESTABLISH THAT THE SITE CONSTRUCTION OF CONTROL ROOM, INTERNAL ROADS ETC., WERE DESIGNED IN SUCH MANNER TO FACILITATE THE POWER GENERATION AND DISTRIBUTION OF THE WIND MILL. NATURALLY, A MACHINERY DOES NOT REQUIRE PROTECTION, SO INSTALLED IN ONE S UCH A BUILDING CANNOT BE SAID TO BE A PART & PARCEL OF MACHINERY. RESULTANTLY, CLAIM FAIL ON THE FUNCTIONAL TEST. 4. IN THE PRESENT CASE, THE FUNCTIONAL TEST OF THE FOUNDATION HAS BEEN EXPLAINED BY THE LD CIT(A). THE LD CIT(A) HAS ALSO EXPLAINED, MORE PARTICULARLY, IN THE CASE OF M/S. CHAPHALKAR BROTHERS (SUPRA) HOW THE FOUNDATION IS THE INTEGRATED PART OF THE WIND MILL AS THE SAME IS TO BE ERECTED HAVING TECHNICAL EXPERTISE TO SUSTAIN THE LOAD OF THE TURBINE. IN THE CASE OF POONAWALA FINVEST & AGRO ( P) LTD. (SUPRA), THE TRIBUNAL EMPHASIZED ON THE FUNCTIONAL TEST. SO FAR AS THE FOUNDATION IS CONCERNED, AS DISCUSSED BY THE LD CIT(A), THE FUNCTIONAL TEST IS FULFILLED. THERE SHOULD NOT BE QUARREL THAT CIVIL WORK IS INVOLVED IN THE ERECTION OF THE FOUNDA TION, BUT EVERY CIVIL WORK CANNOT BE TREATED AS CIVIL WORK AS REQUIRED FOR BRINGING CONSTRUCTION. IN OUR OPINION, COST ON THE FOUNDATION OF THE WIND MILL IS ELIGIBLE FOR THE DEPRECIATION AT THE RATE 180% OR THE RATE WHICH IS APPLICABLE TO THE WIND MILL A S IT IS INTEGRAL PART OF COST OF WIND MILL ERECTION. SAME WAY, THE COST FOR COMMISSION AND ERECTION CANNOT BE SAID TO BE SEPARATE FROM THE WIND MILL AS IT IS DIRECTLY RELATED TO THE FUNCTIONING 7 ITA NO S. 2325 & 2326/PN/2012, MAHABAL AUTO ANCILLARIES PVT. LTD., SANGLI OF WIND MILL. THE LD CIT(A) HAS RIGHTLY ALLOWED THE DEPRECIA TION ON THE PRO RATA BASIS ON THE COST OF FOUNDATION TO THE EXTENT OF THE CIVIL WORK. WE MAY REFER TO HERE THE DECISION OF THE ITAT AHMEDABAD BENCH IN THE CASE OF ACIT VS. PARRY ENGINEERING & ELECTRONICS, ITA NO. 3317/AHD/2011 DATED 2 ND MARCH 2012, IN WHIC H IT IS HELD THAT THE FOUNDATION IS A PART OF THE TURBINE AND IS ELIGIBLE FOR THE RATE OF DEPRECIATION WHICH IS APPLICABLE TO THE WIND MILL. WE FIND NO REASON TO INTERFERE WITH THE ORDER OF THE CIT(A) ON THIS ISSUE. ACCORDINGLY, THE SAME IS CONFIRMED. 7. IN THE PRESENT CASE THE LD. CIT(A) HAS FOLLOWED HIS ORDER IN THE CASE OF M/S. CHAPHALKAR BROTHERS (SUPRA) WHICH HAS BEEN APPROVED BY THE ITAT, PUNE. IN OUR OPINION NO INTERFERENCE IS CALLED FOR THE ORDER OF THE LD. CIT(A). ACCORDINGLY THE SAME IS CON FIRM IN BOTH THE ASSESSMENT YEARS AND ALL THE GROUNDS TAKEN BY THE REVENUE ARE DISMISSED. 8. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE ARE DISMISSED. PRONOUNCED IN THE OPEN COURT ON 28 - 0 2 - 201 4 SD/ - SD/ - ( R.K. PANDA ) ( R.S. PADVEKAR ) ACCO UNTANT MEMBER JUDICIAL MEMBER RK /PS PUNE , DATED : 28 TH FEBRUARY, 2014 COPY TO 1 ASSESSEE 2 DEPARTMENT 3 THE CIT(A) , KOLHAPUR 4 THE CIT, KOLHAPUR 5 THE DR, ITAT, B BENCH, PUNE . 6 GUARD FILE. //TRUE COPY/ / BY ORDER PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL PUNE