ACIT, New Delhi V. M/s. Nalwa Steel and Power Ltd., New Delhi

ITA 238/DEL/2013

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 3352 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 3 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-04-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 25-04-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 14-01-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: V K TULSIYAN
• Keywords: Depreciation; Additional depreciation
• Section: 14A; 115JB; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E , NEW DELHI BEFORE SH. N. K. SAINI, AM AND SMT. BEENA PILLAI , JM ITA NO. 238/DEL/2013 : ASSTT. YEAR : 2008 - 09 ACIT, CIRCLE - 13 (1), NEW DELHI VS M/S NALWA STE EL AND POWER LTD., 1213, NAJAFGARH ROAD, DELHI - 110015 (APPELLANT) (RESPONDENT) PAN NO. A A BCN3209L ASSESSEE BY : SH. V. K. TULSIYAN, CA REVENUE BY : MS. RACHNA SINGH, CIT DR & SH. RAJESH KUMAR, SR. DR DATE OF HEARING : 25 .04 .201 7 DATE OF PRONOUNCEMENT : 27 . 04 .201 7 ORDER PER N. K. SAINI, AM: THIS IS AN APPEAL BY THE DEPARTME NT AGAINST THE ORDER DATED 12.10 .2012 OF LD. CIT(A) - XV I , NEW DELHI . 2. FOLLOWING GROUNDS HAVE BEEN RAISED IN THIS APPEAL: 1. WHETHER ON THE FACTS & IN THE CIRCUMSTANCES OF THE CASE, THE L D. CIT(A) HAS ERRED IN HOLDING THAT ELECTRICAL INSTALLATIONS FORMED AN INTEGRAL PART OF THE ASSESSEE'S PLANT, THEREFORE, DEPRECIATION WAS ALLOWABLE AT THE RATE APPLICABLE TO PLANT & MACHINERY I.E. 15% WHEREAS DEPRECIATION TO ELECTRIC AL FITTINGS CAN ONLY BE ALLOWED UNDER 'FURNITURE & FITTINGS' WHICH ALSO INCLUDES E LECTRICAL ITEMS AND THE APPLICABLE RATE OF DEPRECIATION IS 10%. ITA NO. 238 /DEL /201 3 NALWA STEEL POWER LTD. 2 2. WHETHER ON THE FACTS & IN THE CIRCUMSTANCES OF THE CASE, THE L D. CIT(A) ERRED IN DIRECTING THE AO TO DELETE THE ADDITIONS REPRESENTING THE DISALLOWANCE ON EXCESS DEPRECIATION ON UPS/ELECTRICAL INSTALLATION FROM THE CALCULATION OF BOOK PROFIT U/S 115JB BY HOLDING THAT THE AO HAS VERY LIMITED POWERS TO MAKE ADJUSTMENTS IN THE P&L A/C OF THE ASSESSEE. 3. WHETHER ON THE FACTS & IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN DELETING THE ADJUSTMENTS MADE IN THE BOOK PROFIT U/S 115JB OF THE ACT BY HOLDING THAT THE SAME IS NOT PERMITTED AS PER STATUTE. 4. THE APPELLANT CRAVES TO BE ALLOWED TO ADD ANY FRESH GROUNDS OF APPEAL AND/OR DELETE OR AMEND ANY OF THE GROUNDS OF APPEAL.' 3. VIDE GROUND NO. 1, THE GRIEVANCE OF THE DEPARTMENT RELATES TO THE RATE OF DEPRECIATION ON ELECTRICAL FITTINGS. 4. AS REGARDS TO THIS ISSUE, THE LD. COUNSEL FOR THE ASSESSEE AT THE VERY OUTSET STATED THAT IT IS COVERED IN ASSESSEE S FAVOUR VIDE ORDER DATED 09.08.2016 IN ASSESSEE S OWN CASE IN ITA NO. 4559/DEL/2010 FOR THE ASSESSMENT YEAR 2006 - 07 WHEREIN THE RELEVAN T FINDINGS HAS BEEN GIVEN IN PARAS 7 TO 7.2 WHICH READ AS UNDER: 7 . WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECORDS, ESPECIALLY THE IMPUGNED ORDER PASSED BY THE LD. CIT(A). WE FIND THAT LD. FIRST APPELLATE ITA NO. 238 /DEL /201 3 NALWA STEEL POWER LTD. 3 AUTHORITY HAS ELABORATELY DISCUSSED THE ISSUE IN DISPUTE BY CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND ADJUDICATED THE ISSUE VIDE PARA NO. 3.0 TO 3.2 OF THE IMPUGNED ORDER. FOR THE SAKE OF CONVENIENCE, WE ARE REPRODUCING PARA NO. 3.0 TO 3.2 OF THE IMPUGNED ORDER AS UNDER: - 3.0 GROUN D NO.2 RELATES TO TREATING ELECTRICAL INSTALLATION AS FURNITURE AND FIXTURES ITEMS RATHER THAN AS PART OF PLANT AND MACHINERY BLOCK AND HENCE DISALLOWANCE OF RS.1,61,53,320/ - OUT OF DEPRECIATION INCLUDING DISALLOWANCE OF ADDITIONAL DEPRECIATION CLAIMED FOR RS.1,02,12,533/ - IS NOT IN ORDER. 3.1 IT IS SUBMITTED BY THE LD. AR THAT THE APPELLANT COMPANY IS ENGAGED IN THE MANUFACTURING OF IRON AND STEEL. IT EMPLOYS CONTINUOUS PROCESS PLANT FACILITIES FOR SUCH MANUFACTURING. THE APPELLANT COMPANY ALSO HAS ITS CAPTIVE POWER GENERATION UNIT TO GENERATE AND SUPPLY ELECTRICITY TO THE PLANT AS POWER CONSTITUTES A CRITICAL NEED IN STEEL - AND IRON MANUFACTURING OPERATIONS. DURING THE PREVIOUS YEAR THE APPELLANT COMPANY HAS SET UP A NEW WIRE ROD MILL AT A COST OF RS. 36 ,29,13,887/ - . THE APPELLANT COMPANY ALSO INCURRED A FURTHER COST OF RS. 10,25,19,308/ - ON ELECTRICAL INSTALLATION FOR WIRE ROD MILL CONSISTING OF EXPENDITURE ON CONTROL PANELS SUCH AS PCC/PDB/MCCNCB PANEL, ARMORED/INSULATED CABLE, DIGITAL DRIVES, ELECTRICA L SUB - STATION AND TOWER, MOTORS ETC. SUCH INSTALLATIONS ARE INSEPARABLE PART OF THE PLANT OR IN ITA NO. 238 /DEL /201 3 NALWA STEEL POWER LTD. 4 OTHER WORDS PART AND PARCEL OF THE PLANT AND MACHINERY WHICH ARE POWER - DRIVEN. THESE CANNOT BE CONSIDERED DE HORS THE PLANT AND MACHINERY EMPLOYED IN PRODUCTIO N. THE APPELLANT COMPANY HAS THUS CLAIMED DEPRECIATION ON SUCH ELECTRICAL INSTALLATIONS UNDER THE BLOCK OF ASSETS 'PLANT & MACHINERY' AND CLAIMED DEPRECIATION @ 15% AND AN ADDITIONAL DEPRECIATION OF 10% ON THE SAME. FOR INSTANCE, ARMOURED CABLES ARE USED F OR POWER SUPPLY TO THE PLANT AS WELL AS FOR DISTRIBUTION OF POWER BETWEEN SUB - STATIONS. CONTROL PANELS ARE USED TO CONTROL AND REGULATE THE FLOW OF ELECTRICITY INTO MANUFACTURING AND STATIC CONVERTER SYSTEM (PANELS) IS USED FOR AN UNINTERRUPTIBLE ELECTRICA L POWER SUPPLY TO THE MANUFACTURING PROCESS. BUT, WITHOUT APPRECIATING THE NATURE AND APPLICATION OF ELECTRICAL INSTALLATION ITEMS, THE ASSESSING OFFICER HAS HELD THAT ELECTRICAL INSTALLATIONS ARE IN THE NATURE OF ELECTRICAL FITTINGS AND SHOULD BE ADDED TO THE BLOCK 'FURNITURE AND FITTINGS' AND DISALLOWED THE CLAIM OF HIGHER DEPRECIATION. IN SUPPORT OF ABOVE, THE LEARNED AR REFERRED TO THE GUJARAT HIGH COURT JUDGMENT IN THE CASE OF CIT VS. STARLIGHT SILK MILLS P. LTD. [2006] 280 ITR 257 WHICH HELD THAT A C PLANTS, ELECTRIC INSTALLATION AND TRANSFORMERS FORM INTEGRAL PART OF PLANT AND MACHINERY. FURTHER RELIANCE IS PLACED ON THE CASE LAWS OF MIHIR TEXTILE LTD. VS. CIT (2001) 252 ITR 686, TRIBENI TISSUES LTD. (1994) 206 ITR 92 (CAL), CIT VS. OSWAL WOOLLEN MI LLS LTD. (2007) 289 ITR 261 (P&H), CIT VS. INDIAN TURPENTINE AND ROSIN CO. LTD. (1070) 75 ITR 533 (ALL) AND OF AHMEDABAD BENCH DECISION IN RAW FLINTS (P) LTD. VS. INCOME - TAX OFFICER (1987) 21 ITA NO. 238 /DEL /201 3 NALWA STEEL POWER LTD. 5 ITD 207 WHICH HELD THAT ELECTRICAL INSTALLATIONS ARE AN INTEGRAL PART OF MANUFACTURING PROCESS AND CANNOT BE DIVORCED FROM 'PLANT AND MACHINERY'. 3.2 I HAVE CONSIDERED THE SUBMISSIONS MADE BY THE AUTHORIZED REPRESENTATIVE OF THE APPELLANT COMPANY. TO MY MIND, THE ASSESSING OFFICER SHOULD ALLOW DEPRECIATION ON ELECTRIC AL INSTALLATIONS @ 15% BY CONSIDERING THE SAME TO BE PART OF 'PLANT AND MACHINERY'. IN THE CASE CIT VS. OSWAL WOOLLEN MILLS LTD. (SUPRA), THE PUNJAB AND HARYANA HIGH COURT APPLIED BERGER PAINTS INDIA LTD. VS. CIT 266 ITR 99 AND FOLLOWED BHARAT EARTHMOVERS VS. CIT 245 ITR 428, CIT VS. OSWAL WOOLLEN MILLS LTD. 254 ITR 666, CRT VS. OSWAL WOOLLEN MILLS LTD. 257 ITR 737 AND CIT VS. STARLIGHT SILK MILLS P. LTD. 280 ITR 257 AND UPHELD THE TRIBUNAL'S DECISION THAT THE ELECTRICAL INSTALLATIONS FORMED AN INTEGRAL PAR T OF THE ASSESSEE'S PLANT, THEREFORE, DEPRECIATION WAS ALLOWABLE AT THE RATE APPLICABLE TO PLANT AND MACHINERY. HERE ALSO ELECTRICAL INSTALLATION IS INTEGRAL TO THE PLANT AND MACHINERY USED FOR MANUFACTURING STEEL AND AS THE ASSESSING OFFICER HAS NOT CONTR OVERTED THE CONTENTIONS OF THE APPELLANT COMPANY HENCE, I DIRECT THE ASSESSING OFFICER TO ALLOW DEPRECIATION ON ELECTRICAL INSTALLATIONS @ 15% I.E. THE RATE APPLICABLE TO 'PLANT & MACHINERY'. AS A NATURAL COROLLARY, ADDITIONAL DEPRECIATION AMOUNTING TO RS. 1,02,12,533/ - IS ALSO REQUIRED TO BE ALLOWED AS THE ASSESSING OFFICER DISALLOWED THE SAME CONSIDERING ELECTRICAL INSTALLATIONS AS PART OF FURNITURE AND FIXTURE. ITA NO. 238 /DEL /201 3 NALWA STEEL POWER LTD. 6 7.1 AFTER GOING THROUGH THE FINDINGS OF THE LD. CIT(A), AS AFORESAID, IN OUR CONSIDERED VIE W, ON THE ANVIL OF THE DECISION IN THE CASE OF CIT VS. OSWAL WOOLLEN MILLS LTD. (SUPRA), THE PUNJAB AND HARYANA HIGH COURT APPLIED BERGER PAINTS INDIA LTD. VS. CIT 266 ITR 99 BY FOLLOWING THE CASE OF BHARAT EARTHMOVERS VS. CIT 245 ITR 428, CIT VS. OSWAL WOOLLEN MILLS LTD. 254 ITR 666, CIT VS. OSWAL WOOLLEN MILLS LTD. 257 ITR 737 AND CIT VS. STARLIGHT SILK MILLS P. LTD. 280 ITR 257 THE HON BLE HIGH COURT HAS UPHELD THE TRIBUNAL'S DECISION AND HENCE, WE ARE OF THE VIEW THAT THE ELECTRICAL INSTALLATIONS FORM ED AN INTEGRAL PART OF THE ASSESSEE'S PLANT, THEREFORE, DEPRECIATION WAS ALLOWABLE AT THE RATE APPLICABLE TO PLANT AND MACHINERY. WE ARE ALSO OF THE CONSIDERED VIEW THAT ELECTRICAL INSTALLATION IS INTEGRAL TO THE PLANT AND MACHINERY USED FOR MANUFACTURING STEEL AND AS THE ASSESSING OFFICER HAS NOT CONTROVERTED THE CONTENTIONS OF THE ASSESSEE COMPANY HENCE, LD. CIT(A) HAS RIGHTLY DIRECTED THE AO TO ALLOW DEPRECIATION ON ELECTRICAL INSTALLATIONS @ 15% I.E. THE RATE APPLICABLE TO 'PLANT & MACHINERY'. WE FURT HER NOTE THAT LD. CIT(A) WAS JUSTIFIED IN HOLDING THAT AS A NATURAL COROLLARY, ADDITIONAL DEPRECIATION AMOUNTING TO RS.1,02,12,533/ - IS ALSO REQUIRED TO BE ALLOWED AS THE ASSESSING OFFICER DISALLOWED THE SAME CONSIDERING ELECTRICAL INSTALLATIONS AS PART OF FURNITURE AND FIXTURE, WHICH DOES NOT NEED ANY INTERFERENCE. 7.2 IN THE BACKGROUND OF THE AFORESAID DISCUSSIONS AND RESPECTFULLY FOLLOWING THE PRECEDENTS, AS AFORESAID WHICH HAS BEEN RELIED UPON BY THE LD. CIT(A) IN HIS IMPUGNED ORDER, WE ARE OF THE ITA NO. 238 /DEL /201 3 NALWA STEEL POWER LTD. 7 C ONSIDERED VIEW THAT THE LD. CIT(A) HAS PASSED A WELL REASONED ORDER WHICH DOES NOT NEED ANY INTERFERENCE ON OUR PART, HENCE, WE UPHOLD THE SAME AND DISMISS THE APPEAL FILED BY THE REVENUE. 5 . THE LD. DR COULD NOT CONTROVERT THE SAID CONTENTION OF THE LD . COUNSEL FOR THE ASSESSEE. SO RESPECTFULLY FOLLOWING THE AFORESAID REFERRED TO ORDER DATED 09.08.2016 , WE DO NOT SEE MERIT ON THIS ISSUE OF THE DEPARTMENTAL APPEAL . 6 . VIDE GROUND NOS. 2 & 3, THE GRIEVANCE OF THE DEPARTMENT RELATES TO THE CALCULATION OF BOOK PROFIT U/S 115JB OF THE INCOME - TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT ) ON ACCOUNT OF THE ADDITIONS REPRESENTING THE DISALLOWANCE ON EXCESS DEPRECIATION ON UPS/ELECTRICAL INSTALLATION FROM THE 7 . THE FACTS RELATED TO THIS ISSUE IN BRIEF ARE THAT THE AO MADE A TOTAL DISALLOWANCE OF RS.1,48,71,961/ - AND MADE THE ADDITION IN THE BOOK PROFIT DECLARED BY THE ASSESSEE WHILE ASSESSING THE INCOME U/S 115JB OF THE INCOME - TAX ACT, 1961. 8 . BEING AGGRIEVED THE ASSESSEE CARRIED THE MATTER TO THE L D. CIT(A) AND SUBMITTED AS UNDER: 6.1 IT IS RESPECTFULLY SUBMITTED THAT THIS GROUND IS COVERED IN FAVOUR OF THE APPELLANT BY YOUR PREDECESSOR'S ORDER IN APPEAL NO.226/09 - 10 DATED 21.07.2010 FOR A Y 2007 - 08. IN COMPUTING THE TOTAL ITA NO. 238 /DEL /201 3 NALWA STEEL POWER LTD. 8 INCOME UNDER THE PROVISIO NS OF THE ACT THE AO MADE A TOTAL DISALLOWANCE OF RS. 1,48,71 ,962/ - EACH OF WHICH IS DISPUTED ON MERITS IN THE PRECEDING GROUNDS (1) TO (2) ABOVE. AT THE SAME TIME THE AO MADE AN ADDITION OF I DENTICAL SUM OF RS.1,48,71,962/ - TO THE NET PROF IT DECLARED BY TH E APPELLANT COMPANY. THE APE X COURT IN THE CASE OF APOLLO TY RES V. CIT [2002] 255 ITR 273 HELD THAT THE ASSESSING OFFICER HAS THE LIMITED POWER OF MAKING INCREASES AND REDUCTIONS AS PROVIDED FOR IN THE EXPLANATION TO SECTION 115J. THE ASSESSING OFFICER DO ES NOT HAVE THE JURISDICTION TO GO BEYOND THE NET PROFIT SHOWN IN THE PROFIT AND LOSS ACCOUNT EXCEPT TO THE LIMITED EXTENT PROVIDED IN THE EXPLANATION. IN OUR RESPECTFUL SUBMISSION THE ITEMS OF ADDITIONS IN THE INSTANT CASE DO NOT FALL WITHIN THE CATEGORY OF ITEMS SPECIFIE D IN EXPLANATION UNDER SECTION 11 5JB OF THE INCOME TAX ACT, 1961, HENCE THE AO HAS EXCEEDED IN HIS JURISDICTION TO MAKE SUCH ADDITION OF RS. 1,48,71,962/ - IN HIS COMPUTATION OF BOOK PROFITS. 9. THE LD. CIT(A) AFTER CONSIDERING THE SUBMIS SIONS OF THE ASSESSEE DECIDED THE ISSUE IN ITS FAVOUR BY OBSERVING IN PARA 6.2 OF THE IMPUGNED ORDER AS UNDER: 6.2 I HAVE CONSIDERED THE FACTS OF THE CASE AND THE SUBMISSIONS MADE BY THE APPELLANT. THE ABOVE ISSUE WAS DECIDED BY MY LD. PREDECESSOR IN THE A.Y. 2007 - 08 AS UNDER: ' I DO AGREE WITH THE CONTENTIONS OF THE LD, AR THAT THE ASSESSING OFFICER HAS VERY LIMITED POWERS TO MAKE ADJUSTMENTS IN THE PROFIT AND LOSS ACCOUNT OF ITA NO. 238 /DEL /201 3 NALWA STEEL POWER LTD. 9 THE ASSESSEE. THE ADJUSTMENTS CAN BE MADE TO THE PROFIT AND LOSS ACCOUNT AS PROV IDED IN EXPLANATION TO SECTION 115JB OF THE ACT AND EXCEPT THIS, THE ASSESSING OFFICER CANNOT MAKE ANY ADDITIONS TO THE P&L ACCOUNT. IN VIEW OF THE SUPREME COURT DECISION IN THE CASE OF APOLLO TYRES LTD. (SUPRA), I DIRECT THE ASSESSING OFFICER TO DELETE TH E ADDITIONS REPRESENTING THE DISALLOWANCE ON 'EXCESS DEPRECIATION ON UPS/ELECTRICAL INSTALLATIONS, DISALLOWANCE OF ADDITIONAL DEPRECIATION ON ELECTRICAL INSTALLATION, DISALLOWANCE OF ADDITIONAL DEPRECIATION ON ASSETS ACQUIRED PRIOR TO 31/03/2005 AND DISALL OWANCE U/S 14A OF THE ACT' AS THE SAME IS NOT PERMITTED AS PER THE STATUTE. THIS GROUND OF APPEAL IS ALLOWE D TO THE APPELLANT ACCORDINGLY. ' THE ISSUE BEING IDENTICAL, FOLLOWING THE DECISION OF MY LD. PREDECESSOR, THE AO IS DIRECTED TO DELETE THE ADDITION REPRESENTING THE DISALLOWANCE ON EXCESS DEPRECIATION ON UPS AND ELECTRICAL INSTALLATIONS FOR THE PURPOSE OF COMPUTATION OF BOOK PROFIT U/S 115JB OF THE I.T. ACT, WHICH IS DISPUTED ON MERIT IN THE PRECEDING GROUND NOS. 1 AND 2 ABOVE. APPEAL IS ALLOWED ON TH I S GROUND. 10. NOW THE DEPARTMENT IS IN APPEAL. THE LD. DR SUPPORTED THE ORDER OF THE AO BUT COULD NOT REBUT THE FINDINGS GIVEN BY THE LD. CIT(A). 11. IN HIS RIVAL SUBMISSIONS THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE L D. CIT(A) AND STRONGLY SUPPORTED THE IMPUGNED ORDER. ITA NO. 238 /DEL /201 3 NALWA STEEL POWER LTD. 10 12. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON THE RECORD. IN THE PRESENT CASE, IT IS NOTICED THAT THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND THE RATIO LAID DOWN BY THE HON BLE APEX COURT IN THE CASE OF M/S APOLLO TYRES LTD. VS CIT (2002) 255 ITR 273 DECIDED THE ISSUE IN ASSESSEE S FAVOUR. IN OUR OPINION, THE IMPUGNED ORDER DOES NOT REQUIRE ANY INTERFERENCE ON OUR PART WHEN THE ISSUE HAS BEEN DECIDED BY THE LD. CIT(A) BY FOLLOWING THE RATIO LAID DOWN BY THE HON BLE SUPREME COURT IN THE CASE OF M/S APOLLO TYRES LTD. VS CIT (SUPRA). IN THAT VIEW OF THE MATTER, WE DO NOT SEE ANY MERIT IN THIS GROUND OF THE DEPARTMENTA L APPEAL. 13 . IN THE RESULT, APPEAL OF THE DEPARTMENT IS DISMISSED. ( ORDER PRON OUNCED IN THE COURT ON 27 /04/2017 ) SD/ - SD/ - (BEENA PILLAI ) (N. K. SAINI) JUDICIAL MEMBER AC COUNTANT MEMBER DAT ED: 27 /04/2017 *SUBODH* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR