The ACIT, Circle-1, Ahmedabad V. Aryaman Spinners Pvt.Ltd., Ahmedabad

ITA 2649/AHD/2005

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 6036 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 1 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-02-2009
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 10-02-2009
• Assessment Year: 2002-2003
• Appeal Filed On: 16-12-2005
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B S GEHLOT
• Assessee Lawyers: MEHUL K PATEL
• Keywords: Depreciation; Search and seizure; Earning of tax free income; Set aside
• Section: 14A; 56

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL : B BENCH : AHMEDABAD (BEFORE HONBLE SHRI T.K. SHARMA, J.M. & HONBLE SH RI D.C. AGARWAL, A.M.) I.T.A. NO. 502/AHD./2005 ASSESSMENT YEAR : 2001-2002 BESTO TRADELINK PVT. LTD., AHMEDABAD -VS.- ASSIST ANT COMMISSIONER OF INCOME TAX, OSD-1, (P.A. NO. AAACB 6241 P) AHMEDABAD (APPELLANT) (R ESPONDENT) & I.T.A. NO. 2649/AHD./2005 ASSESSMENT YEAR : 2002-2003 ASSISTANT COMMISSIONER OF INCOME TAX (OSD)-1, -VS. - BESTO TRADELINK PVT. LTD., AHMEDABAD AHMEDABAD (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI MEHUL K. PATEL DEPARTMENT BY : SHRI B.S. GEHLOT O R D E R PER SHRI T.K. SHARMA, JUDICIAL MEMBER :- THESE APPEALS BEING ITA NO. 502/AHD/2005 & 2689/AHD/2005 FILED BY THE ASSESSEE AND DEPARTMENT RESPECTIVELY WERE HEARD ON THE SAME DATE, ARGUED BY COMMON LEARNED REPRESENTATIVE. THEREFORE, WE PROCEED TO DECIDE BOTH THE APPEALS BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. ITA NO. 502/AHD/2005 THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) -V, AHMEDABAD DATED 06-12-2004 FOR THE ASSESSMENT YEAR 2001-2002. THE VARIOUS GROUNDS IN THIS APPEAL ARE AS UNDER :- 1. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FARTS IN CONFIRMING THE DISALLOWANCE OF DEPRECIATION OF RS. 2,40,00,000/- CLAIMED ON WINDMI LL ON THE GROUND THAT THE APPELLANT HAS NOT ESTABLISHED THAT THE OWNERSHIP OF THE WINDMILL VESTED IN IT. IN VIEW OF THE FACTS AND SUBMISSIONS FILED AS WELL AS EVIDE NCES AVAILABLE ON RECORD AND THE LEGAL POSITION, THE APPELLANT'S CLAIM FOR DEPRECIAT ION OF RS. 2,40,00,000/- ON WINDMILL REQUIRES TO BE GRANTED. 2. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FARTS IN CONFIRMING THE ADDITION OF RS/ 2,77,476/- ON ACCOUNT DISALLOWANCE OF REPAIRS AND S ERVICE CHARGES OF WINDMILL. IN 2 VIEW OF THE FARTS AND SUBMISSIONS FILED, MORE PARTI CULARLY THE FART THAT THE APPELLANT IS THE REAL OWNER OF THE WINDMILL, THE IMPUGNED ADDITI ON REQUIRES TO BE DELETED. 3. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FARTS IN CONFIRMING THE ADDITION ON ACCOUNT OF DISALLOWANCE OF INTEREST EXPENSES OF RS. 60,892/-. IN VIEW OF FARTS AND SUBMISSIONS FILED AS WELL AS LEGAL POSITION, THE IM PUGNED ADDITION REQUIRES TO BE DELETED. 4. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FARTS IN CONFIRMING THE ADDITION ON ACCOUNT OF DISALLOWANCE OF RS. 1,72,780/- U/S. 40A( 3) OF THE ART BEING 20% OF THE PAYMENTS IN CASH AGGREGATING TO RS. 8,63,903/-. IN VIEW OF THE FACTS AND SUBMISSIONS FILED AND THE FACT THAT THE PAYMENTS ARE COVERED BY THE EXCEPTIONS LAID DOWN IN RULE 6DDJ OF I. T. RULES, 1962, THE IMPUGNED ADDITION RE QUIRES TO BE DELETED. 3. ITA NO. 2689/AHD./2005 THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINST THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS)-V, AHMEDABAD DATED 06.10.2005 F OR THE ASSESSMENT YEAR 2002-03 ON THE FOLLOWING GROUNDS :- 1. THE CIT(A) HAS ERRED IN LAW AND ON FACTS OF T HE CASE IN DIRECTING TO DELETE THE DISALLOWANCE OF INTEREST OF RS.3,37,438/- 2. THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN DI RECTING TO DELETE DISALLOWANCE U/S 14A OF RS.20,000/-. 3. THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN DIR ECTING TO DELETE DISALLOWANCE OF SALE OF WINDMILLS OF RS.2,40,00,000/- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER. THE APPELLANT PRAYS THAT THE ORDER OF CIT(A) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY. 4. THE FACTS RELATING TO CONTROVERSY INVOLVED IN GROUND NO. 1 OF ASSESSEES APPEAL IN ITA NO. 502/AH./2005 FOR THE ASSESSMENT YEAR 2001-02 AND GR OUND NO. 3 OF REVENUES APPEAL IN ITA NO. 2689/AHD./2005 FOR THE ASSESSMENT YEAR 2002-03 ARE THAT DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 2001-02, THE ASSESSEE-COMPAN Y CLAIMED DEPRECIATION OF RS.2.40 CRORES ON WINDMILL, WHICH WAS SHOWN TO HAVE PURCHASED ON 31.0 3.2000. NO CLAIM OF DEPRECIATION WAS MADE ON THE WINDMILL IN THE EARLIER YEAR, I.E. ASSE SSMENT YEAR 2000-01. HOWEVER, IN THE ASSESSMENT YEAR 2001-02, THE ASSESSEE CLAIMED DEPRE CIATION ON THE WINDMILL @ 100%. 3 5. DURING THE COURSE OF ASSESSMENT PROCEEDING FOR THE ASSESSMENT YEAR 2001-02, THE A.O. ASKED THE ASSESSEE TO FURNISH THE DETAILS IN SUPPOR T OF OWNERSHIP OF THE WINDMILL IN THE FORM OF PERMISSION GRANTED BY THE GOVERNMENT FOR TRANSFERRI NG THE ASSETS FROM THE OLD OWNER TO ITS NAME, BENEFIT AVAILABLE WITH IT IN RESPECT OF SALES TAX, MONTH-WISE GENERATION OF ELECTRICITY PRODUCED, SALE AFFECTED, ETC. BEFORE THE A.O., THE ASSESSEE VIDE LETTER DATED 19.01.2004 CONTENDED THAT THE WINDMILL HAD BEEN PURCHASED FROM M/S. PEARL ENERGY AND INFRASTRUCTURES AND THAT THE PERMISSION FROM THE GOVERNMENT FOR TRANSFER OF ASSETS IN ITS N AME WAS YET TO BE RECEIVED. IT WAS FURTHER STATED THAT AS PER AGREEMENT, THE ELECTRICITY GENER ATION WAS SOLD BY THE OLD OWNER ON ASSESSEES BEHALF AND THAT SUCH RECEIPTS WERE SHOWN AT RS.9,44 ,745/-. THE A.O. NOTICED THAT THERE WAS NOTHING ON RECORD OR IN POSSESSION OF THE ASSESSEE WAS IN RESPECT OF PAYMENT OF RS.2.40 CRORES TO M/S. PEARL ENERGY & INFRASTRUCTURE BY WAY OF MOU. B EFORE THE A.O, THE ASSESSEE COULD NOT FURNISH THE GOVERNMENT APPROVAL/ OWNERSHIP OF THE W INDMILL, THEREFORE, THE A.O. DISALLOWED THE ENTIRE CLAIM OF DEPRECIATION OF RS.2.40 CRORES RELY ING ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF R.B. JODHA MAL KUTHIALA VS.- CIT REPORTED IN (1971) 82 ITR 570. 6. ON APPEAL, BEFORE THE LEARNED COMMISSIONER OF IN COME TAX(APPEALS) IT WAS CONTENDED THAT 12 WINDMILLS WERE PURCHASED BY THE ASSESSEE AN D IT WAS ENTITLED TO EARN INCOME FROM THE SAID WINDMILLS IN ITS OWN RIGHT. WHATEVER INCOME HA D EARNED, THE ASSESSEE HAS DISCLOSED IN ITS ACCOUNT, WHICH HAS BEEN NOT ONLY ACCEPTED BUT INCLU DED BY THE A.O. IN THE COURSE OF ASSESSMENT PROCEEDINGS. IT WAS CLAIMED THAT THE ASSESSEE IS EN TITLED TO DEPRECIATION IN VIEW OF THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF MYSORE MINERALS LTD. VS.- CIT REPORTED IN (1999) 156 CTR (SC) 1. 7. AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE , THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) IN THE IMPUGNED ORDER UPHELD THE ACTIO N OF A.O. FOR THE DETAILED REASONING GIVEN IN PARAS 3.4 & 3.5, WHICH ARE AS UNDER :- 3.4. I HAVE CONSIDERED THE SUBMISSIONS MADE BY THE ID. AUTHORISED REPRESENTATIVE AND HAS GONE THROUGH THE FACTS ON RECORD. IT IS CLEAR F ROM THE RECORDS THAT NO DEED HAS BEEN ENTERED INTO IN RESPECT OF THE SAID ACQUISITION OF THE PROPERTY BY THE APPELLANT. ON FACTS OF THE CASE APPELLANT HAS FAILED TO PROVE THE OWNERSHI P ON THE ASSETS BY FURNISHING PERMISSION GRANTED BY THE GOVERNMENT FOR TRANSFERRI NG THE ASSETS FROM THE OLD OWNER TO ITS NAME AND VARIOUS OTHER DETAILS SUCH AS ELECTRIC ITY GENERATION BY THE APPELLANT COMPANY, SALES AFFECTED ETC CALLED FOR BY THE ASSES SING OFFICER. EXCEPT A MEMORANDUM OF UNDERSTANDING BETWEEN THE SAID PATTIES I.E. M/S. PE ARL ENERGY AND INFRASTRUCTURE AND THE 4 APPELLANT COMPANY AND THE BANK ENTRY FOR PAYMENT OF RS.2.40 CRORES TO PEARL ENERGY AND INFRASTRUCTURE, NO ANY CONCRETE EVIDENCE HAS BEEN P RODUCED BY THE APPELLANT TO PROVE THAT THE OWNERSHIP ON THE WINDMILL II FACT VESTED I N IT'S NAME. THE ELECTRICITY GENERATION FROM THE WINDMILLS IN QUESTION IS ALSO NO MADE BY T HE APPELLANT BUT BY M/S. PEARL ENERGY &. INFRASTRUCTURE, THE ORIGINAL OWNER ONLY. THIS AL SO PROVES THAT EVEN AFTER THE MOD OWNERSHIP AND POSSESSION OVER THE ASSETS CONTINUED WIT PREVIOUS OWNER. I AM AFRAID THAT THE CASE LAWS RELIED UPON BY THE APPELLANT ARE ALSO NOT FOR IT-RESCUE. THE APPELLANT HAS HEAVILY RELIED ON THE HON'BLE SUPREME COURT'S JUDGM ENT OF MYSORE MINERALS LTD .IN THIS CASE THE HON'BLE SUPREME COURT WAS CONCERNED WHETHE R ONLY REGISTERED OWNER IS ENTITLED TO THE BENEFIT OF DEPRECIATION OR THAT THE REAL OWN ER CAN ALSO CLAIM DEPRECIATION U/S. 32(1) OF THE ACT. IT WAS, INTER ALIA, HELD BY THE HON'BLE SUPREME COURT THE; ANYONE IN POSSESSION OF THE PROPERTY IN HIS OWN TITLE EXERCIS ING SUCH DOMINATION OVER THE PROPERTY AS WOULD ENABLE OTHERS BEING EXCLUDED THEREFROM AND HAVING THE RIGHT TO USE AN-OCCUPY THE PROPERTY AND / OR TO ENJOY ITS USUFRUCT IN HIS OWN RIGHT WOULD BE THE OWNER OF THE BUILDING THOUGH A FORMAL DEED OF TITLE MAY NOT HAVE BEEN EXECUTED AND REGISTERED AS CONTEMPLATED BY THE TRANSFER OF PROPERTY ACT, THE R EGISTRATION ACT ETC. THE HON'BLE SUPREME COURT IN THIS CASE RELIED ON ITS OWN JUDGME NT IN CIT VS PODDAR CEMENT PRIVATE LTD 226 IT 625 (SC). IN THAT CASE THE HON'BLE SUP REME COURT WAS CONCERNED WITH OWNERSHIP FOR THE PURPOSE OF SECTION 22 IN RESPECT OF HOUSE PROPERTY INCOME. THE ASSESSEE IN THAT CASE HA PURCHASED FOUR FLATS, PAID PURCHASE CONSIDERATION IN FULL, TOOK POSSESSION OF THE FIATS AND LET THEM OUT. THE ASS ESSEE CONTENTED THAT AS THE FLATS HAD NOT BEEN CONVEYED TO THE CO-OPT. SOCIETY WHICH WAS FORM ED BY PURCHASER OF THE FLATS, THE RENTAL INCOME THEREFROM SHOULD BE ASSESSED U/S. 56 AND NOT AS INCOME FROM HOUSE PROPERTY U/S. 22. AFTER REVIEW OF SEVERAL DECISIO NS AND RESTORING TO CONTEXTUAL AND PURPOSIVE INTERPRETATION, THE HON'BLE SUPREME COURT HELD THAT THE INCOME WAS CHARGEABLE TO TAX U/S.22 OF THE ACT. 3.5 IT CAN BE SEEN THAT THE FACTS OF THE JUDGMEN T RELIED UPON BY THE APPELLANT AT DISTINGUISHABLE FROM THE FACTS IN THE APPELLANT'S C ASE. THE APPELLANT HAS NOT BEEN ABLE TO PROVE THAT THE ASSETS IN QUESTION HAD EVER BEEN TRA NSFERRED TO IT BY THE PREVIOUS OWNER. THEREFORE HAVING REGARD TO THE ABOVE SAID FACTS AND CIRCUMSTANCES OF THE CASE AND IN VIEW THE DISCUSSION MADE AS ABOVE, I HOLD THAT THE APPELLANT HAS NOT PROVED THE OWNERSHIP OF THE ASSET IN QUESTION. THE ASSESSING O FFICER'S ACTION IS THEREFORE CONSIDERED JUSTIFIED IN DISALLOWING THE CLAIM OF DEPRECIATION RS.2.40 CRORES. HIS DISALLOWANCE IS THEREFORE CONFIRMED. 8. AGGRIEVED BY THE ORDER OF LEARNED COMMISSIONER O F INCOME TAX(APPEALS), THE ASSESSEE IS IN APPEAL BEING ITA NO. 502/AHD./2005 BEFORE US. 9. IN THE ASSESSMENT YEAR 2002-03, THE ASSESSEE SOL D 12 WIND TURBINE GENERATORS TO M/S. PEARL ENERGY & INFRASTRUCTURE AND OFFERED THE ENTIR E SALE CONSIDERATION OF RS.2.40 CRORES. THE A.O. TAXED THE SAME. ON APPEAL BEFORE THE LEARNED C OMMISSIONER OF INCOME TAX(APPEALS), IT WAS CONTENDED THAT THE ADDITION OF RS.2.40 CRORES I S REQUIRED TO BE DELETED ON THE BASIS OF THE FINDING OF A.O. IN THE ASSESSMENT YEAR 2001-02 AND THE LEARNED COMMISSIONER OF INCOME 5 TAX(APPEALS) IN HIS APPELLATE ORDER FOR THE SAID AD DITION DIRECTED THE A.O. TO REDUCE THE TOTAL INCOME BY RS.2.40 CRORES, WHICH WAS TAXED BY HIM AS CAPITAL GAIN IN THE ASSESSMENT YEAR 2002- 03. THE DETAILED REASONING GIVEN BY THE LEARNED COM MISSIONER OF INCOME TAX(APPEALS) IS CONTAINED IN PARA 6.1, WHICH IS RE-PRODUCED HEREUND ER :- 6.1. I HAVE CAREFULLY GONE THROUGH THE FACTS OF THE CASE, ASSESSMENT ORDER AS WELL AS APPELLATE ORDER FOR A.Y. 2001-02. IT IS SEEN THAT T HE A.O. IN HIS ASSESSMENT ORDER FOR A.Y. 2001-02 HAS OBSERVED THAT THERE IS NOTHING ON RECOR D OR IN POSSESSION OF THE ASSESSEE TO SHOW THAT THE ASSESSEE ENJOYED THE OWNERSHIP OF THE WINDMILL AND THAT THE ONLY EVIDENCE AVAILABLE WITH THE ASSESSEE IS IN RESPECT OF PAYMEN T OF RS. 2,40,00,000/- TO PEARL ENERGY BY WAY OF BANK ENTRY AND PURCHASE DEED'. IT IS FURT HER OBSERVED BY THE A.O. THAT 'AS THE ASSESSEE HAS FAILED TO PRODUCE ANY EVIDENCES IN RES PECT OF THE OWNERSHIP OF THE ASSETS, THE ASSESSEE IS NOT ENTITLED FOR ANY DEPREDATION. THE P AYMENT IS NOTHING BUT ADVANCEMENT OF FUNDS ONLY. I THEREFORE, DISALLOW THE CLAIM OF DEPR ECIATION AND ADD BACK TO THE TOTAL INCOME OF THE ASSESSEE.' THE ABOVE OBSERVATIONS AND FINDINGS OF THE A.O. STAND CONFIRMED BY MY PREDECESSOR VIDE APPELLATE ORDER DATED 06/12/ 2004 IN APPEAL NO. CIT(A)- V/WD.L(4)/ 56/2004-05. IN VIEW OF THE ABOVE OBSERVATIONS AND FINDINGS OF T HE A.O. IN SUPPORT OF DISALLOWANCE OF DEPRECIATION OF RS.2,40,00,000/- ON WINDMILLS, WHICH STAND CONFIRMED BY MY PREDECESSOR IN A.Y. 2001-02, IT IS SEEN FROM THE COPY OF ACCOUNTS FURNISHED THAT THE APPELLANT PURCHASED 12 WIND TURBINE GENERATORS FOR A SUM OF RS.2,40,00,000/- FROM PEARL ENERGY AND INFRASTRUCTURE ON 31/03/2000 BUT P UT TO USE IN APRIL, 2000 AND THUS CLAIMED DEPRECIATION IN A.Y.2001-02. THE SAID PURCH ASE HAS BEEN HELD TO BE MERE ADVANCEMENT OF FUNDS IN ABSENCE OF ANY EVIDENCE TO PROVE THE GENUINENESS OF THE OWNERSHIP OF THE WINDMILLS. HENCE, THE DEPRECIATION OF RS.2,40,00,000/- CLAIMED ON SUCH PURCHASE STOOD DISALLOWED IN A.Y. 2001-02. IT IS AL SO SEEN FROM THE COPY OF ACCOUNTS THAT DURING THE YEAR UNDER CONSIDERATION I.E. ON 16/05/2 001, THE APPELLANT HAS GIVEN BACK THE SAID WINDMILLS TO THE SAME PARTY FROM WHOM IT WAS C LAIMED AS PURCHASED AND HAVE RECEIVED BACK THE AMOUNT OF RS.2,40,00,000/-ADVANCE D IN EARLIER YEAR I.E. THE SAME AMOUNT FOR WHICH IT WAS CLAIMED TO HAVE BEEN PURCHA SED. THAT \SINCE THE A.O. AND MY PREDECESSOR IN A.Y. 2001-02 HAVE CATEGORICALLY HELD THAT THE PAYMENT TOWARDS SO-CALLED PURCHASE OF WINDMILL WAS MERE ADVANCEMENT OF FUNDS AND NOT PURCHASE AND SINCE THE /DEPRECIATION CLAIMED ON SUCH ASSET HAVE BEEN DISAL LOWED IN A.Y.2001-02, THE AMOUNT OF RS.2,40,00,000/- IN MY CONSIDERED OPINION CANNOT BE HELD TO BE SALE CONSIDERATION BUT MERE RECEIPT OF FUNDS GIVEN TO THE SAID PARTY AND A CCORDINGLY NO CAPITAL GAIN IS REQUIRED TO BE CHARGED IN ABSENCE OF ANY TRANSACTION OF PURCHAS E OR SALE IN ITS REAL SENSE. ACCORDINGLY, THE A.O. IS DIRECTED TO REDUCE FROM TH E TOTAL INCOME, THE AMOUNT OF RS.2,40,00,000/- BEING CAPITAL GAIN ADDED IN TOTAL INCOME. 10. AGGRIEVED BY THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS), THE REVENUE IS IN APPEAL BEFORE US IN ITA NO. 2689/AHD./2005 FO R THE ASSESSMENT YEAR 2002-03. 11. AT THE TIME OF HEARING, ON BEHALF OF THE ASSESS EE LD. COUNSEL SHRI MEHUL K. PATEL APPEARED AND FILED A PAPER BOOK CONTAINING 90 PAGES, WHICH I NTER ALIA INCLUDES THE SUBMISSIONS MADE 6 BEFORE BOTH THE AUTHORITIES BELOW. THE DETAILS CONT AINED IN THE PAPER BOOK INTER ALIA INCLUDE MEMORANDUM OF UNDERSTANDING FOR SALE OF WINDMILL (A T PAGES 26 TO 31 OF THE PAPER BOOK), LETTER OF SELLER TO THE GUJARAT ENERGY DEVELOPMENT AGENCY FOR TRANSFER OF NAME AS WELL A ANNUAL ACCOUNTS OF THE ASSESSEE FOR BOTH THE ASSESSMENT YE ARS AND SCHEDULE OF FIXED ASSETS OF SELLER ALONGWITH ACCOUNT OF WINDMILL IN THE BOOKS OF SELLE R COPY OF THE PURCHASE BILL, ANNUAL ACCOUNTS OF SELLER ETC. THE LD. COUNSEL OF THE ASSESSEE CONT ENDED THAT AS PER MEMORANDUM OF UNDERSTANDING, THE ASSESSEE BECAME THE OWNER OF THE WINDMILL SUBJECT TO PERMISSION, WHICH THE ASSESSEE WAS REQUIRED TO OBTAIN WITHIN 90 DAYS FROM THE DATE OF SUBMISSION OF APPLICATION TO THE CONCERNED AUTHORITIES. THE LD. COUNSEL OF THE ASSES SEE CONTENDED THAT THE ASSESSEE COULD NOT PROCURE THE PERMISSION FROM THE CONCERNED AUTHORITI ES. AS PER MOU, THE ASSESSEE HAS RECEIVED ENERGY CHARGES AMOUNTING TO RS.9,44,745/-, WHICH HA S BEEN TAXED BY THE A.O. THE ASSESSEE HAS INCURRED EXPENSES OF RS.2,77,476/- TOWARDS REPAIR A ND SERVICE CHARGES OF WINDMILL. IN THE ASSESSMENT YEAR 2001-02, THE A.O. HAS TAXED THE ENE RGY CHARGES, AND REFUSED TO ALLOW THE REPAIR AND SERVICE CHARGES. THE LD. COUNSEL OF THE ASSESSE E SUBMITTED THAT THE ACTION OF A.O. TAXING THE ENERGY CHARGES INDICATES THAT THE A.O. HAS ACCEPTED THE ASSESSEE AS OWNER. A.O. THEREFORE, SHOULD HAVE ALLOWED THE DEPRECIATION ON THE WINDMILL @ 100 %. IN SUPPORT OF THIS, RELIANCE WAS ALSO PLACED ON THE DECISIONS OF THE HON'BLE SUPREME COUR T IN THE CASE OF MYSORE MINERALS LTD. VS.- CIT REPORTED IN (1999) 156 CTR (SC) 1 AND IN THE CA SE OF R.B. JODHA MAL KUTHIALA VS.- CIT REPORTED IN (1971) 82 ITR 570 (SC).. 12. CONTINUING HIS ARGUMENT, THE LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT IN THE ASSESSMENT YEAR 2002-03 THE WINDMILL WAS SOLD, THE A.O. TAXED THE ENTIRE SALE CONSIDERATION OF RS.2.40 CRORES UNDER THE HEAD CAPITAL GAIN. IN CASE PURCH ASE OF WINDMILL WAS NOT ACCEPTED, IN THAT EVENT THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX(APP EALS) IN THE ASSESSMENT YEAR 2002-03 BE UPHELD AND IN THE ASSESSMENT YEAR 2001-02, THE A.O. BE DIRECTED TO EXCLUDE ENERGY CHARGES FROM THE INCOME AMOUNTING TO RS.9,44,745/- BECAUSE IT BE LONGED TO THE OWNER OF WINDMILL, I.E. M/S. PEARL ENERGY & INFRASTRUCTURE AND NOT TO THE ASSESS EE. ALTERNATIVELY, A.O. BE DIRECTED TO ALLOW THE EXPENSES OF RS.2,77,476/-. 13. ON THE OTHER HAND, SHRI B.S. GEHLOT, LD. DEPART MENTAL REPRESENTATIVE CONTENDED THAT THE WINDMILL IN QUESTION CANNOT BE TRANSFERRED WITHOUT THE PERMISSION OF GOVERNMENT. IN THE 7 MEMORANDUM OF UNDERSTANDING, IT WAS CLEARLY MENTION ED THAT THE ASSESSEE WILL OBTAIN THE PERMISSION WITHIN 90 DAYS FROM THE APPROPRIATE AUTH ORITIES, BUT THE ASSESSEE FAILED TO OBTAIN THE PERMISSION. THEREFORE, IT NEVER BECOMES THE OWNER O F THE WINDMILL IN QUESTION IN THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 2001-02. THERE FORE, THE DEPRECIATION CLAIMED WAS RIGHTLY DISALLOWED BY THE A.O. IN THE SAID YEAR, THE ASSESS EE HAS EARNED INCOME OF RS.9,44,745/-, WHICH HAS RIGHTLY TAXED BECAUSE AS PER MOU, NEITHER IT WA S REFUNDABLE NOR THE ASSESSEE HAS RETURNED THE SAME TO M/S. PEARL ENERGY & INFRASTRUCTURE. WITH RE GARD TO TAXING OF RS.2.40 CRORES IN THE ASSESSMENT YEAR 2002-03, THE LD. D.R. SUBMITTED THA T IN CASE IN THE ASSESSMENT YEAR 2001-02, GROUND NO. 1 OF THE ASSESSEE IS DISMISSED, IN THAT EVENT THERE IS NO OBJECTION IF THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS) DELETIN G THE ADDITION OF RS.2.40 CRORES IN THE ASSESSMENT YEAR 2002-03 IS UPHELD. 14. AFTER HEARING BOTH THE SIDES, WE HAVE CAREFULLY GONE THROUGH THE ORDERS OF AUTHORITIES BELOW AS WELL AS VARIOUS DETAILS AND DOCUMENTS SUBM ITTED BEFORE US. FROM THE PERUSAL OF MOU, IT IS CLEAR THAT AS PER CLAUSE (D), THE ASSESSEE-CO MPANY WAS REQUIRED TO APPLY TO APPROPRIATE AUTHORITY ON OR BEFORE 31 ST MAY, 2000. THE ASSESSEE (AS PER MOU) ASSURED THE S ECOND PARTY (M/S. PEARL ENERGY & INFRASTRUCTURE) TO ARRANGE FOR NECES SARY TRANSFER WITHIN A PERIOD OF 90 DAYS FROM THE DATE OF SUBMISSION OF APPLICATION TO THE CONCER NED AUTHORITIES. ADMITTEDLY, NO PERMISSION WAS GRANTED. IT IS AGREED BY BOTH THE PARTIES THAT WINDMILL IN QUESTION CANNOT BE TRANSFERRED UNLESS THE PERMISSION OF APPROPRIATE AUTHORITY IS O BTAINED. ADMITTEDLY IN THIS CASE, NO PERMISSION WAS GIVEN. IN THESE CIRCUMSTANCES, IN OUR CONSIDERE D OPINION, THE SAID MOU (AGREEMENT) BECAME UNENFORCEABLE AND VOID. THUS, THE ASSESSEE-COMPANY NEVER ACQUIRED THE TITLE OR BECAME THE OWNER OF WINDMILLS IN QUESTION. THE HON'BLE SUPREME COURT IN THE CASE OF TAMIL NADU CIVIL SUPPLIES CORPORATION LTD. VS.- CIT (2001) 249 ITR 214 (SC), UNLESS THE ASSESSEE BECAME OWNER OF MILL, IT IS NOT ENTITLED TO DEPRECIATION A ND DEVELOPMENT REBATE. IN THAT CASE, CERTAIN GOVERNMENT ORDERS WERE ISSUED IN 1972 VESTING POSS ESSION OF 13 MILLS WITH THE ASSESSEE. BUT THE SALE DEEDS IN RELATION THERETO WERE EXECUTED IN 197 8. THE ASSESSEE CLAIMED DEPRECIATION AND DEVELOPMENT REBATE IN RELATION TO THE 13 MILLS FOR THE ASSESSMENT YEARS 1973-74 AND 1974-75. THE ITO REJECTED THE CLAIM ON THE GROUND THAT THE A SSESSEE HAD NOT BECOME THE OWNER IN LAW. THE FIRST APPELLATE AUTHORITY AND THE TRIBUNAL UPHE LD THE ORDER OF A.O. THE HON'BLE HIGH COURT, ON A REFERENCE, HELD THAT THE ASSESSEE HAD NOT BECO ME THE LEGAL OWNER OF THE 13 MILLS IN 1972 AND 8 UPHELD THE DENIAL OF DEPRECIATION AND DEVELOPMENT R EBATE [1997] (228 ITR 399). ON APPEAL TO THE HON'BLE SUPREME COURT, IT WAS HELD THAT AFFIRMING THE DECISION OF THE HIGH COURT, THAT ON THE FACTS FOUND, IT WAS NOT POSSIBLE TO REACH THE CONCL USION THAT THE ASSESSEE HAD ACQUIRED DOMINION OVER THE MILLS IN QUESTION . IN THE CASE BEFORE US ALSO, THE ASSESSEE-COMPANY NEVER ACQUIRED DOMINION OVER THE WIND MILLS, THEREFORE, IT IS NOT ENTITLED TO DEPRECIATION @ 100% AS CLAIMED IN THE ASSESSMENT YEAR 2001-02. WITH REGARD TO CONTENT ION OF THE ASSESSEE TO EXCLUDE ENERGY CHARGES RECEIVED AMOUNTING TO RS.9,44,745/-, IT IS PERTINENT TO NOTE THAT THIS INCOME HAS EARNED BY THE ASSESSEE IN LIEU OF RS.2.40 CRORES, WHICH WA S GIVEN TO M/S. PEARL ENERGY & INFRASTRUCTURE. WHATEVER MAY BE THE NATURE OF THE INCOME, THE REAL INCOME IS TAXABLE IN THE HANDS OF ASSESSEE. IN VIEW OF THIS, THE LEARNED COMMISSIONER OF INCOME TA X(APPEALS) IS LEGALLY AND FACTUALLY CORRECT IN UPHOLDING THE ACTION OF A.O. DISALLOWING THE DEP RECIATION. GROUND NO. 1 OF ASSESSEES APPEAL IN ITA NO. 502/AHD./2005 FOR THE ASSESSMENT YEAR 20 01-02 IS DISMISSED. 15. IN THE ASSESSMENT YEAR 2002-03, IT IS CLAIMED T HAT WINDMILL HAS BEEN SOLD TO M/S. PEARL ENERGY & INFRASTRUCTURE AT A TOTAL CONSIDERATION OF RS.2.40 CRORES. THE A.O. TAXED THE SAME AS CAPITAL GAIN. IN OUR OPINION, SINCE THE ASSESSEE HA S NEVER BECOME THE OWNER OF THE WINDMILL IN THE EARLIER ASSESSMENT YEAR, IT IS NOT LIABLE FOR C APITAL GAIN IN THE ASSESSMENT YEAR 2002-03. IN THIS VIEW OF THE MATTER, THE ADDITION OF RS.2.40 CRORES WAS RIGHTLY DELETED BY LEARNED COMMISSIONER OF INCOME TAX(APPEALS). GROUND NO. 3 OF REVENUES A PPEAL IN ITA NO. 2689/AHD./2005 FOR THE ASSESSMENT YEAR 2002-03 IS DISMISSED. 16. WITH REGARD TO THE GROUND NO. 2 OF ASSESSEES A PPEAL IN ITA NO. 502/AHD./2005 FOR THE ASSESSMENT YEAR 2001-02, WE HAVE ALREADY HELD WHILE ADJUDICATING THE GROUND NO. 1 OF ASSESSEES APPEAL IN ITA NO. 502/AHD./2005 THAT THE RECEIPT OF ENERGY CHARGES AMOUNTING TO RS.9,44,745/- IS TAXABLE. IN VIEW OF THIS, IT IS PE RTINENT TO NOTE THAT ONLY REAL INCOME IS TAXABLE. THE REAL INCOME EARN IS RS.6,67,269/- (RS.9,44,745/ - MINUS RS.2,77,476/-). WE ACCORDINGLY DIRECT THE A.O. TO TAX RS.6,67,269/- INSTEAD OF RS. 9,44,745/- TAXED BY HIM IN THE ASSESSMENT ORDER. GROUND NO. 2 OF ASSESSEES APPEAL FOR THE A SSESSMENT YEAR 2002-03 IS ALLOWED. 17. WITH REGARD TO THE GROUND NO. 3 OF ASSESSEES A PPEAL FOR THE ASSESSMENT YEAR 2001-02, THE LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT THE A.O. HAS DISALLOWED RS.30,000/- UNDER SECTION 14A AND FURTHER DISALLOWED RS.60,892/- OUT OF INTER EST. IN THE IMPUGNED ORDER, THE LEARNED 9 COMMISSIONER OF INCOME TAX(APPEALS) DELETED THE DIS ALLOWANCE UNDER SECTION 14A TO THE EXTENT OF RS.42,000/- BUT CONFIRMED THE DISALLOWANCE OF IN TEREST TO THE EXTENT OF RS.60,892/-. 18. THE LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE WAS HAVING ENOUGH NON- INTEREST BEARING FUND, THEREFORE, LEARNED COMMISSIO NER OF INCOME TAX(APPEALS) OUGHT TO HAVE DELETED THE DISALLOWANCE OF RS.60,892/-. 19. ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRESE NTATIVE SUBMITTED THAT THE ASSESSEE HAS PURCHASED THE SHARES OF HARITA PROJECTS LTD. PART O F THE PAYMENT WAS MADE FROM VYAS BANK C.C. A/C. ON 27.02.2000. IN THE IMPUGNED ORDER, THE LEAR NED COMMISSIONER OF INCOME TAX(APPEALS) HAS GIVEN A CATEGORICAL FINDING THAT THE ASSESSEE H AS UTILIZED ITS INTEREST-BEARING FUND FOR ADVANCING NON-INTEREST BEARING ADVANCES AND THE NEX US IS PROVED BY THE A.O. BY GIVING THE FACTS AND FIGURES OF INVESTMENT AND AVAILABILITY OF FUND, ETC. THEREFORE, THE ADDITION TO THE EXTENT OF RS.60,892/- UPHELD BY LEARNED COMMISSIONER OF INCOM E TAX(APPEALS) BE CONFIRMED. 20. WE HAVE GIVEN OUR CAREFUL CONSIDERATION TO THE RIVAL SUBMISSIONS MADE BEFORE US AND HAVE PERUSED THE ORDERS OF AUTHORITIES BELOW. UNDOU BTEDLY, THE ASSESSEE HAS PROVED THE NEXUS. THEREFORE, THE LEARNED COMMISSIONER OF INCOME TAX(A PPEALS) HAS GIVEN COGENT REASONING FOR CONFIRMING THE DISALLOWANCE OF INTEREST TO THE EXTE NT OF RS.60,892/-. THEREFORE, THIS GROUND OF ASSESSEES APPEAL IN ITA NO. 502/AHD./2005 IS ACCOR DINGLY REJECTED. 21. WITH REGARD TO THE GROUND NO. 2 OF REVENUES AP PEAL IN ITA NO. 2689/AHD./2005 FOR THE ASSESSMENT YEAR 2002-03, THE A.O. IN THIS YEAR DISA LLOWED RS.20,000/- UNDER SECTION 14A. ON APPEAL, IN THE IMPUGNED ORDER THE LEARNED COMMISSIO NER OF INCOME TAX(APPEALS) DELETED THE SAME ON THE GROUND THAT IN THE ABSENCE OF ANY CLAIM OF EXEMPT INCOME OR INCURRENCE OF ANY EXPENDITURE RELATING TO SUCH INCOME, NO DISALLOWANC E UNDER SECTION 14A CAN BE MADE. HE ACCORDINGLY DELETED THE DISALLOWANCE. THE LD. DEPAR TMENTAL REPRESENTATIVE APPEARED BEFORE US AND COULD NOT POINT OUT ANY FALSITY IN THE VIEW TAK EN BY THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS). WE, THEREFORE, INCLINED TO UPHOLD THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS). THIS GROUND OF APPEAL IS REJECTED. 10 22. GROUND NO. 4 OF ASSESSEES APPEAL IN ITA NO. 50 2/AHD./2005 WAS NOT PRESSED BY THE LD. COUNSEL OF THE ASSESSEE AT THE TIME OF HEARING. THI S GROUND OF APPEAL IS DISMISSED BEING NOT PRESSED. 23. WITH REGARD TO THE GROUND NO. 1 OF REVENUES AP PEAL IN ITA NO. 2689/AHD./2005 FOR THE ASSESSMENT YEAR 2002-03, THE LD. D.R. RELYING ON TH E REASONING GIVEN BY THE A.O. IN THE ASSESSMENT ORDER CONTENDED THAT THE ASSESSEE IS TAK ING INTEREST-BEARING FUND AND DIVERTING THEM INTEREST-FREE ADVANCES. THEREFORE, DISALLOWANCE OF RS.3,37,438/- WAS RIGHTLY MADE BY A.O. 24. ON THE OTHER HAND, THE LD. COUNSEL OF THE ASSES SEE CONTENDED THAT IN THE IMPUGNED ORDER, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) HAS DELETED THE SAID DISALLOWANCE FOLLOWING THE DECISION OF JURISDICTIONAL TRIBUNAL OF LAW IN T HE CASE OF TORRENT FINANCIERS VS.- ACIT REPORTED IN (2001) 73 TTJ 624. THEREFORE, HE SUGGES TED THAT THE VIEW TAKEN BY THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) BE UPHELD. 25. WE HAVE CAREFULLY GONE THROUGH THE ORDERS OF TH E AUTHORITIES BELOW. IN THE IMPUGNED ORDER, THE LEARNED COMMISSIONER OF INCOME TAX(APPEA LS) HAS RECORDED THAT INTEREST-FREE FUNDS TO THE TUNE OF RS.5,68,26,939/- WERE AVAILABLE AT T HE DISPOSAL OF THE ASSESSEE. SINCE THE INTEREST- FREE FUNDS AVAILABLE WITH THE ASSESSEE ARE MUCH MOR E THAN THE INTEREST-FREE ADVANCES GIVEN BY THE ASSESSEE, IN OUR OPINION, THE DISALLOWANCE WAS RIGH TLY DELETED BY THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS). WE, THEREFORE, DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS) AND UPH OLD THE SAME. GROUND NO. 1 OF THE REVENUES APPEAL IN ITA NO. 2689/AHD./2005 FOR THE ASSESSMENT YEAR 2002-03 IS DISMISSED. 26. IN THE RESULT, THE APPEAL OF THE ASSESSEE AS WE LL AS REVENUE BOTH ARE ALLOWED IN PART AS INDICATED ABOVE. THE ORDER PRONOUNCED IN THE COURT ON 23.10.2 009 SD/- SD/- (D.C. AGARWAL) (T.K. SHARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 23 / 10 / 2009 11 COPY OF THE ORDER IS FORWARDED TO : 1) THE ASSESSEE; (2) THE DEPARTMENT; 3) CIT(A) CONCERNED; (4) CIT CONCERNED, (5) D.R., ITAT, AHMEDABAD. TRUE COPY BY ORDER DEPUTY REGISTRAR, ITAT, AHMEDABAD LAHA/SR.P.S.