Bhagawati Steels Private Ltd, Bhubaneswar V. ACIT, Bhubaneswar

ITA 295/CTK/2011

• Counselvise Citation: 29522114 RSA 2011
• Duration Of Justice: 6 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-12-2011
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 30-11-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 20-05-2011
• Court: TRIBUNAL
• Department Lawyers: A BHATTACHARJEE
• Assessee Lawyers: DIGANTA DASH
• Keywords: Depreciation

Judgement Text

IN THE INC O ME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK BEFORE : SHRI K.K.GUPTA, AM , AND SHRI K.S.S.PRASAD RAO, JM ITA NO. 295/CTK/2011 (ASSESSMENT YEAR 2005 - 06) BHAGAWATI STEELS PRIVATE LIMITED, N3/68, IRC VILAGE, NAYAPALLI, BHUBANESWAR 751 015 PAN: AACCB 1998 D VERSUS ASST.COMMISSIONER OF INCOME - TAX , CIRCLE 1(1), BHUBANESWAR. (APPELLANT) (RESPONDENT) FOR THE APPELLANT: SHRI DIGANTA DASH, AR FOR THE RESPONDENT SHRI A.BHATTACHARJEE, DR DATE OF HEARING : 30.11.2011 DATE OF PR ONOUNCEMENT : 02.12.2011 ORDER SHRI K.K.GUPTA, AM : THIS APPEAL BY THE ASSE SSEE IS ON THE SOLITARY ISSUE OF DENIAL OF DEPRECIATION ON POLLUTION CONTROL EQUIPMENTS AT HIGH ER RATES AMOUNTING TO 53,59,930 BEING PART OF THE POLLUTION CONTROL EQUIPMENTS TO TALLING 79,59,530 WITHOUT CONSIDERING THE FACTS WAS BAD IN LAW. 2. THE BRIEF FACTS AS HAVE BEEN BROUGHT ON RECORD ARE THAT THE ASSESSEE IS A PRIVATE LIMITED COMPANY ENGAGED IN THE MANUFACTURING OF SPONGE IRON. THE RETURN OF INCOME FOR THE ASSESSMENT YEAR 2005 - 06 WAS FILED SHOWING A TOTAL INCOME OF 32,35,560. THE CASE WAS SELECTED FOR SCRUTINY AND ORDER WAS PASSED U/S.143(3) BY DISALLOWING THE EXPENSES/ALLOWANCES INCLUDING THE CLAIM OF DEPRECIATION ON POLLUTION CONTROL EQUIPMENTS. THE POLLUTION CONTROL EQU IPMENTS ARE SUBJECT TO 80% DEPRECIATION AS PER THE I.T.ACT, BASED ON WHICH THE ASSESSEE HAD CLAIMED SUCH DEPRECIATION. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER ASKED THE ASSESSEE TO SUBMIT EITHER A CERTIFICATE FROM POLLUTION CONTR OL BOARD OR A CERTIFICATE FROM EQUIPMENT SUPPLIER CERTIFYING THAT THE EQUIPMENTS ARE RELATED TO POLLUTION CONTROL. THE EQUIPMENTS WERE INSTALLED WAY BACK DURING 2003 - 04 AND 2004 - 05. THE SUPPLIERS OF THE EQUIPMENTS ARE BASED AT FAR OFF PLACE AND IT REQUIRES ITA NO.295/CTK/2011 2 TIME TO CALL FOR SUCH A CERTIFICATE. THE ASSESSEE WAS N OT GIVEN SUFFICIENT OPPORTUNITY TO COLLECT SUCH A CERTIFICATE FROM THE EQUIPMENT SUPPLIERS. THE LEARNED ASSESSING OFFICER WITHOUT WAITING FOR THE ASSESSEE TO SUBMIT THE CERTIFICATE PASSED THE O RDER DI SALLOWING THE CLAIM OF THE DEPRECIATION. FURTHER THE UNIT W AS DULY INSPECTED BY A TECHNICAL TEAM DEPUTED BY POLLUTION CONTROL BO AR D, ORISSA AND AFTER DUE SATISFACTION BY THE PO LLUTION CONTROL BOARD, THE ASSESSEE WAS GIVEN N.O.C. TO RUN THE SPONGE IRON PLAN T. THE ASSESSING OFFICER DISALLOWED THE DIFFERENTIAL DEPRECIATION OF 21,88,980 ON THE POLLUTION CONTROL EQUIPMENTS WITHOUT GIVING O PPORTUNITY TO THE ASSESSEE. 3. AGGRIEVED, THE ASSESSEE APPEALED BEFORE THE FIRST APPELLATE AUTHORITY WHO CONSIDERED THE ISSUE IN DETAIL AND NOTICED THAT T HE ISSUE IS IDENTIFICATION OF POLLUTI ON CONTROL EQUIPMENTS WHICH WERE INSTALLED DURING THE YEAR AND ARE ELIGIBLE FOR HIGHER RATE OF DEPRECIATION. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER ASKED FOR CERTIFICATE FROM POLLUTION CONTROL BOARD OR FROM THE SUPPLIER CERTIFYING THE SAM E. DURING THE APPELLATE PROCEEDINGS, THE CERTIFICATE FROM THE SUPPLIER IDENTIFIED THE EQUIPMENTS SOLD BUT GAVE THE QUANTITATIVE DETAILS OF MATERIALS SUCH AS JOIST, CHANNEL, PLATES AND ANGLES ETC. , WHICH WERE REQUIRED FOR FABRICATION AND ERECTION OVER THE P OLLUTION CONTROL SYSTEM. FINALLY, THE ITO, JHARSUGUDA MADE AN ON THE SPOT INSPECTION AND FINDINGS OF HIS REPORT ARE QUOTED IN PARAGRAPH 3.2 OF THE APPELLATE ORDER . IN THE DEPRECIATION SCHEDULE, THE ASSESSEE HAS QUANTIFIED POLLUTION CONTROL EQUIPMENTS AT 7 9,59,930 ON WHICH DEPRECIATION AT 80% HAS BEEN CLAIMED. IT HAS TWO COMPONENTS I.E. PURCHASE OF EQUIPMENTS AT 26 LA KH S AND PURCHASE OF MATERIALS FOR FABRICATION AND ERECTION FOR THE ABOVE POLLUTION CONTROL EQUIPMENTS WHICH WORKS OUT TO 53,59,930 . THE PUR CHASE OF THE EQUIPMENTS HAS BEEN CERTIFIED BY THE SUPPLIER AND WAS ALSO INSPECTED BY THE ITO, J HARSUGUDA. THE ASSESSEE COULD NOT PRODUCE VOUCHERS FOR TWO BILLS AMOUNTING ITA NO.295/CTK/2011 3 TO 4,56,000 . THESE BILLS ARE MENTIONED IN THE CERTIFICATE FROM THE SUPPLIER AND THE B ILLS WERE ALSO SUBSEQUENTLY FILED DURING THE APPELLATE PROCEEDINGS. ON THE BASIS OF THE EVIDENCE FILED AND REPORT FROM THE ITO, JHARSUGUDA, THE ASSESSEE WA S ENTITLED TO DEPRECIATION AT THE RATE APPLICABLE FOR POLLUTION CONTROL EQUIPMENTS. THIS LE FT THE OTH ER COMPONENT OF LOCAL ASSEMBLY FOR WHICH EXPENDITURE TW ICE THE AMOUNT OF EQUIPMENTS HAD BEEN INCURRED. THE ASSESSEE FAILED TO FURNISH THE NECESSARY DETAILS BEFORE THE ITO, J HARSUGUDA , WHO WENT TO THE FACTORY TO VERIFY THE SAME QUOTING IT IS NOT CLEAR WHAT KIND OF STRUCTURE OR EQUIPMENT WAS FABRICATED ON SITE. IT IS ALSO NOT KNOWN TO WHAT EXTENT THESE ARE CRITICAL TO POLLUTION CONTROL EQUIPMENT SO AS TO TREAT THEM AS POLLUTION CONTROL EQUIPMENT PER SE. THE ASSESSEE HAS FAILED TO DISCHARGE ITS ONUS IN THIS RE GARD. BASED ON THE ABOVE OBSERVATIONS, THE LEARNED CIT(A) DIRECTED THE ASSESSING OFFICER TO ALLOW HIGHER RATE OF DEPRECIATION TO POLLUTION CONTROL EQUIPMENTS IDENTIFIED AT 26 LA KHS ONLY AND HELD THE BALANCE AMOUNT TO BE NOT ELIGIBLE FOR HIGHER RATE OF DEPRECIATION IN THE ABSENCE OF DETAILS AND NECESSARY JUSTIFICATION . 4. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE AUTHORITIES BELOW MISDIRECTED THEMSELVES TO CON SIDER THE ABSENCE OF THE BILLS TO GIVE A FINDING THAT THEY WERE NOT PART OF POLLUTION CONTROL EQUIPMENTS WHEN THE ONLY REQUISITION WAS TO OBTAIN A CERTIFICATE FROM THE POLLUTION CONTROL BOARD FOR FINDING THE SAID INSTALLATION IN COMPLIANCE TO THE REQUIREME NT OF THE POLLUTION CONTROL BOARD TO ALLOW HIGHER DEPRECIATION . THE ABSENCE OF BILLS WAS PRIMARILY BECAUSE THEY WERE FINANCED BY THE BANK AND WERE REQUIRED FOR THE PURPOSE OF OBTAINING LOAN THERE AGAINST HAS BEEN HELD AGAINST THE ASSESSEE INSOFAR AS THE IN COME - TAX OFFICER DEPUTED TO PHYSICALLY VERIFY THE SAME HAS NOT REPORTED OTHERWISE. BEING A TECHNICAL INSTALLATION IT WAS NOT THE CASE OF THE ITO INSPECTING THE EQUIPMENT THAT THE WHOLE OF THE INSTALLATION WAS WORTH 26 ITA NO.295/CTK/2011 4 LAKHS ONLY. IN SUPPORT OF HIS STAND, THE LEARNED COUNSEL FOR THE ASSESSEE HAS FILED A PAPER BOOK ENCLOSING COPIES OF THE ORIGINAL BILLS ALONG WITH THE INSTALLATION ALONG WITH THE FACT THAT MISINTERPRETATION OF TDS CERTIFICATES FROM THE FABRICATORS AND OTHER CONTRACTORS COULD NOT LEAD TO A FIN DING THAT THE TOTAL AMOUNT OF THE INSTALLATION AMOUNTING TO 79,59,929 WAS TO BE GRANTED DEPRECIATION AT THE HIGHER RATE AS A COMPOSITE POLLUTION CONTROL UNIT . HE PRAYED THAT A SUITABLE DIRECTION MAY KINDLY BE GIVEN EITHER TO THE ASSESSING OFFICER OR TO THE LEARNED CIT(A) TO CONSIDER THE ISSUE IN ITS ENTIRETY AND NOT ON THE BASIS OF THE INCOME - TAX OFFICER INSPECTING THE UNIT INSTALLATION WHICH IS IN REMOTE AREA WHICH REPORT MERELY HAS BEEN REPRODUCED BY THE ASSESSING OFFICER IN HIS REMAND REPORT AND QUOTED BY THE LEARNED CIT(A) IN HIS ORDER. THE ASSESSING OFFICE R ONLY REQUIRES THE CERTIFICATE FROM STATE POLLUTION CONTROL BOARD WAS TO COMPLY WITH THE CLAIM OF INSTALLATION DULY INSTALLED FOR HIGHER DEPRECIATION WHICH INSTALLATION CANNOT FUNCTION WITH THE REMAINING PARTS NOT TO BE CONSIDERED FOR HIGHER RATE OF DEPRE CIATION. 5. THE LEARNED DR SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW FOR PART OF HIS SUBMISSIONS. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. ON OUR CAREFUL CONSIDERATION OF THE FACTS, WE ARE INCLINED TO AFFORD AN OPPORTUNITY TO THE ASSESSEE TO PRESENT ALL THE BILLS TOTALLING 79,59,929 WHICH HAS BEEN UTILISED FOR THE PURPOSE OF INSTALLATION OF POLLUTION CONTROL EQUIPMENTS DULY LICENSED BY THE STATE POLLUTION CONTROL BOARD THE ASSESSING OFFICER REQUIRING THE SAI D CERTIFICATE. POLLUTION CONTROL EQUIPMENTS CANNOT FUNCTION ON A PART INSTALLATION ONLY. IT WAS NOBODYS CASE THAT THE OTHER INSTALLATION WAS TO BE SUBJECTED TO LOWER DEPRECIATION. THE ASSESSING OFFICER, THEREFORE, OUGHT TO HAVE RELIED ON THE INSTALLATION BILLS WHICH BILLS REQUIRE FABRICATION ON THE BASIS OF TDS CERTIFICATE WOULD HAVE JUSTIFIED THE ITA NO.295/CTK/2011 5 CLAIM OF THE ASSESSEE AS PER THE REQUIREMENT OF THE STATE POLLUTION CONTROL BOARD. WE DO FIND THE PRAYER OF THE LEARNED COUNSEL FOR THE ASSESSEE SOUND THAT ON H AVING OBTAINED ALL THE BILLS OF THE POLLUTION CONTROL EQUIPMENTS, THE AO WAS REQUIRED TO VERIFY THE SAME FOR CONSIDERATION OF GRANTING HIGHER DEPRECIATION AS THE SAME HAD NOT BEEN CLAIMED AS OTHER PART OF ITS PLANT AND MACHINERIES INSTALLED. WE, THEREFORE, SET ASIDE THE IMPUGNED ORDER OF THE LEARNED CIT(A) AND RESTORE THE ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR RECONSIDERATION IN THE LIGHT OF OUR ABOVE DISCUSSIONS AND PASS NECESSARY CONSEQUENTIAL ORDER AFTER GIVING PROPER OPPORTUNITY TO THE ASSESSEE. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. SD/ - SD/ - (K.S.S.PRASAD RAO) JUDICIAL MEMBER (K.K.GUPTA) ACCOUNTANT MEMBER DATE: 02.12.2011 H.K.PADHEE, SENIOR PRIVATE SECRETARY . COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT: BHAGAWATI STEELS PRIVATE LIMITED, N3/68, IRC VILAGE, NAYAPALLI, BHUBANESWAR 751 015 2. THE RESPONDENT: ASST.COMMISSIONER OF INCOME - TAX , CIRCLE 1(1), BHUBANESWAR. 3. THE CIT, 4. TH E CIT(A), 5. THE DR, CUTTACK 6. GUARD FILE (IN DUPLICATE) TRUE COPY, BY ORDER, SENIOR PRIVATE SECRETARY.