ACIT, UDAIPUR V. M/s. Miraj Products Pvt. Ltd., CHITTORGARH

ITA 395/JODH/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 3019 (ITAT-JODHPUR)
• Duration Of Justice: 6 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-05-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2009-2010
• Appeal Filed On: 31-10-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR DEEPAK SEHGAL
• Keywords: Depreciation; Principle of natural justice; Additional evidence; Commercial expediency; Condonation of delay; Capital expenditure

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL JODHPUR BENCH : JODHPUR BEFORE SHRI HARI OM MRATHA, JUDICIAL MEMBER AND SHRI N.K. SAINI, ACCOUNTANT MEMBER ITA NO. 424/JODH/2012 (ASSESSMENT YEAR 2009-10) M/S. MIRAJ PRODUCTS PVT. LTD. VS ADDL. CIT, N.H. 8, NATHDWARA, CIRCLE-2, RAJSAMAND UDAIPUR. PAN NO. ABCM4952D & ITA NO. 395/JODH/2012 (ASSESSMENT YEAR 2009-10) ACIT, CIRCLE-2, VS M/S. MIRAJ PRODUCTSS PVT. LT D. UDAIPUR. UPER KI ODEN, NATHDWARA, CHITTORGARH. PAN NO. ABCM4952D (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI P.C. PARWAL. DEPARTMENT BY : DR. DEEPAK SEHGAL, CIT- DR. DATE OF HEARING : 04/04/2013. DATE OF PRONOUNCEMENT : 14.05.2013 ORDER PER N.K. SAINI, A.M. : THESE CROSS APPEAL BY THE ASSESSEE AND DEPARTMENT ARE DIRECTED AGAINST THE ORDER DATED 09/08/2012 OF CIT(A), UDAIPUR. FOLLOW ING GROUNDS HAVE BEEN RAISED IN ASSESSEES APPEAL IN ITA NO. 424/JODH/2012:- 2 1 THAT UNDER THE FACTS AND CIRCUMSTANCES OF THE CA SE THE LEARNED CIT(A) HAS ERRED IN DISALLOWANCE DEPRECIATION @ 80% ON YAR D FENCING AND APPROACH ROAD OF RS. 8,54,379/- EACH TOTALLING TO RS. 17,08, 758/- BY TREATING THE SAME NOT BEING PART OF THE WINDMILL AND CONSIDERING THEM AS INDEPENDENT ASSETS BEING SEPARATE FROM THE WIND MILL THEREFORE BEING E LIGIBLE FOR DEPRECIATION @ 10%. 2 THAT UNDER THE FACTS AND CIRCUMSTANCES OF THE CAS E THE LD. CIT(A) HAS ERRED IN TREATING THE YARD FENCING AND APPROACH ROA D AS INDEPENDENT ASSETS BEING SEPARATE FROM THE WIND MILL AND THEREFORE UPH OLDING THE VIEW ADOPTED BY THE ASSESSING OFFICER OF BEING ELIGIBLE FOR DEPR ECIATION @ 10% ONLY. 3 THE APPELLANT CRAVES TO ALTER, AMEND AND MODIFY A NY GROUND OF APPEAL. 2. FOLLOWING GROUNDS HAVE BEEN RAISED IN THE DEPART MENTS APPEAL IN ITA NO. 395/JODH/2012:- ON THE FACTS AND IN THE PRESENT CIRCUMSTANCES OF T HE CASE, THE LD. CIT(A) HAS ERRED IN :- 1 DELETING THE DISALLOWANCE OF INTEREST OF RS. 9,12,7 77/- ON ADVANCES NOT GIVEN WHOLLY AND EXCLUSIVELY FOR BUSINESS, AS ASSES SEE DOES NOT HAVE ANY KIND OF BUSINESS TRANSACTION WITH THE BORROWER. 2 DELETING THE TOTAL DISALLOWANCES OF HIGHER DEPRECIA TION OF RS. 1,69,87,068/- CLAIMED ON VARIOUS ITEMS WHICH ARE NO T AT ALL PARTS OF THE WIND MILL, IGNORING THE FACT THAT HIGHER RATE OF DE PRECIATION IS AVAILABLE TO RENEWABLE ENERGY DEVICES BEING WIND M ILL AS ENVISAGED IN ITEM NO. (XIII) OF S. NO. 3 OF NEW APPENDIX 1 (I .E. DEPRECIATION TABLE) AND NOT TO THE EXTRA OR ANCILLARY ITEMS. A) IGNORING THE FACT THAT EVACUATION CHARGES HAS NO T RESULTED INTO ACQUISITION OF ANY DEPRECIABLE ASSET TO THE ASSESSE E, LEAST THE WIND MILL AND AT THE MAXIMUM THIS CAN BE INTANGIBLE ASSET. B) IGNORING THE FACT THAT FOUNDATION WORK AND TRANS FORMER PLINTH IS BASICALLY CIVIL WORK AND IS NOT AT ALL PART OF W IND MILL. C) IGNORING THE FACT THAT PURCHASE AND INSTALLATION OF ELECTRICAL ITEMS AND ELECTRIC LINES ARE NOT AT ALL PART OF THE WIND MILL. 3 D) IGNORING THE FACT THAT OLD WIND MILL INSTALLED I N THE F.Y. 2006- 07 INCLUDES EXPENDITURE AS MADE IN A), B) & C) ABOV E, WHICH ARE NOT PART OF THE WIND MILL. 3 THE REGISTRY POINTED OUT THAT THE APPEAL FILED BY THE ASSESSEE IS BELATED BY 31 DAYS. THE ASSESSEE VIDE ITS APPLICATION DATED REQUESTED F OR CONDONE THE DELAY STATING AS UNDER :- 1. THAT THE APPLICANT IS A COMPANY REGISTERED UNDER THE PROVISIONS OF COMPANIES ACT, 1956. THE APPLICANT FI LED AN APPEAL BEFORE THE LD. COMMISSIONER OF INCOME TAX AP PEALS, UDAIPUR AGAINST THE ASSESSMENT ORDER DATED 2/12/201 1 PASSED BY THE LD. ASSISTANT COMMISSIONER OF INCOME TAX, RANGE -2, UDAIPUR. THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL S), UDAIPUR AFTER HEARING PASSED AN ORDER DATED 09.08.2 012 AND PARTLY ALLOWED THE APPEAL OF THE APPLICANT. BEING AGGRIEVE D WITH THE ORDER DATED 09.08.2012 PASSED BY THE LEARNED COMMIS SIONER OF INCOME TAX (APPEALS), UDAIPUR, APPLICANTS DECIDED T O PREFER AN APPEAL. THAT THE ORDER DATED 09/08/2012 WAS RECEIVED BY THE APPLICANT ONLY ON 10 TH SEPT2012. THEREAFTER THE APPLICANT BEING A COMPANY , THE WORK RELATED TO THE INCOME TAX APPEALS ETC. WAS DEA LT BY NAMELY SHRI DEEPAK PARIHAR, CHARTERED ACCOUNTANT BEING AN EMPLOYEE OF THE COMPANY LEFT THE EMPLOYMENT ON 12 TH AUG 2012 UPON WHICH THE MANAGEMENT CHAIN UNDER HIM ALSO WAS CHANGED. THEREU PON THE FRESH MANAGEMENT TOOK OVER ONLY ON 21 ST SEPT 2012 AND THEREAFTER THE APPLICANT BEING SITUATED AT UDAIPUR HAD TO FIND A C OUNSEL TO REPRESENT BEFORE THIS HON'BLE TRIBUNAL, WHICH PROCESS TOOK SU BSTANTIAL TIME FOR APPROACHING AND DESIGNATING THE COUNSEL AT JODHPUR. THAT THE HUMBLE APPLICANT, AFTER DUE CONSULTATION W ITH COUNSELS, DECIDED TO APPEAL AGAINST THE ORDER OF THE ID. COMM ISSIONER OF INCOME TAX (APPEALS), UDAIPUR AND PURSUANT TO SAME, FILED A APPEAL IN THE CASE. THAT IT IS APPARENT AND PATENT ON THE FACE OF THE R ECORD THAT THE CASE OF THE APPLICANT THAT UNDER THE PRESENT FACTS AND CIRCUMSTANCES OF THE CASE, THE CASE IS ON HIGH MERIT AND BEST POS SIBLE EFFORTS WERE MADE TO TAKE MINIMUM TIME IN FILING THE APPEAL BEFO RE THIS HON'BLE TRIBUNAL, BUT STILL THIS APPEAL IS BARRED B Y LIMITATION, WHICH IS DUE TO BONAFIDE REASONS, AS SPECIFIED ABOV E. 4 THAT HENCE THIS APPLICATION IS MADE BEFORE TH E HON'BLE TRIBUNAL FOR CONDONATION OF DELAY IN FILING THE SAI D IMPUGNED ORDER. PRAYER (I) IT IS, THEREFORE, HUMBLY PRAYED THAT THIS APPL ICATION MAY KINDLY BE ALLOWED AND THE DELAY MAY KINDLY BE CONDONED AND THIS APPEAL MAY BE HEARD ON MERITS. (II) ANY OTHER ORDER OR DIRECTION, AS DEEM FIT, IN THE FACTS AND CIRCUMSTANCES OF THE CASE MAY ALSO BE PAS SED IN FAVOUR OF THE APPELLANT-APPLICANT. 4 DURING THE COURSE OF HEARING THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE CONTENTS OF THE AFORESAID APPLICATION AND REQUESTED TO CONDONE THE DELAY. THE LD. DR IN HIS RIVAL SUBMISSIONS OPPOSED THE CONDONATION OF DELAY. AFTER CONSIDERING THE SUBMISSIONS OF BOTH THE PARTIES WE ARE OF THE VIEW THAT THERE WAS A REASONA BLE CAUSE IN FILING THE APPEAL BELATED. WE, THEREFORE, TAKING A LIBERAL VIEW AND KEEPING IN VIE W THE PRINCIPLES OF NATURAL JUSTICE CONDONE THE DELAY AND THE APPEAL IS ADMITTED. 5 GROUND NO. 2 OF THE DEPARTMENTAL APPEAL AND THE O NLY ISSUE RAISED BY THE ASSESSEE RELATES TO THE DELETION / SUSTENANCE OF THE DISALLO WANCE MADE BY THE A.O. ON ACCOUNT OF DEPRECIATION. THE FACTS RELATED TO THIS ISSUE IN BR IEF ARE THAT THE ASSESSEE GOT INSTALLED A WIND MILL FROM M/S. SUZLON INFRASTRUCTURE LIMITED AND CL AIMED DEPRECIATION @ 80% ON THE ENTIRE AMOUNT. HOWEVER, THE A.O. ALLOWED DEPRECIATION AS P ER THE FOLLOWING DETAILS :- WIND MILLL-I (AUGUST 2008) ITEMS COST (RS.) RATE OF DEP. CLAIMED RATE OF DEP. PROVIDED BY DEPT. CIVIL WORK -FOUNDATION, OTHER WORK & TRANSFORMER PLINTH 6814866 80% 10% COST OF WIND MILL, TUBULAR TOWER AND INSTALLATION AND TRANSFORMER 74120315 80% 80% EVALUATION CHARGES 5561820 80% - ELECTRIC ITEM & COMPONENTS INSTALLATION 5161142 80% 15% 5 WIND MILL-I (MARCH 2009) ITEMS COST (RS.) RATE OF DEP. CLAIMED RATE OF DEP. PROVIDED BY DEPT. CIVIL WORK -FOUNDATION, OTHER WORK & TRANSFORMER PLINTH 6814866 80% 10% COST OF WIND MILL, TUBULAR TOWER AND INSTALLATION AND TRANSFORMER 74065152 80% 80% EVALUATION CHARGES 5459850 80% - ELECTRIC ITEM & COMPONENTS INSTALLATION 3914142 80% 15% FROM THE ABOVE DETAILS IT IS CLEAR THAT THE A.O. AL LOWED THE DEPRECIATION @ 10% ON THE CIVIL FOUNDATION WORK FOR WTC, CONSTRUCTION OF TRANSFORME R PLINTH, @ 15% ON ELE YARD FENCING, TEMPORARY APPROACH ROAD, ELECTRIC ITEMS AND COMPONE NTS AND NO DEPRECATION WAS ALLOWED ON EVALUATION CHARGES. HOWEVER, THE LD. CIT(A) ALLOWED THE DEPRECIATION @ 80% ON ALL THE ITEMS EXCEPT YARD FENCING AND TEMPORARY APPROACH ROAD ON WHICH THE DEPRECIATION ALLOWED @ 10% BY THE ASSESSING OFFICER WAS CONSIDERED TO BE JUSTI FIED. NOW BOTH THE PARTIES ARE IN APPEAL. 6. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE LD. CIT(A) WAS JUSTIFIED IN ALLOWING THE DEPRECIATION @ 80% BY FOLLOWING THE EA RLIER ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE A.Y. 2007-08. HE FURTHER SUBMITTED THAT THE YARD FENCING AND TEMPORARY APPROACH ROAD WERE PURELY TEMPORARY ERECTION, THERE FORE, ELIGIBLE FOR DEPRECIATION @ 100%. IN HIS RIVAL SUBMISSION THE LD. DR STRONGLY SUPPORT ED THE ORDER OF THE A.O. 7. AFTER CONSIDERING THE SUBMISSIONS OF BOTH THE PART IES AND THE MATERIAL ON RECORD IT IS NOTICED THAT THE LD. CIT(A) FOLLOWED THE EARLIER OR DER DATED 16/12/2011 OF THIS BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO. 454/JODH /2010 FOR THE A.Y. 2007-08. THE RELEVANT FINDINGS HAVE BEEN GIVEN BY THE LD. CIT(A) IN PARA 6.4 OF THE IMPUGNED ORDER AT PAGE NOS. 14 TO 19 WHICH ARE REPRODUCED VERBATIM AS UNDE R :- (I) (A) CIVIL WORK FOUNDATION, OTHER WORK, TRANSFO RMER PLINTH IT IS SEEN THAT THE APPELLANT HAS INSTALLED TWO WIN D MILL IN JODHPUR DISTRICT IN THE MONTH OF AUGUST,2008 AND MARCH,2009 BY MAKING INVESTMENT OF RS.9,03,58,143 AND RS.9,02,54,010 RESPECTIVELY AND 6 CLAIMED DEPRECIATION AT THE RATE OF 80% ALLOWABLE O N WINDMILL ASSET. THE A.O. REJECTED THE CLAIM OF DEPRECIATION AT THE RATE OF 80% ON CERTAIN ASSETS I .E. EXPENDITURE INCURRED ON FOUNDATION AND OTHER WO RK AND TRANSFORMER PLINTH, EVACUATION CHARGES AND ELECTRIC AL ITEMS AND THE COST OF ITS INSTALLATION TREATING IT AS NOT PART AND PARCEL OF THE WINDMILL. IN THIS CONNECTION, IT MAY BE MENTIONED THAT THE A.O. HAS WHOLLY DISALLOWE D THE DEPRECIATION CLAIMED 'ON EVACUATION CHARGES AND RES TRICTED THE DEPRECIATION TO 10% ON CIVIL WORK, FOUN DATION, OTHER WORK, TRANSFORMER PLINTH AND TO 15% ON ELECTR IC ITEMS AND COMPONENTS INSTALLATION FOR THE SIMILA R REASON GIVEN IN THE ASSESSMENT YEAR 2007-08 IN THE CASE OF THE APPELLANT. FROM THE SUBMISSION OF THE APPELLAN T, IT IS SEEN THAT THE SAME ARE ON SIMILAR LINE SUBMITTED BY THE APPELLANT DURING THE COURSE OF APPELLATE PROCE EDINGS FOR THE ASSESSMENT YEAR 2007-08. IN THIS CONTEXT, IT IS RELEVANT TO MENTION THAT THE ALLOWABILITY OF DEPRECIATION ON CIVIL WORK & FOUNDATION, TRANSFORME R PLINTH, ELECTRIC ITEMS AND COMPONENTS INSTALLATIO N AS WELL AS EVACUATION CHARGES HAS BEEN CONSIDERED IN D ETAIL AND DECIDED IN APPELLANT'S OWN CASE BY THE JURISDICTIONAL ITAT, JODHPUR BENCH, JODHPUR VIDE TH EIR ORDER IN ITA NO.454/JODH/2010 DATED 16.12.2011 FOR THE ASSESSMENT YEAR 2007-08 WHERE DE LETION OF DISALLOWANCE OF DEPRECIATION OF WIND MILL EXCEPT ON INVESTMENT IN FENCING OF ELECTRIC YARD AN D TEMPORARY APPROACH ROAD HAS BEEN CONFIRMED AS UND ER: '2.1. THE A.O. HAS ALLOWED DEPRECIATION AT RS.3,07, 61,517 WHILE THE ID CIT (A) HAS ALLOWED DEPRECIATIO N AT RS.3,31,68,478. THE ASSESSEE HAS CLAIMED DEPRECIATI ON AT THE RATE OF 80% BY TREATING THE WIND MILL A S COMPOSITE UNIT, THE A.O. HAS NOT ALLOWED DEPRECIATI ON AT 80% ON ABOVE TERMS AND THE ID CIT (A) HAS ALLOWED 80%. THE DETAILS ARE AS UNDER:- FOUNDATION WORK 10% 80% ELECTRICAL ITEM 15% 80% INSTALLATION OF ELECTRICAL LINE 15% 80% OTHER WORK. NIL . 2.2. THE JODHPUR BENCH HAD AN OCCASION TO CONSIDER THE ALLOWABILITY OF DEPRECIATION ON FOUNDATION IN ITA NO.L95/JODH/2010 VIDE ORDER DATED 11.02.2011. T HE RELEVANT PORTION IS REPRODUCED AS ABOVE. ..1 2. THE ASSESSEE HAS CLAIMED DEPRECIATION @ 80% ON F OUNDATION AS WELL AS OTHER CIVIL WORKS. BOTH THE AO AND LD CIT (A) DENIED THE CLAIM OF THE ASSES SEE ON THE GROUND THAT THEY ARE NOT INTEGRAL PART O F THE WIND MILL, THE DEPRECIATION IN RESPECT OF FOUND ATION IS CONCERNED THE FOUNDATION FOR THE PURPOSE O F THE WIND MILL IS DIFFERENT FROM THE OTHER CIVIL WOR KS. WIND MILL IS A HEAVY MACHINE AND A SPECIALLY DESIGNED FOUNDATION IS REQUIRED, THEREFORE, THE AO HAS NOT JUSTIFIED IN COMPARING THE FOUNDATION OF TH E WIND MILL FROM OTHER CIVIL WORKS. IN THE CASE OF CI T VS. HERDILLIA CHEMICALS LTD 216 ITR 742 (BOM) WHEREIN THE HONOURABLE HIGH COURT OF MUMBAI HAS HEL D THE EXPENDITURE INCURRED ON FOUNDATION FIXING THE PLANT AND MACHINERY WOULD FORM PART OF THE COST OF PLANT AND MACHINERY AND THE ASSESSEE WOULD BE ENTIT LED TO DEPRECIATION AT THE SAME RATE AS APPLICABLE TO T HAT PLANT AND MACHINERY. IN THE CASE OF ACIT VS. MADRAS CEMENTS LTD, 110 ITR 281 (MAD) HAS HELD THAT THE FOUNDATION WORK DONE FOR FIXING MACHINERY IS TO BE TREATED AS PART OF THE PLANT AND MACHINERY, I N THE CASE OF CIT VS. R.G. ISPAT LTD 123 CTR (RAJ.) WHERE THE JURISDICTION HIGH COURT CATEGORICALLY HEL D THAT THE MASSIVE REINFORCED CONCRETE STRUCTURE, ESPECIALLY DESIGNED TO TAKE UP LOADS, CONSTITUTED ' PLANT', WITHIN THE MEANING OF SECTION 43(3) OF THE INCOME-TAX ACT, 1961. 13. WE THEREFORE, TAKING INTO CONSIDERATION THE FACTS A ND CIRCUMSTANCES OF THE CASE AND ALSO FOLLOWING THE ABOVE CASE LAWS, WE CAME TO CONCLUSION THAT THE FOUNDATION OF THE WINDMILL IS AMOUNTING TO PART AND PARCEL OF THE WIND MILL AND IT IS PLANT AND ITEM RATE ALLOWED BY AO RATE AS PER CIT (A) 7 MACHINERY AND ACCORDINGLY THE ASSESSEE IS ELIGIBLE FOR HIGHER RATE OF DEPRECIATION WHICH WAS CLAIMED. AS FAR AS CIVIL WORK IS CONCE RNED, WE FIND THAT IT IS NOT AN INTEGRAL PART OF TH E WINDMILL AND HE IS NOT ELIGIBLE FOR HIGHER DEPRECIA TION. 14. IN VIEW OF THE ABOVE OBSERVATIONS, WE SET ASIDE THE ORDER PASSED BY THE ID. CIT(A) AND REMIT THE ISSUE MATTER BACK TO THE FILE OF THE A.O. AND DIREC T THE AO TO ALLOW HIGHER DEPRECIATION CLAIM OF THE ASSESSEE IN RESPECT OF FOUNDATION OF THE WINDMILL. IN SO FAR AS OTHER ALLIED WORKS ARE CONCERNED NORMAL RATE HAS TO BE APPLIED AND THIS / GROUND OF APPEAL RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE. 2.3. THE JAIPUR TRIBUNAL IN ITA NO..745/JODH/07 DAT ED' 18.07.2008 HELD THAT DEPRECIATION AT 80% IS TO BE GIVEN ON THE COMPLETE WIND MILL AND THE RE LEVANT PARA IS REPRODUCED AS UNDER: '6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. THE PROVISIONS OF ALLOWING DEPRECIATION ON THE WIND MILL IS GOVERN ED BY APPENDIX I PARA (XIII)(L) WHICH READS AS UNDER: '(XIII) RENEWABLE ENERGY DEVICES BEING (A)TO(K) ............... (1) WIND MILLS AND ANY SPECIALLY DESIGNED DEVICES WHICH RUN ON WIND MILLS. IT IS EVIDENT FROM THE AFOREMENTIONED PROVISIONS THAT THE DEPRECIATION @ 8 0% HAS TO BE CHARGED 'ON THE COMPLETE WIND MILL, THEREFORE, THE ID. CIT (A) IS NOT JUSTIFIED IN SEGREGATING THE COST OF CONSTRUCTION OF THE ROOM FROM THE SAID WIND MILL, THE SAID CONSTRUCTION OF T HE ROOM, AS ARGUED HAS BEEN SPECIALLY DESIGNED FOR THE PURPOSE OF THE WIND MILL AND THEREFORE, THE ID. CIT(A) IS DIRECTED TO ALLOW THE DEPRECIATION AS PER THE RULES APPLICABLE ON THE WIND MILLS. THUS GROUND NO.6 OF THE ASSESSEE IS ALLOWED.' 2.4. AFTER CONSIDERING BOTH THE DECISIONS WE- HOLD THAT ID.CIT A) WAS JUSTIFIED IN ALLOWING DEPRECIATION AT 80% EXCEPT FOR OTHER WORK I.E. FENC ING OF ELECTRIC YARD AND TEMPORARY APPROACH ROAD. THUS DEPRECIATION AT THE RAIE OF 10% WILL BE ADMISSIBLE ON RS.7,37,117. 2.5. ON THE ISSUE OF SUM OF RS.45 LAKH, THE ID A/R. SUBM ITTED THAT A.O. IN HIS ORDER HAS MENTIONED THAT THE ASSESSEE HAS NOT MENTIONED THAT THE ASSESSEE HAS NOT ACQUIRED ANY ASSET. ONCE NO ASSET HAS BEEN ACQUIRED THEN IT IS NOT A CA PITAL EXPENDITURE. LD D.R. STATED THAT EXPENDITURE IS FOR ENDURING BENEFIT AND HENCE SUCH EXPENDITURE SHOULD SPREAD OVER FOR A NUMBER YEARS. LD. A/R. STATED THAT NO PERIOD IS SPE CIFIED AND HENCE IT SHOULD NOT BE SPREAD. 2.6. WE FEEL THAT IF NO NEW ASSET HAS BEEN ACQUIRED THEN IT IS NOT A CAPITAL EXPENDITURE. THE EXPENDITURE IS NECESSARY FOR THE BUSINESS. IT IS NO T NECESSARY TO SPREAD ALL THE EXPENSES. IF AN ADVENTURING FILM IS PRODUCED THEN IT IS AN EX PENDITURE OF ADVERTISEMENT THOUGH THE BENEFIT FROM SUCH A FILM MAY BE FOR A NUMBER OF YEA RS. WE, THEREFORE, DO NOT CONCUR WITH THE SUBMISSIONS OF THE ID D/R. THAT SUCH EXPENDITURE SH OULD BE SPREAD OVER' THE ISSUES IN PRESENT APPEAL ARE DECIDED AS UNDER: DURING THE COURSE OF APPEAL, THE APPELLANT HAS FILE D THE BIFURCATION OF CIVIL WORK, FOUNDATION, OTHER WORK, TRANSFORMER PLINTH AS UNDER: 8 '(CIVIL BREAK UP) LCO NO.RKB 072 & RKB -068 2008-09 150 MW 2008-09 68,14,866 65,45,204 PARTICULARS CIVIL FOUNDATION WORK FOR WTG 58,75,049 56,42,575 CONSTRUCTION OF TRANSFORMER PLINTH 00,85,437 00,82,056 ELE YARD FENCING 03,84,471 03,69,258 PREPARATION OF TEMPORARY APPROACH ROAD 04,69,908 04,51,314 TOTAL 68,14,866 (INCLUDING TAXES) 65,45,204+ TAXES - TOTAL 68,14,866 FROM ABOVE BIFURCATION, IT IS SEEN THAT THE EXPENDI TURE CLAIMED AT RS.68,14,866 EACH FOR BOTH THE WIND MILL INCLUDE EXPENDITURE INCURRED FOR YARD FENCING AND F OR APPROACH ROAD OF RS.8,54,379 TOTALING TO RS.17,08,758. AS HELD BY HONOURABLE ITAT, THEY CANN OT BE TREATED AS PART OF WINDMILL AS THESE ARE INDEPENDENT ASSETS AND ARE SEPARATE FROM THE WIND M ILL SO THEY ELIGIBLE FOR DEPRECIATION AT THE RATE O F 10% AS HELD BY THE A.O. ACCORDINGLY, DEPRECIATION AT THE R ATE OF 10% WILL BE ADMISSIBLE ON THESE ASSETS. IN VIEW OF ABOVE DISCUSSION, THE DISALLOWANCE TO TH E EXTENT OF 10% ON FENCING AND TEMPORARY APPROACH R OAD IS UPHELD AND THE BALANCE DISALLOWANCE IS DELETED F OR THE CIVIL FOUNDATION TRANSFORMER .(B) EVACUATION CHARGES. DURING THE YEAR UNDER APPEAL, THE APPELLANT HAS CLA IMED EVACUATION CHARGES OF RS.55,61,820 FOR WIND MILL-I ANDRS.54,59,850 FOR WINDMILL -II AND CLAIMED DEPRECIATION AT THE RATE OF 80% ALLOWABLE ON WIND MILL TREATING IT AS PART AND PARCEL OF THE WIN D MILL. THE A.O. DISALLOWED THE CLAIM OF DEPRECIATI ON HOLDING THAT THE EVACUATION CHARGES CANNOT BE TREAT ED AS PART AND PARCEL OF THE WINDMILL. IN THIS CONTEXT IT MAY BE MENTIONED THAT THE ABOVE EXPENSES HAVE BEEN INCURRED TO CREATE INFRASTRUCTUR E FACILITY FOR ESTABLISHING THE WIND MILL AND CARRY T HE ELECTRICITY GENERATED. WITHOUT SAID FACILITY, TH E FUNCTIONING OF WIND MILL IS NOT POSSIBLE. -IF THERE WAS NO INSTALLATION OF WIND MILL, SAID EXPENSES WO ULD NOT HAVE BEEN INCURRED, BY THE APPELLANT. IN VIEW OF AB OVE DISCUSSION, IT IS HELD THAT THE APPELLANT IS EL IGIBLE FOR DEPRECIATION ON EVACUATION CHARGES AS CLAIMED BY TH E APPELLANT. THE A.O. IS DIRECTED ALLOW THE DEPRECI ATION AS CLAIMED. (C) ELECTRICAL ITEMS AND INSTALLATION. DURING THE YEAR UNDER APPEAL, THE APPELLANT HAS CLA IMED EXPENDITURE OF RS,.51,61,142 FOR WIND MILL-1 A ND RS.39,14,142 FOR WIND MILL II AND CLAIMED DEPRECIAT ION AT THE RATE OF 80% I.E. ALLOWABLE FOR WINDMILL TREATING IT AS PART AND PARCEL OF THE WINDMILLS. HO WEVER, THE A.O. ALLOWED DEPRECIATION ONLY AT THE RA TE OF 15% ON THIS INVESTMENT HOLDING THAT THE EXPENDITURE INCURRED FOR ELECTRIC ITEMS AND COMPONENTS INSTALL ATION CANNOT BE TERMED AS PART AND PARCEL OF THE WIND MIL L. IN ABOVE CONTEXT, IT MAY BE MENTIONED THAT ABOV E EXPENSES WERE INCURRED IN ORDER TO INSTALL THE WIND MILL AS PER REQUIRED SPECIFICATIONS. WITHOUT SUCH ELECTRICAL ITEMS, COMPONENTS ETC., WIND MILL COULD NOT HAVE BEEN INSTALLED. IN VIEW OF ABOVE, ABOVE IT EMS FORM INTEGRAL PART OF THE WIND MILL. THEREFORE, IT IS HELD THAT THE APPELLANT IS ELIGIBLE FOR DEPRECIA TION AT 9 THE RATE OF 80% ON THE EXPENDITURE INCURRED ON ELEC TRICAL ITEMS AND INSTALLATION AS IT IS PART AND PAR CEL OF THE WINDMILL. THE DISALLOWANCE MADE ON THIS ACCOUNT IS DELETED. (II) AS REGARDS THE DISALLOWANCE OF DEPRECIATIO N OUT OF THE DEPRECIATION CLAIMED ON OLD WIND MILL, IT IS SEEN THAT THE A.O. HAS WORKED OUT THE DISALLOWANCE DEPRECIATION AFTER CONSIDERING THE : ALLOWABLE FOR THE A.Y. 2007-08, IN RESPECT OF ABOVE ASSETS ALSO, FIND INGS IN RESPECT OF FOUNDATION, TRANSFORMER PLINTH, ELECTRIC ITEMS REMAIN THE SAME AS IN CASE OF NEW WINDMILL I. E. THEY ARE ELIGIBLE FOR DEPRECIATION AT THE RATE O F 80% AS CLAIMED BY THE APPELLANT EXCEPT THAT ON YARD FENCIN G AND TEMPORARY APPROACH ROAD WHERE DEPRECIATION OF 10% IS ALLOWABLE. ACCORDINGLY, THE A.O. IS DIREC TED TO COMPUTE THE ALLOWABLE DEPRECIATION AS-ABOVE, THE BALANCE DEPRECIATION IS DISALLOWED. THIS GROUND OF APPEAL IS PARTLY ALLOWED. 8 SINCE THE FACTS FOR THE YEAR UNDER CONSIDERATION ARE SIMILAR TO THE FACTS INVOLVED IN THE A.Y. 2007-08 WHICH HAS ALREADY BEEN ADJUDICATED BY THIS BENCH OF THE TRIBUNAL VIDE ORDER DATED 16/12/2011 IN ITA NO. 454/JODH/2010 (SUPRA), SO RESPECTFULLY FOLLOWING THE SAID ORDER WE DO NOT SEE ANY INFIRMITY IN THE IMPUGNED ORDER P ASSED BY THE LD. CIT(A) AND ACCORDINGLY WE DO NOT SEE ANY MERIT IN THE GROUND NUMBER 2 OF T HE DEPARTMENTAL APPEAL AND IN THE ONLY GROUND RAISED BY THE ASSESSEE. 9. THE ANOTHER ISSUE AGITATED BY THE DEPARTMENT VID E GROUND NUMBER 1 RELATES TO THE DISALLOWANCE OF INTEREST OF RS. 9,12,777/-. 10. THE FACTS RELATED TO THIS ISSUE IN BRIEF ARE TH AT DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO NOTICED THAT THE ASSESSEE HAD AD VANCED A SUM OF RS. 2 CRORE ON 26/11/2008 TO M/S. PINAK PANI TRADER LIMITED. THE A O ASKED THE ASSESSEE TO EXPLAIN THE PURPOSE OF ADVANCE AND ALSO TO ESTABLISH THAT THIS ADVANCE WAS EXTENDED FOR THE PURPOSE OF BUSINESS AND ALSO TO SHOW CAUSE AS TO WHY INTEREST ATTRIBUTABLE TO SUCH ADVANCE SHOULD NOT BE DISALLOWED. THE ASSESSEE SUBMITTED THAT THE ABOVE S AID COMPANY WAS THE RAW TOBACCO SUPPLIER TO M/S. KRISHNA ENTERPRISES WHO WAS SUPPLY ING TOBACCO TO THE ASSESSEE-COMPANY. IT WAS EXPLAINED THAT THE ASSESSEE COMPANY PAID RS. 2 CRORETO M/S. PINAK PANI TRADERS PVT. LTD. ON BEHALF OF M/S. KRISHNA ENTERPRISES TO ENSUR E CONTINUOUS PURCHASES FOR TOBACCO FROM M/S. KRISHNA ENTERPRISES AND THE ASSESSEE RECEIVED BACK THE SAID AMOUNT IN THE NEXT YEAR SO IT WAS A BUSINESS ADVANCE. IN SUPPORT OF THE ABOVE CON TENTION THE ASSESSEE FIELD COPIES OF ACCOUNT OF M/S. KRISHNA ENTERPRISES IN THE BOOKS OF THE ASSESSEE AS WELL AS COPIES OF ACCOUNT OF M/S. PINAK PANI TRADERS PVT. LTD. AS APPEARING I N THE BOOKS OF M/S. KRISHNA ENTERPRISES. 10 HOWEVER, THE A.O. REJECTED THE CONTENTION OF THE AS SESSEE AND HELD THAT THE ADVANCE OF RS. 2 CRORE GIVEN TO M/S. PINAK PANI TRADERS LTD WAS NOT FOR THE BUSINESS PURPOSES FOR THE FOLLOWING REASONS :- (A) NO DOUBT THAT ASSESSEE WAS PURCHASING TOBACCO FROM M/S KRISHNA ENTERPRISES AND THAT KRISHNA ENTERPRISES WAS PURCHA SING TOBACCO FROM M/S PINAK PANI TRADERS LTD. BUT, THIS FACT DOES NOT ESTABLISH THAT THE ASSESSEE COMPANY HAS ANY BUSINESS CONTACT WITH M/S PINAK PANI TRADERS LTD., SPECIALLY WHEN IN THE SUBSEQUENT YEAR THE ADVANCE OF RS. 2 CRORE WAS RECEIVED BACK BY THE ASSESSEE AS SU CH FROM M/S PINAK PANI TRADERS LTD. B) PERUSAL OF ACCOUNT OF M/S PINAK PANI TRADERS LT D., IN THE BOOKS OF M/S KRISHNA ENTERPRISES REVEALS THAT M/S KRI SHNA ENTERPRISES HAS DEBIT BALANCE OF RS. 9.5 CRORE I.E. A SUM OF RS. 9. 5. CRORE WAS DUE FROM M/S PINAK PANI TRADERS LTD., TO M/S KRISHNA ENTERPR ISES. THUS, WHEN KRISHNA ENTERPRISES HAS ALSO ADVANCED SUBSTANTIAL A MOUNT TO M/S PINAK PANI TRADERS LTD., THE ASSESSEE NEED NOT ADVANCE RS. 2 C RORE TO M/S PINAK PANI TRADERS LTD., WHEN THE ASSESSEE NEVER MADE ANY COMMERCIAL TRANSACTION DIRECTLY WITH M/S PINAK PANI TRADERS LT D. C) THE ASSESSEE HAS FAILED TO ESTABLISH THAT IT HA S ANY BUSINESS OBLIGATION OR EXPEDIENCY TO EXTEND AN ADVANCE OF RS. 2 CRORE TO M /S PINAK PANI TRADERS LTD. IT IS RELEVANT TO POINT OUT THAT M/S PINAK PAN I TRADERS LTD., AND M/S KRISHNA ENTERPRISES ARE INDEPENDENT BUSINESS CONCER NS AND ASSESSABLE AS SUCH. BESIDES, THE ASSESSEE NEITHER HAD ANY BUSI NESS EXPEDIENCY TO ADVANCE 11 RS. 2 CRORES TO M/S PINAK PANI TRADERS LTD., NOR IT HAS BEEN BROUGHT ON RECORD THAT BUSINESS PRUDENCE REQUIRED TO MAKE SUCH ADVANC E. RELIANCE IS PLACED ON THE RULING CITED AT 288 ITR 1 IN THE CASE OF S.A. BUILDERS VS. CIT. 11. THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT( A) AND SUBMITTED AS UNDER :- 'THE APPELLANT COMPANY HAD GIVEN THIS ADVANCE TO M /S.PINK PANI TRADERS LIMITED ON BEHALF OF AND AS PE R INSTRUCTIONS OF M/S. KRISHNA ENTERPRISES FOR THE BU SINESS PURPOSES AND THIS ADVANCE WAS GIVEN OUT OF S URPLUS CAPITAL AND OWN FUND. M/S.PINAK PANI TRADERS LIMITE D IS A SUPPLIER OF KRISHNA ENTERPRISES WHEREAS FURT HER KRISHNA ENTERPRISES IS A SUPPLIER OF MIRAJ PRODUCT S PVT. LTD., DURING THE FINANCIAL YEAR 2008-09, THE APPELLANT HAD GIVEN AN ADVANCE AMOUNTING TO RS.2 CRORE ON 26. 11.2008 TO M/S PINAK PANI TRADERS LIMITED ON BEHALF OF KRISHNA ENTERPRISES DURING THE NORMAL COURSE OF BUS INESS AND AFTERWARDS THIS ADVANCE WAS RECEIVED BACK BY THE APPELLANT FROM M/S PINAK PANI TRADERS LIMITED O N 01.12.2009. THEREFORE THE NATURE OF THIS ADVANCE IS CLEARLY OF BUSINESS TRANSACTION. 12. THE ASSESSEE ALSO FURNISHED A LETTER FROM M/S. KRISHNA ENTERPRISES DATED 20/11/2008 STATING THAT RS. 2 CRORE MAY BE PAID TO M/S. PINAK PANI TRADERS LTD WHO SUPPLIED RAW MATERIAL TO M/S. KRISHNA ENTERPRISES WHO INTURN SUP PLIES TOBACCO TO THE ASSESSEE. ALTERNATIVELY IT WAS SUBMITTED THAT AS PER THE BALA NCE SHEET ASSESSEE WAS HAVING FOLLOWING INTEREST FREE WHICH WERE SUFFICIENT TO GIVE ADVANCE OF RS. 2 CRORE. SHARE CAPITAL RS. 1,00,00,000/- RESERVE AND SURPLUS RS. 34,41,78,866.45 THE LD. CIT(A) ON THE SUBMISSIONS OF THE ASSESSEE A SKED THE REMAND REPORT FROM THE AO WHEREIN IT WAS STATED AS UNDER :- 'IN THE APPELLATE PROCEEDINGS BEFORE THE LD.CIT (A) , THE ASSESSEE COMPANY HAS FILED COPY OF LETTER DAT ED 20.11.2008 FROM M/S. KRISHNA ENTERPRISES ADDRESSED TO THE ASSESSEE COMPANY IN WHICH THE ASSESSEE COMPA NY WAS REQUESTED TO ADVANCE RS. 2 CRORE TO M/S.PINAK PANI TRADERS LTD. IN ORDER TO SUPPLY RAW MATERIAL T O M/S.KRISHNA ENTERPRISES, WHO IS REGULAR SUPPLIER OF RAW TOBACCO TO THE ASSESSEE COMPANY. IN THIS CONNECTION, IT IS SUBMITTED THAT THERE WAS NO BUSIN ESS OBLIGATION BETWEEN THE ASSESSEE COMPANY AND M/S . PINAK PANI TRADERS LTD., HENCE THERE IS NO RELEVANC E TO THE BUSINESS OF THE ASSESSEE COMPANY TO ADVANC E RS.2 CRORE TO M/S. PINAK PANI TRADERS LTD ON THE ABOVE R EQUEST OF M/'S KRISHNA ENTERPRISES, AS DISCUSSED IN DETAIL BY THE A.O. IN THE ASSESSMENT ORDER. SINCE N O BUSINESS EXPEDIENCY PROVED ON THIS TRANSACTION TH E A.O. HAS RIGHTLY DISALLOWED THE INTEREST ATTRIBUTABLE TO THIS TRANSACTION. BESIDES THE ADDITIONAL EVIDENCES NOW PRODUCED BEFORE THE LD.CIT (A) MAY NOT KINDLY BE EN TERTAINED AS NO SUCH EVIDENCE WAS' FURNISHED BEFORE THE A.O. AND NOTHING PREVENTED THE ASSESSEE FROM FU RNISHING . THE PURPORTED LETTER DATED 20.11.2008 'BEFORE THE A.O. THE LETTER DATED 20.11.2008 WAS IN TENTIONALLY NOT FURNISHED BEFORE THE A.O. BY THE ASSESSEE WITH A VIEW TO AVOID FURTHER SCRUTINY AND VERIFICATION.' 12 13. THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSION S OF THE ASSESSEE AS WELL AS THE REMAND REPORT OF THE AO OBSERVED THAT THE ASSESSEE IS A MANUFACTURER OF CHEWING TOBACCO AND M/S. KRISHNA ENTERPRISES IS A REGULAR SUPPLIER OF T OBACCO TO THE ASSESSEE WHO IN TURN ADVISED THE ASSESSEE COMPANY TO ADVANCE RS. 2 CRORE TO M/S . PINAK PANI TRADERS LTD FOR THE SUPPLY OF RAW MATERIAL AND IF THE SAID ADVANCE WAS NOT GIVEN M/S. KRISHNA ENTERPRISES WOULD NOT HAVE BEEN ABLE TO SUPPLY THE RAW MATERIAL TO THE ASSESSE E COMPANY LEADING TO DISRUPTION IN ASSESSEES BUSINESS, SO ADVANCING OF ABOVE FUND WA S A BUSINESS DECISION OF THE SO THAT THE ASSESSEE COULD SMOOTHLY RUN ITS BUSINESS. HE, THERE FORE, HELD THAT THE ADVANCE WAS FOR COMMERCIAL EXPEDIENCY. THE LD. CIT(A) ALSO OBSERVED THAT THE ASSESSEE HAD RESERVE & SURPLUS OF RS. 34 CRORES IN ITS BALANCE SHEET WHILE THE ADVANCE GIVEN WAS ONLY OF RS. 2 CRORE. THEREFORE, THE INTEREST FREE FUNDS WERE AVAILABLE T O THE ASSESSEE FOR USE WITHOUT PAYING AN INTEREST. ACCORDINGLY, THE LEARNED CIT(A) HELD THAT THE SAID ADVANCE OF RS 2 CRORE CAN ALSO BE TREATED FROM THE ABOVE RESERVE & SURPLUS. ON THAT BASIS ALSO NO INTEREST WAS DISALLOWABLE. THE LD. CIT(A) DELETED THE DISALLOWANCE OF RS. 9,12 ,777/- MADE BY THE AO. NOW THE DEPARTMENT IS IN APPEAL. 14 THE LD. DR SUPPORTED THE ORDER OF THE AO AND REI TERATED THE OBSERVATIONS MADE IN THE ASSESSMENT ORDER DATED 02/12/2011. IN HIS RIVAL SUB MISSIONS THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE LD. CIT( A) AND STRONGLY SUPPORTED THE IMPUGNED ORDER ON THIS ISSUE. 15 AFTER CONSIDERING THE SUBMISSIONS OF BOTH THE PA RTIES AND THE MATERIAL ON RECORD IT IS NOTICED THAT THE ASSESSEE WAS ENGAGED IN THE MANUFA CTURING AND SALE OF CHEWING TOBACCO. THE ASSESSEE WAS PURCHASING TOBACCO FROM M/S. KRISHNA E NTERPRISES WHO IN TURN WAS PURCHASING THE RAW TOBACCO FROM M/S. PINAK PANI TRADERS LIMITE D. THE SUPPLIER OF TOBACCO I.E. M/S. KRISHNA ENTERPRISES ADVISED THE ASSESSEE VIDE LETTE R DATED 20/11/2008 TO ADVANCE A SUM OF RS. 2 CRORE TO M/S. PINAK PANI TRADERS LIMITED FOR SUPPLY OF RAW MATERIAL TO IT. ON THE ADVICE OF THE SUPPLIER I.E. M/S. KRISHNA ENTERPRISES THE A SSESSEE ADVANCED RS. 2 CRORE TO M/S. PINAK PANI TRADERS LIMITED SO THAT THERE WOULD NOT HAVE B EEN ANY DISRUPTION IN SUPPLY OF THE TOBACCO TO THE ASSESSEE. SO, ADVANCING OF THE ABOV E FUND WAS FOR THE COMMERCIAL EXPEDIENCY 13 AND SMOOTH RUNNING OF THE BUSINESS. MOREOVER, THE A SSESSEE WAS HAVING SURPLUS FUND OF RS. 34 CRORES IN ITS REESERVE & SURPLUS ACCOUNT, THEREF ORE, IT CAN BE SAID THAT RS. 2 CRORE WAS OUT OF THE SURPLUS FUNDS AVAILABLE TO THE ASSESSEE. AS SUCH NO DISALLOWANCE WAS CALLED FOR. WE, THEREFORE, CONSIDERING THE TOTALITY OF THE FACTS AS DISCUSSED HEREIN ABOVE ARE OF THE CONSIDERED VIEW THAT THE LD. CIT(A) WAS FULLY JUSTIFIED IN DEL ETING THE IMPUGNED DISALLOWANCE MADE BY THE AO. IN THAT VIEW OF THE MATTER WE DO NOT SEE AN Y MERIT IN THIS GROUND OF THE DEPARTMENTAL APPEAL. 16. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE AS WELL AS THE DEPARTMENT ARE DISMISSED. ORDER PRONOUNCED IN THE COURT ON 14.05.2013 SD/- SD/- [HARI OM MARATHA] [N.K. SAINI] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED :14.05.2013 RKK COPY TO :- 1- APPELLANT. 2- RESPONDENT. 3- CONCERNED CIT. 4- CONCERNED CIT(A) 5- D.R. ASSISTANT REGISTRAR