ACIT, New Delhi V. D.V.S. Steels & Alloys Pvt. Ltd., New Delhi

ITA 4238/DEL/2010

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 98077 (ITAT-DELHI)
• Duration Of Justice: 5 year(s) 3 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-12-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 03-12-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 14-09-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AGAINST DATED PASSED
• Keywords: Depreciation; Additional depreciation
• Section: 32

Judgement Text

1 ITA NO.4238/DEL/2010 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: B NEW DELHI BEFORE SHRI S.V. MEHROTRA, ACCOUNTANT MEMBER AND MS. SUCHITRA KAMBLE , JUDICIAL MEMBER I.T.A .NO.- 4238/DEL/2010 (ASSESSMENT YEA R-2006-07) ACIT CIRCLE 10(1) NEW DELHI VS D.V.S. STEELS & ALLOYS PVT. LTD. C-5/41, 1 ST FLOOR, SAFDARJUNG DEVELOPMENT AREA, NEW DELHI AACCD0641H (RESPONDENT) ORDER PER SUCHITRA KAMBLE, JM THIS APPEAL IS FILED BY THE REVENUE AGAINST THE ORD ER DATED 12/8/2010 PASSED BY LD. CIT A) XIII, NEW DELHI. 2. THE GROUNDS OF APPEAL ARE AS FOLLOW:- APPELLANT BY SH. OM PRAKASH MEENA, SR. DR. RESPONDENT BY SH. AJAY WADHWA, ADV DATE OF HEARING 03.12.2015 DATE OF PRONOUNCEMENT 15.12.2015 2 ITA NO.4238/DEL/2010 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) IS WRONG, PERVERSE, ILLEGAL AND AGAINST THE PROVISIONS OF LAW WHICH IS LIABLE TO BE SET ASIDE. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT(A) HAS ERRED IN HOLDING THAT THE ASSESSEE I S ENTITLED FOR CLAIM OF DEPRECIATION AMOUNTING TO RS.24,38,680/- WITHOUT APPRECIATING THE FACT THAT T HE ASSESSEE DO NOT HAVE THE OWNERSHIP RIGHT ON THE ASS ETS ON WHICH DEPRECIATION HAS BEEN CLAIMED. 3. THE FIRST GROUND IS IN GENERAL AND NOT PRESSED B Y THE LD. AR, HENCE DISMISSED. 4. THE ASSESSEE HAD APPLIED FOR THE SANCTION OF ELE CTRIC LOAD OF 3,200 KVA FOR RUNNING ITS INDUCTION FURNACE. THE EL ECTRIC CONNECTION OF THE DESIRED LOAD HAD TO BE APPLIED WE LL IN ADVANCE, SINCE LARGE NUMBER OF FORMALITIES IS INVOLVED IN TH E SANCTION AND INSTALLATION OF THE POWER CONNECTION. ON AN APPLIC ATION MADE TO THE UTTAR PRADESH POWER CORPORATION LIMITED, THE FACTOR Y PREMISES OF THE ASSESSEE COMPANY WERE SURVEYED BY THE DEPARTMEN T AND AN ESTIMATE LETTER DATED 8/11/2004 WAS PREPARED AND IS SUED IN FAVOUR OF THE ASSESSEE COMPANY. THE UTTAR PRADESH POWER C ORPORATION LIMITED HAD PREPARED AND ESTIMATED FOR LAYING HIGH TENSION WIRES, FOR THE CONSTRUCTION OF BAY FOR INSTALLING TRANSFOR MER AND POWER PANEL FOR THE SUPPLY OF THE POWER OF THE DESIRED LO AD. THIS WAS A DEDICATED LINE ALONG WITH TRANSFORMER WHEREFROM THE POWER WAS DRAWN EXCLUSIVELY BY THE ASSESSEE FOR RUNNING ITS I NDUCTION FURNACE. THE PAYMENT WAS DEPOSITED WITH THE UTTAR PRADESH PO WER CORPORATION LIMITED, AFTER THE DEPOSIT OF THE AMOUN T AS DIRECTED BY THE DEPARTMENT, THE TRANSFORMER AND ELECTRIC DISTRI BUTION SYSTEM 3 ITA NO.4238/DEL/2010 WAS INSTALLED IN THE PREMISES OF THE ASSESSEE AND T HE ASSESSEE ALONE HAD AN EXCLUSIVE RIGHT TO DRAW POWER OUT OF THE DIS TRIBUTION STATION INSTALLED IN THE FACTORY PREMISES OF THE ASSESSEE. THE UTTAR PRADESH POWER CORPORATION LIMITED MAINTAINS CONTROL OVER TH E POWER STATION/DISTRIBUTION LINES INSTALLED FOR THE ASSESE E FOR THE SECURITY REASONS AND MORE IMPORTANTLY TO INSURE THAT THERE I S NO POWER THEFT AND /OR ILLEGAL DIVERSION OF POWER TO ANY PERSON OT HER THAN THE ASSESSEE COMPANY. THE UTTAR PRADESH POWER CORPORAT ION LIMITED, THUS EXERCISES THE CONTROL FOR THE LIMITED PERIODS THOUGH THE BENEFICIAL OWNERSHIP OVER THE ENTIRE POWER DISTRIBU TION SYSTEM INSTALLED AT THE COST OF THE ASSESSEE COMPANY RAISE D EXCLUSIVELY WITH THE ASSESSEE. 5. THE ASSESSING OFFICER IN HIS ORDER OBSERVED THAT DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE CLAIMED DEPRE CATION AT 15% AS PER THE PROVISIONS OF SECTION 32(1) AS WELL AS A DDITIONAL DEPRECIATION AT 20% AS PER THE PROVISIONS OF SECTIO N 32(1) (IIA) ON THE ELECTRIC INSTALLATIONS OF RS.69,61,944/-. AS P ER THE FIXED ASSET SCHEDULE, THE ELECTRIC INSTALLATIONS OF RS.48,44,91 0/- WERE PURCHASED PRIOR TO 1/4/2005 AND INSTALLATION OF RS. 21,17,034/- WAS PURCHASED DURING THE YEAR. THE DEPRECATION U/S 32 (1) (IIA) IS ALLOWED ONLY IF THE PLANT AND MACHINERY MUST BE ACQ UIRED AND INSTALLED AFTER 31/3/2005. THUS IT IS CLEAR THAT T HE EXPENDITURE INCURRED PRIOR TO 31/5/2005 WILL NOT QUALIFY FOR TH E ADDITIONAL DEPRECIATION U/S32(1)(2A) OF THE INCOME TAX ACT. 4 ITA NO.4238/DEL/2010 6. THE ASSESSEE IN ITS REPLY STATED THAT AS THE CUR RENT YEAR WAS THE FIRST YEAR OF PRODUCTION THE INVESTMENT MADE BE FORE 31/5/2005 ALSO QUALIFY FOR THE ADDITIONAL DEPRECIATION IN ORD ER TO FURTHER VERIFY THE CLAIM OF THE ASSESSEE ON THE DEPRECATION CLAIME D. THE ASSESSEE WAS ASKED TO FURNISH RELEVANT BILLS IN RESPECT OF T HE INVESTMENT MADE. AS PER THE DETAILS SUBMITTED, IT WAS OBSERVED THAT THE SAID EXPENDITURE PERTAINS TO PAYMENT MADE TO ELECTRICITY DEPARTMENT IN THE FORM OF SECURITY AND OTHER CHARGES FOR INSTALLA TION OF POWER CONNECTIONS FOR THE ASSESSEE. 7. THE ASSESSING OFFICER FURTHER OBSERVED THAT BY M AKING THE ABOVE EXPENDITURE THE ASSESSEE HAS NOT ACQUIRED ANY OWNERSHIP RIGHTS ON THE SAID ASSET FOR CLAIMING DEPRECATION T HE ASSESSEE MUST BE THE OWNER OF THE ASSET. THE ASSESSING OFFICER REFERRED THE HON'BLE SUPREME COURT DECISION IN THE CASE OF R.B J ODHAMAL KUTHIALA VS. CIT 1971 182 ITR 570 (SUPREME COURT) W HEREIN IT WAS HELD THAT THE REAL ESTATE TO ASCERTAIN WHETHER THE ASSESSEE WAS ENTITLED TO THE INCOME FROM THE PROPERTY AND HENCE THE OWNER MUST BE THE PERSON WHO CAN EXERCISE THE RIGHTS OF OWNER NOT ON BEHALF OF THE OWNER BUT IN HIS OWN RIGHT IN VIEW OF AFORESAID , IT IS CLEAR THAT THE ASSESSEE WAS NOT THE OWNER OF THE SAID ELECTRIC AL INSTALLATIONS AND ACCORDINGLY THE ASSESSING OFFICER DISALLOWED T HE DEPRECIATION CLAIM BY THE ASSESSEE. 8. AGGRIEVED BY THE SAID ORDER, THE ASSESSEE PREFER RED APPEAL BEFORE THE LD. CIT (A). THE LD. CIT(A) HELD IN PAR A 4 AS UNDER: 5 ITA NO.4238/DEL/2010 I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS MADE B Y THE COUNSEL AS ALSO THE ORDER PASSED BY THE A.O AND THE OBSERVATIONS MADE BY HIM. I HAVE GONE THROUGH THE DOCUMENTS FILED BY THE APPELLANT AT THE TIME OF ASSESSMENT AS WELL AS CERTAIN ADDITIONAL DOCUMENTS BEFORE THE IN SUPPORT OF HIS CONTENTION. THE VERACITY OF THESE DOCUMENTS ARE NO T IN DISPUTE AS STATED BY THE A.O IN HIS REMAND REPORT WHERE THE A.O ADDS THAT THESE DOCUMENTS WERE NOT POSSESSED BY THE ASSE SSEE DURING THE ASSESSMENT. HOWEVER, IN ORDER TO IMPART SUBSTANTIVE JUSTICE ALL THESE DOCUMENTS ARE ADMITTE D. IT IS NOTED THAT THE APPELLANT HAD MADE SECURITY D EPOSIT AND PART OF THE ADVANCE AMOUNT WITH THE UTTAR PRADE SH POWER CORPORATION LIMITED, UP TO 31/3/2005. FROM THE LET TER DATED 7/4/2005 IT IS CLEAR THAT THE AGREEMENT FOR THE SAN CTION AND INSTALLATION OF THE MACHINERY TO PROVIDE POWER CONN ECTION OF 3200 KVA WAS SIGNED BY THE APPELLANT ONLY ON 7/4/20 05. THE INSTALLATION PROCESS WAS SUBSEQUENTLY UNDER TAKEN A ND COMPLETED BY THE UPPCL DURING THE PERIOD APRIL 2005 TO JUNE 2005. THIS FINDS SUPPORT FROM THE STATEMENT OF ELE CTRICAL INSTALLATIONS PLACED ON FILE BY THE A.R WHERE IT IS SEEN THAT EXPENSES TO THE TUNE OF RS.21,17,034/- WERE INCURRE D DURING THIS PERIOD ON THE CONSTRUCTION/INSTALLATION AND CO MMISSIONING OF THE MACHINERY FOR THE SUPPLY OF POWER CONNECTION OF 3200 KVA TO THE INDUSTRIAL UNIT OF THE APPELLANT. THE C ONNECTION WAS RELEASED ON 22/6/2005 AFTER THE SEALING REPORT WAS PROVIDED BY UTTAR PRADESH POWER CORPORATION LIMITED. I HAVE ALSO 6 ITA NO.4238/DEL/2010 EXAMINED THE FIRST ELECTRICITY BILL ISSUED BY THE U PPCL DATED 23/8/2005 WERE ALSO IT IS CLEARLY MENTIONED THAT TH E NEW CONNECTION IS RELEASED ON 22/6/2005 AS PER SEALING REPORT NUMBER 03/27 DATED 22/6/2005. I HAVE ALSO CONSIDER ED THE SUBMISSION OF THE A.R THAT THE ENTIRE SYSTEM IS INS TALLED IN THE PREMISES OF THE APPELLANT COMPANY AND THAT THE APPE LLANT ALONE IS ENTITLED TO DRAW POWER OUT OF THE SAID POWER DIS TRIBUTION MACHINERY. IT IS OBSERVED THAT IN ELECTRICAL INSTA LLATION OF SUCH NATURE THE POWER CORPORATION LTD EXERCISES CONTROL OVER SUCH SYSTEM FOR THE LIMITED PURPOSE OF MAINTAINING REGUL AR SUPPLY AND TO AVOID POWER THEFT AND SAFELY OF THE EQUIPMEN T WHICH COULD TURN HAZARDOUS IN SELF-HANDLING. IT IS ALSO NOTED THAT THE APPELLANT HAS NOT CLAIMED DEPRECIATION ON THE SECUR ITY DEPOSIT WHICH IS SEPARATELY REFLECTED ON THE ASSET SIDE OF THE BALANCE SHEET. I AM THUS OF THE VIEW THAT APPELLANT IS THE SOLE BENEFICIAL OWNER OF THE POWER DISTRIBUTION MACHINERY AND THAT HE DRAWS POWER FROM THE SAID SYSTEM IN HIS OWN RIGHT AS AN O WNER. ON THIS ISSUE RELIANCE IS ALSO PLACED ON DECISIONS OF HON'BLE SUPREME COURT & HON'BLE HIGH COURT IN CASES OF JO DHAMAL KUTHALIA 82 ITR 570; PODDAR CEMENT P. LTD 226 ITR 6 25; MYSORE MINERALS LTD. 239 ITR 775; FAZILKA DABWALI T RANSPORT CO. 270 ITR 398 AND SEVERAL OTHER DECISIONS OF HON' BLE HIGH COURT VIZ. CIT VS. GAEKWAD & CO. 277 ITR 553; CIT V S. SARABHAI CHEMICALS P. LTD. 254 ITR 625; CIT VS. PAR THAS TRUST 249 ITR 120. THE SUM AND SUBSTANCE OF THESE DECISI ONS ARE THAT THE TERM OWNERSHIP AS OCCURRING IN S. 32 OF IT ACT SHOULD 7 ITA NO.4238/DEL/2010 BE ASSIGNED A WIDER MEANING. THAT ANYONE IN POSSES SION OF PROPERTY IN HIS OWN RIGHT AND ENJOYING THE BENEFICI AL OWNERSHIP THEREOF TO EXCLUSION OF OTHERS AND ENTITLED TO RECE IVE INCOME FROM THE SAME IS A OWNER FOR PURPOSE OF ALLOWANCE OF D EPRECIATION UNDER S. 32 OF IT ACT. ANY NARROW INTERPRETATION W OULD RUN COUNTER TO THE CONCEPT OF ALLOWANCE OF DEPRECIATION . AS REGARDS THE JUDGMENTS RELIED UPON BY THE A.O IN HIS REMAND REPORT VIZ. CIT VS. ABC INDIA LTD. 226 ITR 733, CIT VS. BHARATH GOLD MINES LTD. 192 ITR 639, TAMIL NADU CIVIL SUPPLIES C ORPORATION LTD. VS. CIT 228 ITR 399, CIT VS. TAMIL NADU AGRO I NDUSTRIES CORPORATION 192 ITR 108, RAM KUMAR MILLS P. LTD. VS . CIT 180 ITR 464 ARE CONCERNED, IN VIEW OF THE AN AFORESAID RECENT DECISIONS INCLUDING THAT OF THE APEX COURT THE DECI SIONS CITED BY THE A.O MAY NOT BE APPLICABLE NOW. FURTHER THE SUBMISSION OF THE APPELLANT REGARDING TREATING EXPENDITURE FOR BUSINESS PURPOSE EITHER UNDER REVEN UE OR CAPITAL CAN BE EXAMINED FROM A DIFFERENT PERSPECTIV E ALSO. THERE IS NO DENYING THE FACT THAT THE IMPUGNED EXPE NDITURE HAS BEEN FOR PURPOSE OF BUSINESS AND AS THEY ARE NECESS ARY ADJUNCT TO HIS PLANT AND MACHINERY AND THEREFORE NEEDS TO B E CAPITALIZED AND DEPRECIATION ALLOWED ON THE SAME. FROM THE COPY OF SCHEDULE FOR FIXED ASSETS AS ON 31/3/2006 I T IS SEEN THAT WHILE PLANT AND MACHINERY UP TO 31/3/2005 WAS NIL, THERE HAS BEEN ADDITION UNDER THIS HEAD FOR RS.98,57,986/ - DURING THE YEAR. THE DETAILS OF THEIR ADDITION HAS ALSO B EEN PROVIDED WHICH ARE IN THE NATURE OF POWER AND CONTROL SYSTEM , FURNACES 8 ITA NO.4238/DEL/2010 AND POWER SUPPLY UNIT, TRANSFORMER AND LOOSE ACCESS ORIES, CRANE STRUCTURE AND OTHERS. NOW THESE PLANT AND MA CHINERY WOULD BE OF NO USE, IF ELECTRICAL INSTALLATION/CONN ECTION IS NOT DONE. RATHER THE BUSINESS OPERATION ITSELF CANNOT OPERATION-LIZE. THEREFORE, EXPENDITURE MADE BY THE APPELLANT ON ELE CTRICAL INSTALLATIONS CAN IN THE ALTERNATIVE BE CAPITALIZED WITH PLANT AND MACHINERY AND NORMAL DEPRECIATION AND ADDITIONAL DE PRECATION CAN BE ALLOWED ON BOTH THE ITEMS TAKEN TOGETHER. T HE DECISIONS IN CIT VS. TATA MILLS 118 ITR 496 AND CIT VS. INDIA N TURPENTINE 75 ITR 533 ARE ALSO RELIED IN THIS CONTEXT. TO CONCLUDE, AS THE SYSTEM WAS INSTALLED ONLY AFTE R 1/4/2005 AND PUT TO USE ON 22/6/2005. UPON ISSUE O F SEALING CERTIFICATE THERE IS NO JUSTIFICATION FOR DENIAL OF NORMAL AND ADDITIONAL DEPRECIATION AS CLAIMED BY THE APPELLANT IN THE RETURN FILED FOR THE AFORESAID YEAR. 9. THE LD. DR SUBMITTED THAT THE ASSESSING OFFICER HAS RIGHTLY DISALLOWED THE CLAIM OF DEPRECIATION AS THERE WAS N O OWNERSHIP ESTABLISHED BY THE ASSESSEE COMPANY. THE LD. DR FU RTHER STATED THAT THE OWNERSHIP LIES WITH THE UTTAR PRADESH POWE R CORPORATION LIMITED. HE RELIED UPON THE ASSESSING OFFICERS OR DER. HE STATED THAT THE CIT (A) HAS NOT TAKEN THE ASSESSING OFFICE RS ORDER IN PROPER SPIRIT HENCE PLEADED THAT THE PRESENT APPEAL TO BE ALLOWED AND LD. CIT(A) ORDER SHOULD BE SET ASIDE. 10. THE LD. AR SUBMITTED THAT THE ASSESSEE COMPANY HAS INSTALLED INDUCTION FURNACE AND THE SAME WAS REFLECTED IN THE DETAILS OF 9 ITA NO.4238/DEL/2010 ADDITION OF FIXED ASSETS FROM 1/4/2005 TO 31/3/2006 THE SAME WAS ANNEXED TO THE WRITTEN SUBMISSION BY THE ASSESSEE A ND AT PAGE 16 OF THE PAPER BOOK, THE DATE OF INDUCTION FURNACE WA S INSTALLED ON 25/4/2005. THE LD. AR FURTHER POINTED OUT REMAND R EPORT DATED 20/5/2010 (PAGE 20 OF THE PAPER BOOK), WHEREIN THE ASSESSEE COMPANY HAS FURNISHED ALL THE DETAILS RELATED TO TH E ELECTRICAL INSTALLATIONS TO THE ASSESSING OFFICER. THE LD. AR FURTHER POINTED OUT THE SECURITY DEPOSIT WHICH WAS PAID TO THE UTTA R PRADESH POWER CORPORATION LIMITED, AND CLEARLY STATED THAT THE AS SESSEE HAS NOT TAKEN ANY DEPRECIATION ON THE SECURITY DEPOSIT BUT ONLY HAS CLAIMED DEPRECATION ON SYSTEM LOADING CHARGES, BAY CHARGES AND PROCEEDING CHARGES. THOUGH, THE SECURITY DEPOSIT WAS PAID ON 8/11/2004, THE ASSESSEE HAS NOT CLAIMED ANY DEPRECIATION IN THE EA RLIER YEAR. THEREFORE, THE ASSESSEE HAS RIGHTLY CLAIMED THE DEP RECIATION IN THE YEAR UNDER CONSIDERATION. 11. WE HAVE PERUSED ALL THE RECORDS AND HEARD BOTH THE COUNSELS. IT IS PERTINENT TO NOTE THAT THE ASSESSEE COMPANY H AS SUBMITTED ALL THE DETAILS RELATED TO THE ELECTRICAL INSTALLATION AND ITS CO-RELATION WITH THE BUSINESS ACTIVITIES OF THE ASSESSEE. THE SAID INSTALLATION WAS WITHIN THE PREMISES OF THE ASSESSEE. THE ASSESS EE COMPANY HAS INSTALLED INDUCTION FURNACE AND THE SAME WAS REFLEC TED IN THE DETAILS OF ADDITION OF FIXED ASSETS FROM 1/4/2005 T O 31/3/2006 THE SAME WAS ANNEXED TO THE WRITTEN SUBMISSION BY THE A SSESSEE AND THE DATE OF INDUCTION FURNACE WAS INSTALLED ON 25/4 /2005.THOUGH, THE SECURITY DEPOSIT WAS PAID ON 8/11/2004, THE ASS ESSEE HAS NOT CLAIMED ANY DEPRECIATION IN THE EARLIER YEAR. THER EFORE, THE 10 ITA NO.4238/DEL/2010 ASSESSEE HAS RIGHTLY CLAIMED THE DEPRECIATION IN TH E YEAR UNDER CONSIDERATION. THE CIT (A) HAS GIVEN A DETAILED FIN DING TO THIS ASPECT. THEREFORE, THE CIT (A) HAS RIGHTLY SET ASI DE THE FINDINGS OF THE ASSESSING OFFICER AND ALLOWED THE DEPRECATION T O THE ASSESSEE. 12. IN RESULT, THE APPEAL IS DISMISSED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 15 TH OF DECEMBER 2015. SD/- SD/- (S.V. MEHROTRA) (SUCHIT RA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 15/12/2015 *R. NAHEED* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI DATE 1. DRAFT DICTATED ON 03.12.2015 PS 2. DRAFT PLACED BEFORE AUTHOR 04.12.2015 PS 11 ITA NO.4238/DEL/2010 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER .12.2015 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. .12.2015 JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 15.12.2015 PS/PS 6. KEPT FOR PRONOUNCEMENT ON .12.2015 PS 7. FILE SENT TO THE BENCH CLERK 16.12.2015 PS 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER. 12 ITA NO.4238/DEL/2010