ANUSHAKTI CHEMICAL AND DRUGS LTD, MUMBAI V. ADDL CIT 10(3), MUMBAI

ITA 4340/MUM/2011

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 3441 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 11 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-05-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 01-10-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 27-05-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MOHD JAVED
• Keywords: Depreciation; Additional depreciation; Additional evidence

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI BEFORE SHRI SANJAY ARORA, A M AND SHRI RAMLAL NEGI , J M ./ I.T.A. NO. 4340/MUM/2011 ( / ASSESSMENT YEAR: 2006 - 07 ) ANUSHAKTI C HEMICAL & DRUGS LTD. 2 ND FLOOR, UDYOG KSHETRA, MULUND, GOREGAON LINK ROAD, MUMBAI - 400 080 / VS. ADDL. CIT - 10(3), MUMBAI ./ ./ PAN/GIR NO. AAECA 4760 E ( / APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : SHRI VIJAY MEHTA / RESPONDENT BY : SHRI MOHD. JAVED / DATE OF HEARING : 03.5.2016 / DATE OF PRONOUNCEMENT : 18 .5.2016 / O R D E R PER SANJAY ARORA, A. M.: THIS IS AN A PPE AL BY THE ASSESSEE DIRECTED AGAINST THE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS) - 22 , MUMBAI (CIT(A) FOR SHORT) DATED 17.3.2011 , PARTLY ALLOWING THE A SSESSEES APPEAL CONTESTING ITS ASSESSMENT U/S.143(3) OF THE INCOME TAX ACT, 1961 (THE ACT HER EINAFTER) FOR THE ASSESSMENT YEAR (A.Y.) 2006 - 07 VIDE ORDER DATED 11.12.2008. 2 ITA NO. 4340/MUM/2011 (A.Y. 2006 - 07) ANUSHAKTI CHEMICAL & DRUGS LTD. VS. ADDL. CIT 2. 1 THE ISSUE IN THIS APPEAL IS THE VALIDITY OR OTHERWISE IN LAW OF THE ASSESSEES CLAIM FOR DEPRECIATION ON WHAT I T C A L LS A N EFFLUENT TREATMENT PLANT (ETP) , COSTING RS.29,13,34 4/ - . WHILE THE REVENUE CONSIDERS IT AS AN ITEM OF PLANT AND MACHINERY, ALLOWING DEPRECIATION THEREON AT THE NORMAL RATE OF 15%, PLUS ADDITIONAL DEPRECIATION @ 20% (I.E., AT A TOTAL OF 35%), THE ASSESSEE AGITATES FOR ALLOWANCE OF DEPRECIATION AT 100%, PRESS ING ITS CLAIM UNDER CLAUSE III(IX) [(E) & (Q)] OF P ART A OF APPENDIX I PRESCRIBED UNDER R ULE 5 OF THE INCOME TAX RULES, 1962 (THE RULES HEREINAFTER), RAISING THE FOLLOWING G ROUNDS: 1. RE: DISALLOWANCE OF DEPRECIATION IN RESPECT OF E FF LUENT TREATMENT PLANT (E.T.P) OF RS.18,93,674/ - . 1.1 THE CIT(A) IS GROSSLY ERRED IN UPHOLDING THE CONTENTION OF THE ASSESSING OFFICER BY NOT ALLOWING 100% DEPRECIATION ON E.T.P. (EFFLUENT TREATMENT PLANT). 1.2 THE CIT(A) IS GROSSLY ERRED IN NOT CONSIDERING THE EVIDENCE FILED BEFORE HIM AND ALSO ERRED IN UPHOLDING THE CONTENTION OF THE ASSESSING OFFICER THAT NO EVIDENCE REGARDING EXPENDITURE INCURRED, EQUIPMENT FORMING PART OF THE ETP, COST INCURRED FOR ASSEM BLING ETC. WERE FILED. 2 . 2 AT THE FIRST APPELLATE STAGE, THE A SSESSEE SOUGHT TO REFURBISH ITS SAID CLAIM BY FURNISHING A CERTIFICATE FROM A CHARTERED ENGINEER (DATED 18 .1 2 .200 9 ) AS WELL AS THE ENVIRONMENTAL AUDIT REPORT (EAR) DATED 25.01.2008 QUA AN AUDIT CARRIED OUT BY AHMADABAD TEXTILE INDUSTRYS RESEARCH ASSOCIAT ION (ATIRA) AN INDEPENDENT BODY APPOINTED BY GUJARAT POLLUTION CONTROL BO ARD, GANDHI NAGAR (GPCB) IN COMPLIANCE WITH THE ORDERS DATED 20.12.1996 AND 13.3.1997 OF THE HONBLE HIGH COURT OF GUJARAT , AS FURTHER MODIFIED VIDE ITS ORDER DATED 16.9.1999. THE S AME, DESPITE BEING OBJECTED TO BY THE A SSESSING OFFICER (A .O. ) , WERE ADMITTED AS ADDITIONAL EVIDENCE BY THE LD. CIT(A) UNDER R. 46 A OF THE RULES. COPIES OF INVOICE S OF VARIOUS BOUGHT OUT MATERIALS - ETP HAVING BEEN FABRICATED IN - HOUSE, WERE ALSO SUBMITTED , EVEN AS THE ASSESSEE CLAIMED OF HAVING SUBMITTED THE SAME D URING THE ASSESSMENT PROCEEDINGS ITSELF. ON 3 ITA NO. 4340/MUM/2011 (A.Y. 2006 - 07) ANUSHAKTI CHEMICAL & DRUGS LTD. VS. ADDL. CIT MERITS, THE A.O. VIDE HIS REMAND REPORT DATED 04.2.2011 TO THE LD. CIT(A) , OBSERVED AS FOLLOWS: V. WITHOUT PREJUDICE TO THE ABOVE, THE SUBMISSIONS MAD E BY THE ASSESSEE ARE EXAMINED. EVEN IN THE SAID ADDITIONAL EVIDENCES, THE ASSESSEE HAS NOT FURNISHED THE EVIDENCES OF THE SAID EIP PLANT, THE EXPENDITURE INCURRED, THE COMPONENTS/APPARATUS/EQUIPMENTS FORMING PART OF THE SAID ETP AND THE COST INCURRED ON T HE ASSEMBLY AND PUTTING TO USE OF THE SAME. THE ASSESSEE HAS RELIED UPON A CERTIFICATE OF A CHARTERED ENGINEER AND SOME AUDIT REPORT WITHOUT PRODUCING THE ACTUAL INVOICES AND EVIDENCES FOR THE ACQUISITION/CONSTRUCTION OF THE SAID ETP, ON WHICH THE ASSESSEE HAS CLAIMED DEPRECIATION @ 100%. HENCE, THE CLAIM IS STILL UNSUBSTANTIATED AND , ACCORDINGLY, DISALLOWABLE. THE LD. CIT(A), ON A CONSIDERATION OF THE MATERIALS BEFORE HIM, HELD AS UNDER: FROM THE ABOVE REPORT OF THE A.O. IT MAY BE NOTED THAT THE ASSES SEE FAILED TO FURNISH THE EVIDENCE REGARDING EXPENDITURE INCURRED, EQUIPMENTS FORMING PART OF ETP, COST INCURRED ON ASSEMBLING , ETC. EVEN DURING THE OPPORTUNITY GIVEN IN REMAND PROCEEDINGS BEFORE A.O. THIS ETP AS CLAIMED BY APPELLANT IS AN IN HOUSE DEVELOP ED ETP AND NOT PURCHASED FROM OUTSIDE AGENCY AND HENCE ASSESSEE HAD TO MAINTAIN ALL DETAILS OF EXPENSES INCURRED ON ITS CONSTRUCTION. SINCE THE CLAIM OF 100% DEPRECATION MADE BY THE APPELLANT COULD NOT BE VERIFIED BY THE A.O. FOR NON SUBMISSION OF DETAILS, THE SAME IS NOT ALLOWABLE AS DEDUCTION AND ACCORDINGLY THE DISALLOWANCE MADE BY THE A.O. IS UPHELD. AGGRIEVED, THE ASSESSEE IS IN SECOND APPEAL. 4. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATERIAL ON RECORD. THE REVENUES CASE, AS APPARENT FROM TH E FORE - GOING, IS THAT THE ASSESSEES CLAIM (FOR DEPRECIATION ON ETP) IS UNSUBSTANTIATED IN - AS - MUCH AS IT HAS NOT BEEN ABLE TO CONCLUSIVELY SHOW THAT WHAT WAS FABRICATED WAS AN ETP, I.E., THE ASSESSEE HAD NOT BEEN ABLE TO ADDUCE SUFFICIENT EVIDENCE TO ESTAB LISH THAT AN ETP WAS INSTALLED BY I T DURING THE RELEVANT PREVIOUS YEAR. IN OUR VIEW, IN VIEW OF THE BILLS FOR MATERIAL AND LABOUR SUBMITTED (PB PGS. 46 - 76 ) ; THE ASSESSEES AUDITED ACCOUNTS , COUPLED WITH THE CERTIFICATE OF THE CHARTERED ENGINEER AND THE EAR (FOR THE YEAR 200 7 ) , THERE COULD 4 ITA NO. 4340/MUM/2011 (A.Y. 2006 - 07) ANUSHAKTI CHEMICAL & DRUGS LTD. VS. ADDL. CIT REASONABLY BE NO DOUBT IN THE MATTER . O N THE B ENCH QUESTIONING THE LD. A UTHORIZED REPRESENTATIVE (A R ) , THE ASSESSEES COUNSEL, AS TO WHY THE ENVIRONMENTAL AUDIT WAS CONDUCTED, ADMITTEDLY FOR THE FIRST TIME, ONLY IN THE YEA R 2007 AND NOT IN THE YEAR 2006, BEING MANDATORY , WITH THE INSTALLATION OF THE ETP HAVING BEEN COMPLETED AND , RATHER, STATED AS HAVING BEEN PUT TO USE (FOR THE FIRST TIME) BY 30.9.2005, HE COULD FURNISH NO SATISFACTORY ANSWER, STATING THAT THE ISSUE OF THE DATE OF INSTALLATION AND OF BEING PUT TO USE FOR THE FIRST TIME BY 30.9.2005 I S NOT IN DISPUTE ; THE REVENUE HAVING ITSELF ALLOWED DEPRECIATION AT THE NORMAL RATE OF DEPRECIATION, IN FULL. WE WILL VISIT THIS ASPECT OF THE MATTER LATER. THE QUESTION, HOWEV ER, IS : EVEN GRANTING THAT AN ETP WAS SET UP AND PUT TO USE DURING THE RELEVANT YEAR , WOULD IT QUALIFY TO BE A WATER POLLUTION CONTROL (WPC) E QUIPMENT, I.E., IN TERMS OF THE RELEVANT CLAUSES OF APPENDIX I, WHICH READ AS UNDER, SO AS TO BE ELIGIBLE FOR DEPR ECIATION @ 100%: (IX) WATER POLLUTION CONTROL EQUIPMENT, BEING A) B) C) D) E) MECHANICAL FLOCCULATORS AND MECHANICAL REACTORS F) . Q) ACTIVATED CARBON COLUMN CLEARLY , IT IS NOT A N Y WPC EQUIPMENT, BUT ONE WHICH IS CONSTITUTED OR COMPRISED OF AN Y OF THE SPECIFI ED SYSTEMS, THAT WOULD QUALIFY FOR DEPRECIATION AT THE ENHANCED RATE. IN OTHER WORDS, AN ETP IS WITHOUT DOUBT A WPC EQUIPMENT, SET UP TO TREAT THE FLUID EFFLUENT AND WASTE PRIOR TO ITS DISCHARGE FROM AN INDUSTRIAL UNIT. THE VERY FACT THAT AN ENVIRONMENT AUDIT WAS CARRIED OUT IN THE PRESENT CASE , WHICH BEARS ABUNDANT REFERENCE TO THE ETP (INCLUDING ITS FLOW CHART AT ANN. 8 THERETO), ALONG WITH AN EXAMINATION OF ITS VARIOUS ASPECTS A S WATER (PER A SEPARATE SECTION (C)) ; QUALITY OF EFFLUENT; ENERGY CONSUMPTION OF ETP; ANALYSIS REPORTS, ETC., ESTABLISHES S O. WHETHER IT, HOWEVER, 5 ITA NO. 4340/MUM/2011 (A.Y. 2006 - 07) ANUSHAKTI CHEMICAL & DRUGS LTD. VS. ADDL. CIT CONSTITUTES OR IS COMPRISED OF ANY OF THE SYSTEMS STATED IN THE RELEVANT CLAUSE S HAS NOT BEEN SUBJECT TO EXAMINATION BY THE REVENUE AT ANY STAGE. THE LD. AR WOULD TOWAR D THIS STATE THAT THE CERTIFICATE (SUPRA) BY THE CHARTERED ENGINEER , CLEARLY MENTIONING OF THE ETP AS MADE UP BY , TO QUOTE ASSEMBLING THE SYSTEMS , NAMELY, MECHANICAL F LOCCULATORS AND M ECHANICAL R EACTORS AND ACTIVATED CARBON COLUMN, I.E., THE SYSTEMS AS S PECIFIED UNDER THE RELEVANT CLAUSES, HAS NOT BEEN DOUBTED BY THE REVENUE. IF THAT WERE THE CASE, HOW WE WONDER COULD THE REVENUE DISALLOW THE ASSESSEES CLAIM IN THE FIRST PLACE ? AT THE SAME TIME THOUGH, WE ARE INCLINED TO AGREE WITH THE ASSESSEES CASE. I T HAS FURNISHED ALL THE MATERIALS IT CONSIDERED PROPER AND RELEVANT FOR THE PURPOSE. NO FURTHER QUERIES WERE RAISED, ASKING IT TO SUBSTANTIATE A PARTICULAR ASPECT, BY THE REVENUE. THE ASSESSEE UNDER THE CIRCUMSTANCES SHOULD NOT BE PUT TO THE RIGMAROLE OF F RESH PROCEEDINGS BEFORE THE A.O. , WHO HAD ANOTHER OCCASION DURING THE REMAND PROCEEDINGS TO QUESTION AND EXAMINE THE ASSESSEES CLAIMS. THIS IS MORE SO AS THERE IS NOTHING ON RECORD TO SUGGEST OTHERWISE, WITH THE ASSESSEE HAVING PLACED ALL THE MATERIALS IT IS REASONABLY EXPECTED TO BEFORE THE REVENUE AUTHORITIES . WE ACCORDINGLY ACCEPT THE ASSESSEES CLAIM OF THE ETP INSTALLED AND BEING USED AT ITS INDUSTRIAL UNIT AS FALLING UNDER THE RELEVANT SUB - CLAUSES OF CLAUSE A ( III ) (IX) OF APPENDIX - I AND , THUS, ELIGI BLE FOR DEPRECIATION @ 100%. COMING BACK TO THE ASPECT OF THE DATE OF THE ETP BEING PUT TO USE FOR THE FIRST TIME , WE FIND THAT DESPITE HAVING BEEN ALLOWED DEPRECATION IN FULL (AT THE NORMAL RATE), THE FOLLOWING BILLS/VOUCHERS INDICATE OTHERWISE: A) BILL NO . 17 OF CIVIL CONTRACTOR (DIVA CONSTRUCTION) DATED 14.10.2005 AFTER SEVERAL WORK FOR BOILER ETP (PB PG. 46); B) BILL NO. 4 81 DATED 2 0 .10.2005 OF SHITAL POLY P LAST FOR HDPE PIPE (IN COIL FORM) (PB PG. 58 ) ; C) BILL NO. 49 5 DATED 25.10.2005 OF SHITAL POLY P LAST FOR HDPE PIPE (IN COIL FORM) (PB PG. 59) ; 6 ITA NO. 4340/MUM/2011 (A.Y. 2006 - 07) ANUSHAKTI CHEMICAL & DRUGS LTD. VS. ADDL. CIT D) BILL NO. 03 DATED 05.11.2005 (OF MAMTA ENGINEERING WORKS) TOWARDS LABOUR CHARGES FOR FABRICATION OF PIPE LINES FOR, AMONG OTHERS , ETP BOILER PLANT (PB PG.53); E) BILL NO. 12 DATED 18.12.2005 (OF ASHOKBHAI NINJAR) FOR P AINTING LABOUR WOR K (PB PG. 64); F) BILL NO. 07 DATED 02.01.2006 (OF MAMTA ENGINEERING WORKS) TOWARDS LABOUR CHARGES FOR FABRICATION OF PIPE LINES FOR, AMONG OTHERS , ETP BOILER PLANT (PB PG.54 ); AND G) BILL NO. 19 OF CIVIL CONTRACTOR (DIVA CONSTRUCTIO N) DATED 04.3.2006 AFTER SEVERAL WORK FOR BOILER ETP (PB PGS. 49 - 50); THE LD. AR , ON BEING CONFRONTED THEREWITH , WOULD SUBMIT THAT THESE BILLS ARE FOR LABOUR , WHICH ARE RAISED MUCH AFTER THE ACTUAL CONDUCT OF THE WORK AND, ACCORDINGLY, ARE NOT INDICATIV E OF WHEN THE WORK WAS ACTUALLY COMPLETED. WE ARE UNABLE TO AGREE. THE BILLS ARE, FIRSTLY, ALSO FOR MATERIALS. AGAIN, A DELAY IN RAISING BILLS IS UNDERSTANDABLE ONLY FOR A FEW DAYS, STRETCHING UP TO A WEEK TO TEN DAYS, WHILE IN THE INSTANT CASE THE BILLS C ONTINUE TO BE RAISED EVEN UP TO MARCH, 2006. THEN, AGAIN, AS A MATTER OF PRACTICE, IT COULD BE THAT THE BILLS ARE RAISED FOR A MONTH, AT ITS END. T HERE IS IN FACT A LABOUR BILL FOR 30.9.2005 ITSELF (PB PG. 52) , BY MAMTA ENGG. WORKS, SUGGESTING RAISING OF BILLS ON A REGULAR BASIS . IN FACT, EVEN IF NOT SO, THE BILLS, WHERE THE WORK IS SCHEDULED TO BE COMPLETED BY A PARTICULAR DATE, WOULD NORMALLY BE ISSUED BY THAT DATE OR OTHERWISE INDICATE TO THE WORK DATE. THERE IS FURTHER NOTHING ON RECORD WHICH COULD PO SITIVELY ESTABLISH THE USE OF THE ETP FROM 01.10.2005, AS IN THE FORM OF COMM ISSIONING REPORT; ETP POWER CONSUMPTION (WHICH IS S E P ARATE LY METERED); CONSUMPTION OF CHEMICALS FOR USE IN ETP , ET. AS . THE EAR CONTAIN S SPECIFIC REFERENCE TO THE ETP RECORDS . THE EAR IS ALSO SILENT IN THIS REGARD, BEING , AS AFORE - NOTED , ONLY FOR THE PERIOD JANUARY 2007 ONWARDS. WE ARE, AT THE SAME TIME, CONSCIOUS THAT THERE HAS BEEN NO VERIFICATION QUA THIS ASPECT OF THE MATTER BY THE REVENUE , WH O HAS PROCEEDED BY ACCEPTING THE AS SESSEES CLAIM. THE ASSESSEE, THEREFORE, HAS NOT GOT AN OPPORTUNITY TO PROPERLY REPRESENT ITS CASE IN THE MATTER. WE, ACCORDINGLY, RESTRAIN FROM 7 ITA NO. 4340/MUM/2011 (A.Y. 2006 - 07) ANUSHAKTI CHEMICAL & DRUGS LTD. VS. ADDL. CIT ISSUING ANY FINAL FINDING IN THE MATTER , AND CONSIDER IT ONLY PROPER TO RESTORE THIS ASPECT OF THE MATTER BACK TO THE FILE OF THE A.O. THE ASSESSING AUTHORITY , WHERE NOT SATISFIED WITH THE ASSESSEES EXPLANATION, OR IF THE ASSESSEE ITSELF CONCEDES NOT TO PRESS THIS ASPECT, SHALL, IN GIV ING EFFECT TO THIS ORDER, ALLOW DEPRECATION AT 50% OF THE COST FOR THE CURRENT A ND THE FOLLOWING YEAR IN - AS - MUCH AS WE HAVE CONFIRMED IT TO BE ELIGIBLE F O R DEPRECATION @ 100%. THIS, IT WOULD BE APPRECIATED , IS EVEN OTHERWISE INCUMBENT ON HIM IN - AS - MUCH AS HE HAS TO, WHILE ALLOWING ADDITIONAL DEPRECIATION FOR THE CURRENT AND/OR THE FOL LOWING YEAR, WITHDRAW THE DEPRECIATION FOR THE SUBSEQUENT YEARS; THE ISSUE AT HAND CONCERNING THE RATE OF DEPRECIATION, SO THAT THE ISSUE IN E S S ENCE INVOLVES TIMING DIFFERENCE. WE DECIDE ACCORDINGLY. AS REGARDS OUR COMPETENCE TO ISSUE SUCH A DIRECTION, I. E., Q UA THE DATE OF INSTALLATION AND PUT TO USE FOR THE FIRST TIME (OF THE E TP), WE MAY CLARIFY THAT AS EXPLAINED BY THE HONBL E COURT S , THE TRIBUNAL I S EMPOWER ED TO FRAME ISSUES IT CONSIDERS AS ARISING OUT OF THE IMPUGNED ORDER. THE MATTER UNDER REFERENC E IS A MATTER OF FACT, RELEVANT TO THE ISSUE , AND ON WHICH WE OBSERVE NO FINDING BY THE REVENUE. REFERENCE FOR THE PURPOSE OF LAW IN THE MATTER MAY BE MADE TO THE DECISION BY THE HONBLE APEX COURT IN KAPURCHAND SHRIMAL V. CIT [1981] 131 ITR 451 (SC) AND B Y THE HON'BLE JURISDICTIONAL HIGH COURT IN AHMEDABAD ELECTRICITY CO. LTD. VS. CIT [ 1993 ] 199 ITR 351 (BOM) (FB), RENDERED RELYING ON A SERIES OF DECISIONS BY THE APEX COURT. 5. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON MAY 18 , 201 6 SD/ - SD/ - ( RAMLAL NEGI ) (S ANJAY ARORA) / J UDICIAL MEMBER / A CCOUNTANT MEMBER MUMBAI ; DATED : 18 . 0 5 .201 6 8 ITA NO. 4340/MUM/2011 (A.Y. 2006 - 07) ANUSHAKTI CHEMICAL & DRUGS LTD. VS. ADDL. CIT . . ./ ROSHANI , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT - CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD F ILE / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI