ACIT, UDAIPUR V. M/s. Miraj Product Pvt. Ltd., RAJSAMAND

ITA 454/JODH/2010

• Counselvise Citation: 45423314 RSA 2010
• Duration Of Justice: 1 year(s) 4 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-12-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 14-12-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 04-08-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SUBHASH CHANDRA CIDDR
• Keywords: Depreciation; Business expenditure; Capital expenditure

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL : JODHPUR BENCH: JODHPUR. BEFORE SHRI R.K. GUPTA, HONBLE JUDICIAL MEMBER AND SHRI N.L. KALRA, HONBLE ACCOUNTANT MEMBER ITA NO.454/JODH/2010 A.Y. 2007-08 ACIT, CIRCLE-2, UDAIPUR. VS. M/S. MIRAJ PRODUCT PVT. LTD., NATHDWARA, RAJSAMAND. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI P.C. PARWAL DEPARTMENT BY : SHRI SUBHASH CHANDRA- CID-DR. DATE OF HEARING : 14./12/2011 DATE OF PRONOUNCEMENT : 16-12-2011 O R D E R PER N.L. KALRA, A.M. THE REVENUE HAS FILED AN APPEAL AGAINST ORDER OF L D. CIT(A) DATED 12/05/2010. THE GROUND OF APPEAL RAISED BY REVENUE IS AS UNDER :- DELETING THE DISALLOWANCE OF EXCESS DEPRECIATION O F RS. 41,68,959/- ON WIND-MILL AND FURTHER DIRECTED TO ALLOW EVACUAT ION CHARGES OF RS. 45,00,000/- AS BUSINESS EXPENDITURE INSTEAD OF DEPR ECIATION @ 80% CLAIMED THEREON BY THE ASSESSEE. 2.1 THE A.O. HAS ALLOWED DEPRECIATION AT RS. 3,07,6 1,517/- WHILE THE LD. CIT(A) HAS ALLOWED DEPRECIATION AT RS. 3,31,68,478/-. THE ASSE SSEE HAS CLAIMED DEPRECIATION AT THE RATE OF 80% BY TREATING THE WIND MILL AS COMPOSITE UNIT. THE A.O. HAS NOT ALLOWED DEPRECIATION AT 80% ON ABOVE TERMS AND THE LD. CIT(A) HAS ALLOWE D 80%. THE DETAILS ARE AS UNDER :- ITEM RATE ALLOWED BY A.O. RATE AS PER CIT(A) FOUNDATION WORK 10% 80% ELECTRICAL ITEM 15% 80% INSTALLATION OF ELECTRICAL LINE 15% 80% OTHER WORK. NIL 80% 2 2.2 THE JODHPUR BENCH HAD AN OCCASION TO CONSIDER T HE ALLOW ABILITY OF DEPRECIATION ON FOUNDATION IN ITA NO. 195/JODH/2010 VIDE ORDER DATE D 11/02/2011. THE RELEVANT PORTION IS REPRODUCED AS ABOVE. 12. THE ASSESSEE HAS CLAIMED DEPRECIATION @ 80% O N FOUNDATION AS WELL AS OTHER CIVIL WORKS. BOTH THE A O AND THE LD.CIT(A) DENIED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT THEY ARE NOT INTEGRAL PART OF THE WIND MILL. THE DEPRECI ATION IN RESPECT OF FOUNDATION IS CONCERNED THE FOUNDATION FOR THE PURP OSE OF THE WIND MILL IS DIFFERENT FROM THE OTHER CIVIL WORKS. WIND MILL IS A HEAVY MACHINE AND A SPECIALLY DESIGNED FOUNDATION IS REQU IED, THEREFORE, THE AO HAS NOT JUSTIFIED IN COMPARING THE FOUNDATION OF THE WIND MILL FROM OTHER CIVIL WORKS IN THE CASE OF CIT VS HERDI LLIA CHEMICALS LTD. 216 ITR 742 (BOM) WHEREIN THE HON'BLE HIGH COURT OF MUMBAI HAS HELD 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 ENTITLED TO DEPRECIATION AT THE SAME RATE AS APPLICABLE TO THAT PLANT AND MACHINERY. IN THE CASE OF ACIT VS MADRAS CEMENTS LTD. , 110 IT 281 (MAD.), HAS HELD T HAT THE FOUNDATION WORK DONE FOR FIXING MACHINERY IS TO BE TREATED AS PART OF THE PLANT AND MACHINERY. IN THE CASE OF CIT VS R.G. ISPAT LTD. 123 CTR (RAJ.) WHERE THE JURISDCTIONAL HIGH COURT CATE GORICALLY HELD THAT THE MASSIVE REINFORCED CONCRETE STRUCTURE, ESP ECIALLY DESIGNED TO TAKE UP LOADS, CONSTITUTED PLANT WITHIN THE MEANI NG OF SECTION 43(3) OF THE INCOME TAX ACT, 1961 13. WE THEREFORE, TAKING INTO CONSIDERATION THE FAC TS AND CIRCUMSTANCES OF THE CASE AND ALSO FOLLOWING THE A BOVE CASE LAWS, WE CAME TO CONCLUSION THAT THE FOUNDATION OF THE WINDMILL I S AMOUNTING TO PART AND PARCEL OF THE WIND MILL AND IT IS PLANT AND MACHINE RY AND ACCORDINGLY THE ASSESSEE IS ELIGIBLE FOR HIGHER RATE OF DEPRECIATIO N WHICH WAS CLAIMED. AS FAR AS CIVIL WORK IS CONCERNED, WE FIND THAT IT IS NOT AN INTEGRAL PART OF THE 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 LD.CIT(A) AND REMIT THE ISSUE MATTER BACK TO THE FILE OF THE AO 3 AND DIRECT THE AO TO ALLOW HIGHER DEPRECIATION CLAI M OF THE ASSESSEE IN RESPECT OF FOUNDATION OF THE WINDMILL. IN SO FAR A S OTHER ALLIED WORKS ARE CONCERNED NORMAL RATE HAS TO BE APPLIED AND THIS GR OUND OF APPEAL RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 2.3 THE JAIPUR TRIBUNAL IN ITA NO. 745/JODH/07 DATE D 18/07/2008 HELD THAT DEPRECIATION AT 80% IS TO BE GIVEN ON THE COMPLETE WIND MILL AND THE RELEVANT PARA IS REPRODUCED AS UNDER :- 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUS ED THE FACTS OF THE CASE. THE PROVISIONS OF ALLOWING DEPRECIATION O N THE WIND MILL IS GOVERNED BY APPENDIX I PARA (XIII) (1) WHICH READS AS UNDER:- (XIII) RENEWABLE ENERGY DEVICES BEING (A) TO (K) .. (L) WIND MILLS AND ANY SPECIALLY DESIGNED DEVICES WHICH RUN ON WIND MILLS 80% IT IS EVIDENT FROM THE AFOREMENTIONED PROVISIONS TH AT THE DEPRECIATION @ 80% HAS TO BE CHARGED ON THE COMPLETE WIND MILL. THEREFORE, THE LD. CIT(A) IS NOT JUSTIFIED IN SEGREGATING THE COST OF THE 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 LD. 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 TH AT LD. CIT(A) WAS JUSTIFIED IN ALLOWING DEPRECIATION AT 80% EXCEPT FOR OTHER WORK I.E. FENCING OF ELECTRIC YARD AND TEMPORARY APPROACH ROAD. THUS DEPRECIATION AT THE R ATE OF 10% WILL BE ADMISSIBLE ON RS. 7,37,117/-. 2.5 ON THE ISSUE OF SUM OF RS. 45 LAKH, THE LD. A/R SUBMITTED 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 BE SPREAD OVER FOR A 4 NUMBER OF YEARS. LD. A/R STATED THAT NO PERIOD IS S PECIFIED 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 I S NOT 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 LD. D/R THAT SUCH EXPENDITUR E SHOULD BE SPREAD OVER. 3.0 IN THE RESULT THE APPEAL OF REVENUE IS PARTLY A LLOWED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 16-12 -2011. SD/- SD/- (R.K. GUPTA) (N.L. KALRA) JUDICIAL MEMBER ACCOUNTANT MEMBER JODHPUR DATED: 16 /12/2011 MISHRA COPY TO: 1. THE ACIT, CIRCLE- 2, UDAIPUR 2. M/S. MIRAJ PRODUCTS (P) LTD., NATHDWARA, RAJSAMA ND 3.THE LD. CIT (A) BY ORDER 4.THE CIT 5.THE D/R 6.THE GUARD FILE (ITA NO. 455/JU/10) A.R.. ITAT: JODHPUR