ACIT, Circle-16(2), Hyd, Hyderabad V. Manjeera Hotels & Resorts Ltd., Hyd, Hyderabad

ITA 469/HYD/2015

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 0399 (ITAT-HYDERABAD)
• Duration Of Justice: 2 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-07-2015
• Appeal Filed By: Department
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 24-04-2015
• Court: TRIBUNAL
• Department Lawyers: RAJAT MITRA
• Keywords: Capital asset; Depreciation; Deemed to accrue or arise in india
• Section: 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B, HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER I.T.A. NO. 469/HYD/2015 ASSESSMENT YEAR: 2008-09 ASST. COMMISSIONER OF INCOME TAX, CIRCLE-16(2), HYDERABAD VS M/S. MANJEERA HOTELS & RESORTS LTD., HYDERABAD [PAN: AACCM3554C] (APPELLANT) (RESPONDENT) FOR REVENUE : SHRI RA JAT MITRA , D R FOR ASSESSEE : NONE DATE OF HEARING : 0 6 - 07 - 201 5 DATE OF PRONOUNCEMENT : 10 - 0 7 - 2015 O R D E R PER B. RAMAKOTAIAH, A.M. : THIS IS REVENUE'S APPEAL AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-4, HYDERABAD DATED 23-01-2015. REVENUE HAS RAISED THE FOLLOWING GROUNDS: '2. THE LEARNED CIT(A) ERRED IN DELETING THE ADDITI ON MADE TOWARDS THE DISALLOWANCE OF EXCESS DEPRECIATION CLAIMED ON WIND MILL. 3. THE LEARNED CIT(A) ERRED IN CONSIDERING THE TRA NSFORMER, HT, ELECTRICAL SUPPLY UNIT AS INTEGRAL PART OF WIND MI LL'. I.T.A. NO. 469/HYD/2015 M/S. MANJEERA HOTELS & RESORTS LTD :- 2 -: 2. WHEN THE NOTICE WAS ISSUED AND THE CASE WAS TAKE N UP FOR HEARING, NONE APPEARED ON BEHALF OF ASSESSEE. SO A PPEAL IS BEING DECIDED AFTER HEARING THE LD. DR, EXPARTE ASSESSEE -RESPONDENT. 3. BRIEFLY STATED, ASSESSEE IS ENGAGED IN THE HOTEL BUSINESS AND FORAYED INTO THE BUSINESS OF WIND MILL POWER GENERA TION. IT ADMITTED INCOME OF RS. 60,19,060/- UNDER NORMAL PROVISIONS A ND DEEMED INCOME OF RS. 4,08,79,035/- U/S. 115JB OF THE INCOME TAX A CT [ACT]. IN THE COURSE OF SCRUTINY ASSESSMENT, ASSESSING OFFICER (A O) DISALLOWED PART- DEPRECIATION CLAIMED AT 80% OF WIND MILL ON OTHER P LANT & MACHINERY ITEMS SUCH AS TRANSFORMER OF RS. 13.91 LAKHS, HT OF RS. 19.45 LAKHS, ELECTRICAL SUPPLY OF RS. 27.56 LAKHS, TOTAL RS. 60. 92 LAKHS AND CERTAIN CIVIL WORKS AS EXCESS DEPRECIATION. HE WAS OF THE OPINION THAT HIGHER RATE OF DEPRECIATION WAS NOT ALLOWABLE IN RESPECT O F THIS EXPENDITURE WHICH IS NOT PART OF WIND MILL. ACCORDINGLY, HE AL LOWED DEPRECIATION @ 15% AND ON CIVIL WORKS, @ 10% ONLY. 4. IT WAS SUBMITTED BEFORE THE LD.CIT(A) THAT : 'I. WIND MILL PROJECT INCLUDED FOLLOWING TWO BILLS (ENCLOSED) OF RS. 90,09,692/-. 1. CIVIL WORK INCLUDING FOUNDATION & ALLIED WORKS IN R ESPECT OF WINDFARM PROJECT CONSISTING OF ONE NO WTG FOR YOUR 1.5MW WINDMILL AT LOCATION NO R232-RS.51,35,692. 2. PAID TO TNEB ON YOUR BEHALF TOWARDS IDC-NOC REGISTR ATION CHARGES, PROCESSING AND SUPERVISION CHARGES FOR 1 W TG OF 1500KW AT LOCATION NO. R232- RS. 38,74,000/-. II. THE FIRST BILL RS. 51,35,692/- RELATES TO FOUND ATION & ALLIED WORKS FOR THE VARIOUS WINDMILLS, WITHOUT WHICH IT IS IMP OSSIBLE FOR THE WINDMILLS ERECTED OVER VAST STRETCH OF OPEN LAND W HICH ARE SUBJECT TO HIGH VELOCITY WINDS AND ON CULTIVABLE LANDS ALL COMPRISED IN ONE WINDFARM PROJECT NO WTG 1.5MW. I.T.A. NO. 469/HYD/2015 M/S. MANJEERA HOTELS & RESORTS LTD :- 3 -: III. THE SECOND BILL RS. 38,74,000/- RELATES TO PA YMENT TO TAMIL NADU ELECTRICITY BOARD FOR THE PURPOSE SPECIFIED M ENTIONED THEREIN AND IN NO WAY CAN BE CONSTRUED AS FOR ANY BUILDING CIVIL WORKS. IV. THERE ARE NO BUILDINGS CIVIL WORKS IN NATURE I NCURRED, WHEREIN ANYTHING IS SHELTERED, COMPRISED IN THE WINDMILL P ROJECT ERECTED BY THE ASSESSEE. B. PLANT & MACHINERY HELD BY AO AS NEITHER SPECIAL IZED NOR PART AND PARCEL OF WINDMILL NOT QUALIFYING FOR DEPRECIA TION AT HIGHER RATE OF 80% : 1. WINDMILL PROJECT INCLUDED FOLLOWING THREE BILLS (EN CLOSED) OF RS. 60,92,845. 1. COMPONENT & ACCESSORIES OF RENEWABLE ENERGY DEVICE 1700KV A, 33/0.690KV COPPER WOUND TRANSFORMER WITH ALL FIT TINGS RS.13,91,000. 2. INSTALLATION (WITH MATERIAL) OF ELECTRICAL LINE FOR POWER TRANSMISSION AND METERING IN RESPECT OF YOUR WINDFA RM PROJECT CONSISTING OF ONE WTG FOR YOUR 1.50 MW WINDMILL AT LOCATION NO. R232- RS. 19,45,845. 3. ELECTRICAL ITEMS, COMPONENTS OF RENEWABLE ENERGY DEVICE/WINDMILL, IN RESPECT OF WINDFARM PROJECT CON SISTING OF ONE WTG FOR YOUR 1.5 MW WINDMILL AT LOCATION NO. R232- RS. 27,56,000. II. IT IS SUBMITTED THAT THE DESCRIPTION AS DETAIL ED IN THE ABOVE THREE BILLS CATEGORICALLY SPECIFY THAT THE ITEMS MENTION ED HEREIN ARE COMPONENT & ACCESSORIES NAMELY TRANSFORMER, HT AND ELECTRICAL ITEMS EMBEDDED WITH THE RENEWABLE ENERGY DEVICE OF ONE INTEGRATED WINDFARM PROJECT WTG OF 1.50 MW AND NOT TO BE CONSTRUED AS HELD BY AO THAT THESE EXPENSES ARE NO T PART AND PARCEL OF THE WINDMILL OR ANY SPECIALLY DEVICES WH ICH RUN ON WINDMILL. III. TRUE BASIS OF DEPRECIATION ALLOWANCE IS THE C HARACTER OF AN ASSET AND NOT ITS DESCRIPTION. THE FUNCTIONAL TEST IS T HE DECISIVE TEST. ONE IS TO LOOK THE FINISHED PRODUCT AND NOT AT THE BIT S AND PIECES. ALL THE EXPENSES OF CIVIL WORKS ARE SPECIALIZED ONES IN ER ECTION OF WINDMILLS AND ALL THE PLANT & MACHINERY ARE PART AND PARCEL OF THE COMPOSITE I.T.A. NO. 469/HYD/2015 M/S. MANJEERA HOTELS & RESORTS LTD :- 4 -: AND INTEGRATED WIND MILL PROJECT AND ARE ENTITLED FOR HIGHER DEPRECIATION AS SET OUT IN THE ACT'. IT WAS CONTENDED THAT THE TRUE BASIS OF DEPRECIATI ON ALLOWANCE IS THE CHARACTER OF AN ASSET AND NOT ITS DESCRIPTION. 5. LD.CIT(A) AFTER CONSIDERING ASSESSEE'S SUBMISSIO NS AND RELYING ON THE CO-ORDINATE BENCH DECISION IN THE CASE OF ACIT VS. RAKESH GUPTA (CHD-TRIB) [60 SOT 81], DELETED THE DISALLOWANCE MA DE BY AO AND ALLOWED THE CLAIM AS SUCH. HIS BRIEF ORDER IS AS U NDER: '6. THE ASSESSMENT ORDER, SUBMISSIONS OF THE ASSESS EE AND THE DOCUMENTS PLACED ON RECORD ARE PERUSED. THE SUBMI SSIONS OF THE AR DURING THE APPELLATE PROCEEDINGS ARE ALSO CONSI DERED. THE MAIN CONTENTION OF THE AR IS THAT THE EXPENDITURE UNDER CONTENTION IS INCURRED ON ASSETS WHICH ARE INTEGRAL PART OF THE CAPITAL ASSET I.E., THE WIND MILL AND IS ELIGIBLE FOR HIGHER DEPRECIAT ION. THE AR RELIED ON THE DECISION OF HON'BLE ITAT IN THE CASE OF ACI T VS. RAKESH GUPTA (CHD-TRIB) 60 SOT 0081 WHERE ON A SIMILAR IS SUE, IT WAS HELD THAT EXPENDITURE RELATED TO GENERATION AND TRANSMI SSION FACILITIES WOULD BE PART OF THE CAPITAL ASSET AND ELIGIBLE FOR HIGHER RATE OF DEPRECIATION. RESPECTFULLY FOLLOWING THE RATIO OF ABOVE DECISION, IT IS HELD THAT THE EXPENDITURE UNDER CONSIDERATION IS O N THE ASSETS WHICH ARE INTEGRAL PART OF THE WIND MILL AND ACCOR DINGLY ELIGIBLE FOR HIGHER RATE OF DEPRECIATION. THE ADDITION MADE BY ASSESSING OFFICER IS DELETED'. 6. AFTER CONSIDERING THE LD. DR AND PERUSING THE OR DERS OF THE AUTHORITIES, WE DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDER OF LD.CIT(A). THE ISSUE WHETHER GENERATOR, TRANSFORMER S, HT LINES, MISCELLANEOUS CIVIL WORKS WILL FORM PART OF WIND MI LL SO AS TO GET 80% DEPRECIATION UNDER THAT CATEGORY WAS CONSIDERED BY THE CO-ORDINATE BENCH IN THE CASE OF ACIT VS. RAKESH GUPTA (SUPRA) AS UNDER: I.T.A. NO. 469/HYD/2015 M/S. MANJEERA HOTELS & RESORTS LTD :- 5 -: '* THE INCOME-TAX RULES PROVIDE FOR ALLOWANCE OF D EPRECIATION AT THE RATE OF 80 PER CENT ON 'RENEWABLE ENERGY DEVICES' - LIKE WIND MILLS AND ANY OTHER SPECIALLY DESIGNED DEVICES, WHICH RU N ON WIND MILLS. * ANY 'ELECTRIC POWER SYSTEM' (EPS), TO BECOME OPE RATIONAL AND USEFUL, CAN BE DIVIDED INTO THREE SYSTEMS, WHICH W HEN COALESCED BECOME THE EPS. THESE PARTS ARE: (I) POWER GENERATION SYSTEM, WHICH IS WIND MILL IN THIS CASE; (II) POWER TRANSMISSION SYSTEM I.E. AFTER POWER IS GENERATED IT NEEDS TO BE TRANSMITTED TO PLACES WHEREVER IT IS REQUIRE D; AND (III) POWER DISTRIBUTION SYSTEM - THIS ENERGY HAS TO BE DISTRIBUTED AS PER REQUIREMENT. * WITHOUT THE EXISTENCE OF THE ABOVE THREE SYSTEMS , THE IDEA OF WIND MILL IS MEANINGLESS. THUS, ONE CAN SAY WITH IMPUNI TY THAT ALL THE ABOVE, SYSTEMS GO TO FORM AN ESSENTIAL COMPOSITE S YSTEM KNOWN AS 'WIND MILL'. THIS COMPOSITE SYSTEM IS ELIGIBLE FOR 80 PERCENT DEPRECIATION. WIND MILL IS INVARIABLY INSTALLED AT A PLACE WHERE AMPLE WIND PRESSURE IS FOUND TO MOVE THE SAILS, WH ICH IN TURN GENERATES ELECTRICITY. THE ELECTRIC POWER IS GENER ATED AT PLACES WHICH ARE USUALLY INTRACTABLE AND NEAR WHICH THE C ONSUMPTION OF THAT ENERGY IS NOT POSSIBLE. THEREFORE, THIS ENERG Y HAS TO BE 'TRANSMITTED' WITH THE USE OF A 'TRANSMISSION SYST EM' WHICH FURTHER REQUIRES A 'DISTRIBUTION SYSTEM' TO MAKE USE OF TH AT ENERGY. THEREFORE, THE GENERATION, THE TRANSMISSION AND DI STRIBUTION OF ENERGY, IN FACT IS THE 'WIND-MILL'. WITHOUT THE CO MBINATION OF THE ABOVE THREE SYSTEMS, THE IDEA OF WIND MILL WILL NO T BECAME VIABLE. WITHOUT THE SYSTEM NO. (II) AND (III), THE WIND MI LL CANNOT EVEN BE COMMISSIONED. SINCE THE ELECTRICITY CANNOT BE STOR ED, ONE CANNOT SIMPLY GO ON GENERATING IT IN THE AIR AND LET IT B E WASTED. THEREFORE, THE EXPENDITURE INCURRED TOWARDS SYSTEMS (I), (II) AND (III), HAVE TO BE CLUBBED AND CANNOT BE SEPARATED'. 7. FURTHER, CO-ORDINATE BENCH AT HYDERABAD IN THE C ASE OF M/S. LANCO INFRATECH LTD., HYDERABAD IN ITA NOS. 252 & 253/HYD/2013 ALSO CONSIDERED THE SAME ISSUE, WHEREIN IT WAS HELD HAS UNDER: '7. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PART IES AND PERUSED THE ORDERS OF REVENUE AUTHORITIES AS WELL AS OTHER MATERIALS I.T.A. NO. 469/HYD/2015 M/S. MANJEERA HOTELS & RESORTS LTD :- 6 -: ON RECORD. AFTER GOING THROUGH THE DOCUMENTARY EVI DENCES PLACED BEFORE US WHICH ALSO FORMS PART OF RECORD BEFORE T HE DEPARTMENTAL AUTHORITIES, WE DO NOT FIND ANY INFIRMITY IN THE F INDINGS OF LD. CIT(A). IT IS CLEAR FROM THE ASSESSMENT ORDER, ASSESSEES CLAIM OF DEPRECIATION AT 100% ON WIND MILL EQUIPMENT WAS R EJECTED BY AO SIMPLY FOR THE REASON THAT AS WIND ELECTRIC GENERA TOR IS IN THE NATURE OF ELECTRICAL EQUIPMENT, DEPRECIATION IS TO BE ALL OWED @ 25% AND NOT AT 100%. HOWEVER, AS FOUND FROM THE FACTS ON RECO RD, ASSESSEE CLAIMED 100% DEPRECIATION ON ASSETS WORTH RS. 14,7 3,71,680 BY TREATING IT AS WIND MILL EQUIPMENT. THE BREAK UP O F RS. 14,73,71,680 IS AS UNDER: S.NO. DESCRIPTION OF ASSETS DATE OF ACQUISITION AMOUNT (IN RS.) 1. INCIDENTAL EXPENSES 08.01.2002 1,680 2. ERECTION & COMMISSIONING CHARGES 20.03.2002 3,98,90,000 3. PURCHASE OF WIND ELECTRIC GENERATORS 20.03.2002 10,61,10,000 4. REGISTRATION & FRONT END FEE TO IREDA 31.03.2002 13,70,000 TOTAL 14,73,71,680 8. ON PERUSAL OF THE INVOICES RAISED TOWARDS SALE OF WIND MILL EQUIPMENT AND ERECTION AND COMMISSIONING OF THE SA ME, IT IS TO BE NOTED THAT THE PRICE HAS BEEN CHARGED FOR SUPPLY, ERECTION AND COMMISSIONING OF WIND ELECTRICAL GENERATORS. THE S ELLER OF THE WIND MILL EQUIPMENT HAS ALSO ISSUED A CERTIFICATE, A CO PY OF WHICH IS AT PAGE 38 OF THE PAPER BOOK, WHEREIN IT IS CLARIFIE D THAT THE EQUIPMENT SUPPLIED BY THEM TO ASSESSEE IS NOT JUST WIND ELEC TRIC GENERATOR BUT THE COMPLETE WIND MILL UNIT CONSISTING OF THE FOLL OWING COMPONENTS: 1. GEAR BOX & ITS RELATED ACCESSORIES, 2. BLADES, 3. TOWER, 4. GENERATOR & ITS RELATED ACCESSORIES, 5. POWER CABL ES, 6. COMMUNICATION CABLES, 7. MAIN BEARING AND SHAFT, 8 . ELECTRONIC CONTROLLERS, AND 9. POWER (MAIN) PANEL. 9. IT WAS FURTHER CLARIFIED BY THE SELLERS THAT AL L THE AFORESAID COMPONENTS ARE INTEGRAL PART OF THE WIND MILL UNIT AND WITHOUT THEM THE UNIT CANNOT FUNCTION. FURTHER, ASSESSEE HAS AL SO OBTAINED AN OPINION FROM A TECHNICAL EXPERT I.E. M/S SERVEL K RISHNA ENGINEERS PVT. LTD. , WHO IN THEIR OPINION HAVE STATED THAT THE MAIN COMPONENTS OF WIND TURBINES ARE AS UNDER: I.T.A. NO. 469/HYD/2015 M/S. MANJEERA HOTELS & RESORTS LTD :- 7 -: 1. BLADES, 2. GEAR BOX, 3. GENERATOR, 4, TOWER, 5. FOUNDATION, 6. STEP UP TRANSFORMER, 7. METERING ARRANGEMENT, AND 8. 11/33 KV OVERHEAD LINES. THEY HAVE FURTHER OPINED THAT WIND ELECTRIC GENERA TOR IS AN INTEGRAL PART OF THE WIND MILL AND IT IS SPECIFICALLY DESIG NED, SO THAT THEY CAN CONVERT MECHANICAL ENERGY INTO ELECTRICAL ENERGY W HEN INSTALLED IN A WIND MILL. WITHOUT THE GENERATOR UNIT, THE WIND MI LL CANNOT ACHIEVE THE DESIRED PURPOSE. THEY FURTHER CLARIFIED, AS TH E GENERATOR IS THE MAIN COMPONENT, THE EQUIPMENT SUPPLIED FOR WIND MI LL INSTALLATION IS SOMETIMES REFERRED TO AS WIND ELECTRIC GENERATOR I N INDUSTRY TERMS. IT WAS STATED THAT THE COMPLETE UNIT OF THE WIND M ILL COMPRISING OF THE AFORESAID COMPONENTS IS A MONOLITHIC UNIT CALL ED WIND MILL OR WIND MILL GENERATOR. APART FROM THE AFORESAID, TECHNICAL OPINION, A SCHEMATIC DIAGRAM OF THE WIND MILL AS PROVIDED B Y THE SELLER OF THE WIND MILL EQUIPMENT ALSO CLEARLY DEMONSTRATES THAT THE GENERATOR IS AN INTEGRAL PART OF THE WINDMILL UNIT. THEREFORE, CONSIDERING THE AFORESAID FACTUAL ASPECT IT HAS TO BE ACCEPTED THA T WIND MILL GENERATOR IS NOTHING BUT WIND MILL EQUIPMENT ON WH ICH DEPRECIATION IS ALLOWABLE @ 100% AS PER THE STATUTORY PROVISION . ON A PERUSAL OF THE ASSESSMENT ORDER, IT IS CLEAR THAT AO WITHOUT CONTROVERTING THE EVIDENCES AND MATERIALS BROUGHT ON RECORD BY ASSES SEE, HAS ARBITRARILY COME TO A CONCLUSION THAT WIND ELECTRI C GENERATORS IS AN ELECTRIC EQUIPMENT ELIGIBLE FOR DEPRECIATION @ 25% . EVEN AT THE TIME OF HEARING BEFORE US, LD. DR HAS NOT BROUGHT ANY C ONTRARY EVIDENCE TO CONCLUSIVELY PROVE THE FACT THAT THE EQUIPMENT ON WHICH ASSESSEE CLAIMED DEPRECIATION AT 100% IS NOT AN INTEGRAL PA RT OF THE WIND MILL. IN THE AFORESAID VIEW OF THE MATTER, CONSIDERING T HE FACT THAT THE MATERIALS BROUGHT ON RECORD CLEARLY DEMONSTRATE TH AT ASSESSEE HAS CLAIMED DEPRECIATION AT 100% ON WIND MILL AS A WHO LE COMPRISING OF VARIOUS ANCILLARY AND INTEGRAL COMPONENTS INCLUDIN G GENERATOR, WE UPHOLD THE ORDER OF LD. CIT(A). GROUNDS RAISED BY THE DEPARTMENT IN BOTH THE APPEALS ARE DISMISSED'. 8. IN VIEW OF THE ABOVE, THE ABOVE UNITS WHICH ARE TREATED BY THE AO AS SEPARATE INDEPENDENT PLANT & MACHINERY ARE IN TEGRAL PART OF WINDMILL SYSTEM AND HAS NO INDEPENDENT EXISTENCE AS PLANT AND MACHINERY. THE CIVIL WORKS SUCH AS FOUNDATIONS CAN NOT BE TREATED AS BUILDINGS SO AS TO CONSIDER THEM AS INDEPENDENT ASS ETS. WE HOLD THAT THEY ARE PART OF WIND MILL AND IS ENTITLED FOR DEPR ECIATION @ 80%. THE I.T.A. NO. 469/HYD/2015 M/S. MANJEERA HOTELS & RESORTS LTD :- 8 -: ORDER OF CIT(A) IS THEREFORE UPHELD. THERE IS NO M ERIT IN REVENUE'S GROUNDS AND ACCORDINGLY, THEY ARE DISMISSED. 9. IN THE RESULT, APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH JULY, 2015. SD/- SD/- (SAKTIJIT DEY) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUN TANT MEMBER HYDERABAD, DATED 10 TH JULY, 2015 TNMM COPY TO : 1. ASST. COMMISSIONER OF INCOME TAX, CIRCLE-16(2), ROOM NO. 617, 6 TH FLOOR, AAYAKAR BHAVAN, BASHEERBAGH, HYDERABAD. 2. M/S. MANJEERA HOTELS & RESORTS LTD., 304, ADITYA TRADE CENTRE, ADITYA ENCLAVE ROAD, AMEERPET, HYDERABAD. 3. CIT(APPEALS)-4, HYDERABAD. 4. CIT-IV, HYDERABAD. 5. D.R. ITAT, HYDERABAD. 6. GUARD FILE.