The DCIT, Circle-1(1), Baroda V. M/s. Gujarat State Fertilisers & Chemicals Ltd., Baroda

ITA 476/AHD/2010

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 0557 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2013
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 31-10-2012
• Assessment Year: 1992-1993
• Appeal Filed On: 12-02-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SHELLY JINDAL
• Assessee Lawyers: S R SHAH
• Keywords: Depreciation; Opportunity of being heard; Additional depreciation; Corroborative evidences; Notional interest
• Section: 143(3); 234B; 32; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD A BENCH BEFORE: SHRI A.K. GARODIA, ACCOUNTANT MEMBER AND SHRI KUL BHARAT, JUD ICIAL MEMBER THE DCIT., CIR. 1(1), BARODA (APPELLANT) VS. GUJARAT STATE FERTILISER & CHEMICALS LTD. P.O. FERTILIZER NAGAR, DIST. BARODA. (RESPONDENT) PAN NO. AAACG 7996 C C.O. NO. 92/AHD/2010 (ARISING OUT OF ITA NO. 476/AHD/2010) A.Y. 1992-93 GUJARAT STATE FERTILISER & CHEMICALS LTD. P.O. FERTILISER NAGAR, DIST. BARODA. (RESPONDENT) PAN NO. AAACG 7996 VS. THE DCIT., CIR. 1(1), BARODA (APPELLANT) CROSS OBJECTOR RESPONDENT REVENUE BY : SRI SHELLY JINDAL, CIT-D.R. ASSESSEE BY : SRI S.R. SHAH, A.R. DATE OF HEARING : 04-01-2013 DATE OF PRONOUNCEMENT : 28-02-2013 / ORDER PER: KUL BHARAT, JUDICIAL MEMBER:- THE REVENUE HAS FILED THE APPEAL AND THE ASSESSEE H AS FILED CROSS OBJECTION AGAINST THE ORDER OF LD. CIT (A)-I, BAROD A DATED 30-10-2009. ITA NO. 476 /AHD/2010 A.Y.:-1992-93 ITA NO. 476/AHD/2010 & CO NO. 92/AHD/2010 A.Y.199 2-93 PAGE NO THE DCIT., VS. GUJARAT STATE FERTILIZER& CHEMICALS LTD. 2 FIRST WE TAKE UP THE APPEAL OF THE REVENUE:- 2. THE REVENUE HAS RAISED FOLLOWING GROUNDS OF APPE AL:- 1.1: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) ERRED IN DELETING THE ADDITION OF R S. 18,10,219/- ON ACCOUNT OF INTEREST ON BORROWED FUNDS NOT USED FOR BUSINESS PURPOSE. 1.2: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN NOT APPRECIATING THE FACT THAT THE OBLIGATORY PART OF THE ASSESSEE TO ESTABLISH IN THE FIRST INSTANCE AS TO WHETHER THE ASSESSEE WAS ENTITLED TO CLAIM SUCH DEDUCTION U/S 3 (1)(III) OF THE ACT AND THAT THE ADVANCES WERE FOR THE PURPOSE OF BUSIN ESS. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN HOLDING THAT THE ASSESSEE I S ELIGIBLE FOR DEPRECIATION U/S. 32 OF THE ACT EVEN THOUGH THE ASS ETS WERE NOT PUT TO USE DURING THE YEAR. 3. BRIEFLY STATED FACTS ARE THAT THE CASE OF THE AS SESSEE WAS PICKED FOR SCRUTINY ASSESSMENT AND THE ASSESSMENT U/S 143(3) O F THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) WAS COMPL ETED ON 31-03-1995 DETERMINING TOTAL INCOME AT RS.83,53,61,550/- AS AG AINST RETURNED INCOME OF RS. 25,70,67,060/-. WHILE FRAMING THE ASSESSMENT, THE ASSESSING OFFICER MADE VARIOUS ADDITIONS. THE ASSESSEE FEELING AGGRI EVED BY THE ORDER PREFERRED AN APPEAL BEFORE THE LD. CIT(A). IN THE F IRST ROUND, AGAINST THE ORDER OF LEARNED CIT (A), THE REVENUE AND ASSESSEE BOTH PREFERRED AN APPEAL BEFORE THE TRIBUNAL. THE CO-ORDINATE BENCH IN ITA NO. 735/AHD/1999 PERTAINING TO APPEAL BY DEPARTMENT AND IN ITA NO. 8 58/AHD/1999 FOR SAME YEAR BY THE ASSESSEE SET ASIDE TWO ISSUES BACK TO T HE FILE OF THE ASSESSING ITA NO. 476/AHD/2010 & CO NO. 92/AHD/2010 A.Y.199 2-93 PAGE NO THE DCIT., VS. GUJARAT STATE FERTILIZER& CHEMICALS LTD. 3 OFFICER BEING ADDITION OF RS. 18,10,219/- BEING INT EREST PAID ON BORROWING FOR ALLEGED NON BUSINESS PURPOSE AND ADDITION OF 28 ,31,73,245/- BEING DEPRECIATION CLAIMED ON CAPROLACTUM PROJECT. THE A SSESSING OFFICER WHILE FRAMING ADDITION U/S 143(3) READ WITH 254 OF THE AC T DISALLOWED THE CLAIM OF THE ASSESSEE ON DEPRECIATION AS WELL AS INTEREST. THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A) WHO AFTER CONSIDERING THE SUBMISS IONS PARTLY ALLOWED THE APPEAL. WHILE PARTLY ALLOWING THE APPEAL, LD. CIT( A) DELETED THE ADDITION ON INTEREST AND ALSO REDUCED THE DISALLOWANCE OF DE PRECIATION. THE REVENUE FEELING AGGRIEVED BY THIS IMPUGNED ORDER OF THE LD. CIT(A) FILED THE PRESENT APPEAL BEFORE US. 4. GROUND NO. 1.1 & 1.2 ARE INTERCONNECTED PERTAINI NG TO DELETION OF ADDITION OF RS. 18,10,219/- ON ACCOUNT OF INTEREST ON BORROWED FUNDS. LD. SR. D.R. SUBMITTED THAT THE BORROWED FUNDS WAS NOT USED FOR THE BUSINESS PURPOSES AS HAS BEEN CATEGORICALLY HELD BY THE ASSE SSING OFFICER. LD. SR. D.R. SUBMITTED THAT LD. CIT(A) WAS NOT RIGHT IN DE LETING THE ADDITION. ON THE CONTRARY, LEARNED COUNSEL FOR THE ASSESSEE SUBM ITTED THAT THERE WAS NO DIVERSION OF INTEREST BEARING FUND FOR NON BUSINESS PURPOSE. IT IS SUBMITTED BY THE LEARNED COUNSEL THAT THE TOTAL AMOUNT OF ADV ANCES WAS RS. 290.25 LACS AS AGAINST THIS THE INTEREST FREE FUNDS (OLD FUNDS) AMOUNTING TO MORE THAN RS. 490 CRORE. HE SUBMITTED THAT THE LD. CIT(A) HAS R IGHTLY FOLLOWED THE JUDGMENT OF THE HONBLE SUPREME COURT RENDERED IN T HE CASE OF MUNJAL SALES CORPORATION VS. CIT 298 ITR 298. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE LD. CIT(A) HAS DECIDED TH IS ISSUE IN PARA 3.5 OF HIS ORDER, WHICH IS AS UNDER:- ITA NO. 476/AHD/2010 & CO NO. 92/AHD/2010 A.Y.199 2-93 PAGE NO THE DCIT., VS. GUJARAT STATE FERTILIZER& CHEMICALS LTD. 4 3.5 I HAVE CONSIDERED THE SUBMISSIONS OF THE ID. A.R. AND THE FACTS OF THE CASE. IN THE CASE OF MUNJAL SALES CORPORATI ON, THE SUPREME COURT HAD OCCASION TO CONSIDER THE CASE WHERE ADDIT ION OF NOTIONAL INTEREST WAS MADE ON ALLEGED DIVERSION OF FUNDS. IN THAT CASE THE COURT RULED THAT WHERE THE FUNDS WERE INTERMINGLED, SO LO NG AS THE ASSESSEE'S NON- INTEREST-BEARING FUNDS EXCEEDED THE AMOUNT OF LOANS/ADVANCES, IT COULD NOT BE SAID THAT THERE WAS DIVERSION OF INTEREST BEARING FUNDS. IN THE INSTANT CASE, THE OP ENING BALANCE OF SHARE CAPITAL AND RESERVES (OWN FUNDS) WAS RS. 441. 25 CRORES. DURING THE YEAR THE PROFIT OF RS, 51.80 CRORES WAS ADDED T O SUCH NON-INTEREST- BEARING FUNDS AVAILABLE WITH THE ASSESSEE. THE CLOS ING BALANCE WAS THEREFORE RS. 493.05 CRORES. THUS, THE OWN FUNDS FA R EXCEEDED THE AMOUNT OF LOAN. MOREOVER, IN APPELLANT'S OWN CASE T HE ITAT HAS, IN ITA NO. 2431/AHD/96 FOR AY 1991-92, DELETED THE ADD ITION OF NOTIONAL INTEREST ON ADVANCES MADE TO THE SAME THREE PARTIES . ACCORDINGLY, IT IS HELD, FOLLOWING THE DECISIONS OF THE SUPREME COURT IN THE CASE OF MUNJAL SALES CORPORATION AND THE ITAT AS ABOVE, THA T THE ADDITION OF RS. 18,10,219/- (BEING NOTIONAL INTEREST) WAS NOT W ARRANTED AND IS DIRECTED TO BE DELETED. 6. WE FIND THAT THERE IS A FINDING OF FACT GIVEN BY THE LD. CIT(A) THAT THE OPENING BALANCE OF SHARE CAPITAL AND RESERVE (OWN F UNDS) WAS RS. 441.25 CRORES. DURING THE YEAR, THE PROFIT OF 51.80 CRORE WAS ADDED TO SUCH NON INTEREST BEARING FUNDS AVAILABLE WITH THE ASSESSEE. THE CLOSING BALANCE WAS, THEREFORE, AT RS. 493.05 CRORE. THUS, THE OPENING INTEREST FREE FUNDS FAR EXCEEDED THE AMOUNT OF LOAN. THIS FACT IS NOT DISP UTED BY THE REVENUE. WE FIND THAT LD. CIT(A) HAS ALSO OBSERVED THAT THE CO- ORDINATE BENCH OF THIS TRIBUNAL IN ITA NO. 2431/AHD/1996 A.Y. 1991-92 IN A SSESSEES OWN CASE DELETED SIMILAR ADDITION OF NOTIONAL INTEREST ON AD VANCES MADE TO SAME THREE PARTIES. IN THIS VIEW OF THE MATTER, WE DO NOT FIN D ANY INFIRMITY INTO THE ORDER OF LD. CIT(A) AS HE HAS RIGHTLY FOLLOWED THE ORDER OF HONBLE SUPREME COURT RENDERED IN THE CASE OF MUNJAL SALES CORPORATION (SUPRA). THEREFORE, THIS GROUND OF THE REVENUES APPEAL IS R EJECTED. ITA NO. 476/AHD/2010 & CO NO. 92/AHD/2010 A.Y.199 2-93 PAGE NO THE DCIT., VS. GUJARAT STATE FERTILIZER& CHEMICALS LTD. 5 7. GROUND NO. 2 IS AGAINST THE DEPRECIATION ALLOWED BY THE LD. CIT (A) U/S 32 OF THE ACT. LD. CIT-D.R., SRI SHELLY JINDAL , SUBMITTED THAT THE ORDER OF THE LD. CIT(A) IS ERRONEOUS AND NOT JUSTIFIED. HE SUBMITTED THAT THE ASSESSEE HAS CLAIMED INSTALLATION OF COMMISSIONING OF INTEGRATED WASTE INCINERATION (IWI) UNIT. HE SUBMITTED THAT THE AS SESSEE HAS NOT PLACED COGENT EVIDENCE SUGGESTING THAT THE PLANT AND MACHI NERY WERE PUT TO USE. HE FURTHER SUBMITTED THAT EVEN THE DIRECTION OF THE HONBLE ITAT HAS NOT BEEN FOLLOWED IN LETTER AND SPIRIT. ON THE CONTRAR Y, LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ADDITIONS MADE CAN BE C ATEGORIZED IN FOUR CATEGORIES AS HAS BEEN DONE BY THE LD. CIT(A). HE SUBMITTED THAT IN PARA 4.2 OF THE ORDER OF LD. CIT(A), FIRST CATEGORY IS W DV AS ON 01-04-1991 AND IT PERTAINS TO PLANT AND MACHINERY WHICH HAD BEEN I NSTALLED IN MARCH, 1991 I.E. IN THE PREVIOUS YEAR RELEVANT TO THE ASSESSMEN T YEAR 1991-92. HE SUBMITTED THAT IN EARLIER YEAR, THE TRIBUNAL HAS AL SO ALLOWED DEPRECIATION IN RESPECT OF THIS ITEM NO. 1. HE FURTHER SUBMITTED T HAT ITEM NO. 2 RELATES TO THE ADDITIONS TO ASSETS PUT INTO USE DURING FINANCIAL Y EAR 1990-91 BUT ACCOUNTED IN THE FINANCIAL YEAR 1991-92. HE SUBMITTED THAT A LL THESE ASSETS WERE COMMISSIONED IN THE EARLIER YEAR. HE SUBMITTED THA T ONCE CAPITALIZED THE DEPRECIATION CANNOT BE DENIED. HE SUBMITTED THAT I TEM NO. 3 IS RELATED TO THE ADDITION TO PLANT AND MACHINERY MADE DURING THE FIN ANCIAL YEAR 1991-92. HE SUBMITTED THAT THESE RELATES TO THE MACHINERY WHICH WERE DIRECTLY RELATED TO THE MANUFACTURING PROCESS. HE SUBMITTED THAT LD. C IT(A) DIVIDED THE INCLINATORY UNIT AND OTHERS. LEARNED COUNSEL FOR T HE ASSESSEE HAS DRAWN OUR ATTENTION TO PAGE NO. 67 OF THE PAPER BOOK WHEREIN THE SUBMISSIONS OF THE ASSESSEE BEFORE THE ASSESSING OFFICER ARE ENCLOSED. HE ALSO DREW OUR ITA NO. 476/AHD/2010 & CO NO. 92/AHD/2010 A.Y.199 2-93 PAGE NO THE DCIT., VS. GUJARAT STATE FERTILIZER& CHEMICALS LTD. 6 ATTENTION TO PAGE NO. 100 OF THE PAPER BOOK WHERE C ERTIFICATE BY THE EXECUTIVE DIRECTOR (CAPRO PROJ) OF THE ASSESSEE COM PANY IS ENCLOSED. 8. WE HAVE HEARD RIVAL SUBMISSIONS PERUSED THE MATE RIAL AVAILABLE ON RECORD. WE FIND THAT THE CO-ORDINATE BENCH IN ITA NO. 735/AHD/1999 IN REVENUES APPEAL HAD REMITTED THIS ISSUE BACK TO TH E FILE OF THE ASSESSING OFFICER FOR EXAMINING THE ASSESSEES CLAIM WITH REF ERENCE TO THIS CLAIM OF CONNECTIVITY OF RELEVANT FACILITIES WITH THE MAIN ( OLD PLANT) AND ALSO ITS ACTUAL USER, AND ADJUDICATE ON THE MATTER IN ACCORDANCE WI TH LAW BY PASSING A SPEAKING ORDER. IT WAS FURTHER DIRECTED THAT THE O NUS TO PROVIDE ALL NECESSARY MATERIAL TO ESTABLISH OF THIS CLAIM OF USER WOULD B E CLEARLY ON THE ASSESSEE. HOWEVER, IT WAS CLARIFIED THAT THE ASSESSEES OBLIG ATION WOULD EXTEND ONLY TO THE ASSETS FOR WHICH THERE HAS BEEN NO POSITIVE FIN DING THAT THEY ARE PUT TO USE BY THE TRIBUNAL SUCH AS THOSE STATED TO BE COMM ISSIONED DURING THE PRESENT YEAR. WE FIND THAT THE LD. CIT(A) HAS DECI DED THE ISSUE IN PARA 4.2 TO 4.3 AS UNDER:- 4.2 1 HAVE CONSIDERED THE SUBMISSIONS OF THE LD. A .R. AND THE FACTS OF THE CARE. FROM THE RECORD IT IS SEEN THAT IN THE P ROCEEDINGS U/S L43(3)/254, NO EFFORT HAS BEEN MADE TO FIND OUT THE CONNECTIVITY BETWEEN THE IMPUGNED ASSETS AND THEIR USE IN CAPROL ACTUM -I UNIT. TOWARDS THIS END, THE DETAILS OF THE ASSETS IN QUES TION AS WELL AS THE MANUFACTURING PROCESS, PLANT LAY-OUT ETC., WERE EXA MINED IN APPELLATE PROCEEDINGS. FROM THE DETAILS FILED, THE FOLLOWING POSITION CAN BE CULLED OUT:- SR. NO. PARTICULARS CAPITALIZED AMOUNT DEPRECIATION 1. WDV AS ON 01.04.91 38,73,66,757/- 9,48,74,358/- 2. ADJUSTMENT/ADDITIONS TO ASSETS DURING FY 2,99,28,593/- 74,82,148/- ITA NO. 476/AHD/2010 & CO NO. 92/AHD/2010 A.Y.199 2-93 PAGE NO THE DCIT., VS. GUJARAT STATE FERTILIZER& CHEMICALS LTD. 7 1990-91 ACCOUNTED FOR FY 1991-92 3. ADDITIONS TO PLANT AND MACHINERY DURING FY 1991-92 56,89,27,290/- 17,26,194/- 4. ADDITIONS TO OTHER ASSETS DURING FY 91- 92 7,37,40,487/- 81,72,545/- TOTAL 1,05,99,63,127/- 28,31,73,245/- 4.2.1 WDW AS ON 01.04.1991: THIS PERTAINS TO PLANT AND MACHINERY WHICH HAD BEEN INSTALLED IN THE PREVIOUS YEAR RELEV ANT TO AY 1991-92, I.E.. THE IMMEDIATELY PRECEDING FINANCIAL YEAR. DE PRECIATION HAD BEEN CLAIMED AND ALLOWED IN RESPECT OF THE IMPUGNED ASSE TS. THIS FACT IS NOT IN DOUBT. THE AO HAS ALSO ACCEPTED THIS POSITION. IN THE EARLIER YEAR, I.E., IN APPEAL FOR AY 1991-92, THE ITAT HAS ALSO A LLOWED DEPRECIATION IN RESPECT OF ASSETS INCLUDED AT ITEM NO. 1 IN THE TABLE ABOVE. ONCE THE ASSETS HAD BEEN PUT TO USE IN AN EARLIER YEAR AND D EPRECIATION HAD BEEN ALLOWED THEREON, SUCH ASSETS WILL FORM AN INTE GRAL PART OF THE GROSS BLOCK. NO JUSTIFICATION THEREFORE EXISTS FOR DENYING DEPRECIATION IN RESPECT OF THE ASSETS HAVING WDV OF RS. 38,73,66 ,757/-. ACCORDINGLY, THE DISALLOWANCE OF DEPRECIATION AMOUN TING TO RS. 9,48,74,358/- IS DIRECTED LO BE DELETED. 4.2.2 ADJUSTMENT/ADDITIONS TO ASSETS DURING FY 1990-91 AC COUNTED FOR IN AY 1991-92 : THIS AMOUNT OF RS. 2,99,28,593/-REPRESENTS THE ADDITIONAL COST OF ASSETS ALREADY CAPITALIZED IN TH E EARLIER YEAR. DEPRECIATION THEREON HAD BEEN CLAIMED AND ALSO ALLO WED. THE ADDITIONAL DEPRECIATION OF RS. 74,62,148/- WAS ON A CCOUNT OF FURTHER PAYMENTS MADE TO SUPPLIERS OF THE EQUIPMENT IN RESP ECT OF ASU (AIR SEPARATION UNIT) AND PIPE RACK, WATER DE-MINERALIZA TION PLANT, ELECTRICAL INSTALLATION, SPHERICAL VESSEL AND COOLI NG TOWERS. ALL THESE ASSETS WERE COMMISSIONED IN MARCH, 1991, I.E., IN T HE EARLIER YEAR. THE ADDITIONAL PAYMENTS WERE MADE ON ACCOUNT OF FIN AL SETTLEMENT OF BILLS AND OTHER ADJUSTMENTS. CLEARLY PAYMENTS WERE MADE IN RESPECT OF CAPITAL ITEMS. SUCH CAPITAL ITEMS HAD BEEN PUT TO U SE IN THE EARLIER YEAR. THIS EXPENDITURE HAS THEREFORE BEEN RIGHTLY CAPITALIZED. ONCE CAPITALIZED, DEPRECIATION THEREON CANNOT BE DENIED. ACCORDINGLY, THE DISALLOWANCE OF RS. 74,82,148/- IS DIRECTED TO BE D ELETED. ITA NO. 476/AHD/2010 & CO NO. 92/AHD/2010 A.Y.199 2-93 PAGE NO THE DCIT., VS. GUJARAT STATE FERTILIZER& CHEMICALS LTD. 8 PLANT AND MACHINERY DURING FY 1991-92 COMMISSIONING OF INTEGRATED WASTE INCINERATION (IWI )_UNIT: THIS RELATES TO MACHINERY WHICH DIRECTLY WAS RELATED TO THE MANUFACTURING PROCESS. THE SAME CAN BE FURTHER BROKEN DOWN INTO I NTEGRATED WASTE INCINERATION UNIT (COST: RS. 26,55,81,320/- AND DEP RECIATION RS. 13,27,90,660/-) AND OTHERS'. WORKING OF THE SAME I S AS UNDER: ITEM COST DEPRECIATION (1) INCINERATOR UNIT RS. 26,55,81,320 RS. 13,27.90,660 (2) OTHERS RS, 30,33,45,970 RS. 3,98,53,534 TOTAL RS. 56,89,27,290 RS, 17,26,44,194 SO FAR AS THE IWI UNIT IS CONCERNED, IT WAS SUBMITT ED BY THE ID. AR THAT IN THE PROCESS OF MANUFACTURING OF CHEMICALS, CERTAIN WASTE PRODUCTS WERE ALSO PRODUCED BY THE WAY OF BYPRODUCT . THESE WASTE PRODUCTS WERE INCINERATED IN THE IWUJ FOR PRODUCING STEAM, WHICH WAS USED IN THE MANUFACTURING PROCESS. THUS, THE IW IU HELPED IN RECOVERING VALUABLE THERMAL UNITS FROM THE WASTE PR ODUCTS. THE IWIU WAS A UTILITY ITEM WHICH INCINERATED THE WASTE PROD UCT OF EXISTING CAPROLACTUM-I UNIT AND WAS DESIGNED TO ALSO INCINER ATE THE WASTE PRODUCTS OF CAPROLACTUM-II UNIT AS AND WHEN THE SAM E WAS COMMISSIONED. SINCE THE IWIU WAS ACTUALLY PUT TO U SE DURING THE YEAR, DEPRECIATION HAD BEEN RIGHTLY CLAIMED THEREON . 4.2.4 INCINERATOR UNIT: IT IS SEEN THAT THE INC INERATION UNIT WAS AN INTEGRAL PART OF THE ENTIRE MANUFACTURING PROCESS A ND WAS DESIGNED TO INCINERATE THE WASTE MATERIAL OF BOTH CL-L & CL-II UNITS. THE APPELLANT FILED COPIES OF THE COMMISSIONING ISSUED BY THE EXECUTIVE DIRECTOR OF CAPROLACTUM PROJECT TO SHOW THAT HAD A CTUALLY BEEN PUT TO USE. SINCE THE IMPUGNED ASSET HAD FULL CONNEC TIVITY TO THE EXISTING UNIT, AND HAD BEEN ACTUALLY PUT TO USE, IT IS HELD THAT THE DEPRECIATION AMOUNTING TO RS. 13,27,90,661/- WOULD HE ALLOWABLE. ACCORDINGLY THE DISALLOWANCE OF THIS AMOUNT IS DIRE CTED TO BE DELETED. ITA NO. 476/AHD/2010 & CO NO. 92/AHD/2010 A.Y.199 2-93 PAGE NO THE DCIT., VS. GUJARAT STATE FERTILIZER& CHEMICALS LTD. 9 4.2.5 OTHERS: SO FAR AS THE PLANT AND MACHINERY MENTIONED UNDER 'OTHERS' (RS. 30,33,456,970/-) ABOVE IS CONCERNED, FROM THE DETAILS FILED IT IS SEEN THAT CERTAIN ITEMS WERE INTEGRALLY CONNECTED TO THE EXISTING UNIT WHEREAS CERTAIN OTHERS WERE NOT. THE DETAILS IN THIS REGARD ARE AVAILABLE AT ANNCXURE-5 TO THE LETTER DA TED 05.10.2006 FILED BEFORE THE AO ON 10.10.2006 DURING THE PROCEE DINGS U/S 143(3)/254. FROM A PERUSAL THEREOF IT IS SEEN THAT LANK FARMS WERE UTILIZED FOR STORAGE OF FINISHED PRODUCTS AS WELL A S INTERMEDIATE PRODUCTS IN RESPECT OF BOTH CL-I & CL-II UNITS. HEN CE, THE SAME WERE CLEARLY CONNECTED TO THE OLD AS WELL AS NEW UNITS. SIMILARLY, PIPING, CHILLED WATER UNIT, PIPE RACK, BOOSTER COMPRESSOR A ND COALING WATER PIPING ARE COMMON TO BOTH THE OLD AND NEW UNITS. TH E TOTAL VALUE OF THE SAID ASSETS COMES TO RS. 6,45,40,259/-. THE DEP RECIATION THEREON HAS BEEN CLAIMED AT RS. 95,52,821/-. SINCE THESE AS SETS HAVE BEEN HELD TO HAVE CLEARLY WITH THE EXISTING (OLD) PLANT, THE DISALLOWANCE TO THE EXTENT OF RS. 95,52,821/-IS DIRECTED TO BE DELETED. IN REJECT OF PLCS (PROGRAMME LINK CONTROL SYSTEM), OVERHEAD CRANES, F IRE PROTECTION SYSTEM. PSAU (PRESSURE SWING ABSORPTION UNIT) AND A IR CONDITIONERS, IT IS CLEAR THAT THE SAME WERE INTENDED FOR ONLY IN THE NEW CL-II UNITS. ADMITTEDLY THEY HAVE NOT BEING PUT TO USE DURING TH E YEAR EXCEPT FOR TESTING PURPOSES. THESE ITEMS HAVE NOT BEEN USED IN THE MANUFACTURING PROCESS. THEY WORE NOT FULLY COMMISSIONED, ALTHOUGH INSTALLED. THE REQUIREMENT FOR CLAIMING DEPRECIATION IS THAT THE A SSET MUST BE BOTH INSTALLED AS WELL AS PUT TO USE DURING THE YEAR. SI NCE THE SECOND CONDITION HAS NOT BEEN FULFILL ED DURING THIS YEAR, IT IS HELD THAT THE AO HAS RIGHTLY DISALLOWED DEPRECIATION OF RS. 1,90,80. 843/- ON THESE ITEMS HAVING VALUE OF RS. 15,26,46 747/-. THE AO IS HOW EVER, DIRECTED TO ALLOW DEPRECIATION ON THESE ITEMS IN THE YEAR IN WH ICH THEY WERE PUT TO USE. FURTHER, IT IS SEEN THAT THE AGGREGATE VALU E OF ASSETS (RS. 30,33,45,990/-) INCLUDES RS. 8,61,58,963/-, BEING C APITALIZATION OF PREOPERATIVE EXPENSES AND MATERIALS FOR THE ABOVE M ENTIONED ITEMS. THE SAME IS APPORTIONED BETWEEN THE ASSETS IN RESPE CT OF WHICH DEPRECIATION HAS BEEN ALLOWED/DISALLOWED IN THE SAM E RATIO, I.E. 29.72:70.28. FOLLOWING THIS RATIO, 29.72% OF THE PR EOPERATIVE EXPENSES/MATERIALS ARE ALLOCATED TO THOSE ASSET S HAVING DIRECT INACTIVITY TO THE OLD PLANT, AND 70.28% IS HELD TO HE UNCONNECTED TO THE OLD PLANT. ACCORDINGLY, 29.72% (I.E. RS, 32, 00,805/-) OUT OF THE TOTAL DEPRECIATION CLAIM OF RS. 1,07,69,870/- IN RE SPECT OF PREOPERATIVE EXPENSES IS ALLOWED AND THE BALANCE OF RS. 75,69,065/- ITA NO. 476/AHD/2010 & CO NO. 92/AHD/2010 A.Y.199 2-93 PAGE NO THE DCIT., VS. GUJARAT STATE FERTILIZER& CHEMICALS LTD. 10 BEING 70.28% THEREOF, IS HELD TO HAVE BEEN CORRECTL Y DISALLOWED BY THE AO. 4.3.4 OTHER ASSESTS DURING F.Y. 91-92 'OTHERS RELATES TO BUILDING IN WHICH THE UTILITIES WERE HOUSED AND IT ALSO INCLUDE S OFFICE EQUIPMENT, ETC. SINCE THE UTILITIES HAVE BEEN HELD TO HAVE B EEN PUT TO USE DURING THE YEAR, NATURALLY THE BUILDING IN WHICH THE SAME WERE HOUSED WOULD QUALIFY FOR DEPRECIATION. THE OFFICE EQUIPMENT WERE ALSO UTILIZED FOR THE BUSINESS PURPOSES DURING THE YEAR AND WOULD THU S BE ELIGIBLE FOR CLAIMING DEPRECIATION. ACCORDINGLY, THE DISALLOWANC E THEREON AMOUNTING TO RS. 81,72,545/- IS DIRECTED TO BE DEL ETED. 9. WE FIND THAT THE LD. CIT(A) IN PARA 4.2 HAS DESC RIBED AS UNDER:- 4.2 1 HAVE CONSIDERED THE SUBMISSIONS OF THE LD. A .R. AND THE FACTS OF THE CARE. FROM THE RECORD IT IS SEEN THAT IN THE P ROCEEDINGS U/S L43(3)/254, NO EFFORT HAS BEEN MADE TO FIND OUT THE CONNECTIVITY BETWEEN THE IMPUGNED ASSETS AND THEIR USE IN CAPROL ACTUM -I UNIT. TOWARDS THIS END, THE DETAILS OF THE ASSETS IN QUES TION AS WELL AS THE MANUFACTURING PROCESS, PLANT LAY-OUT ETC., WERE EXA MINED IN APPELLATE PROCEEDINGS. FROM THE DETAILS FILED, THE FOLLOWING POSITION CAN BE CULLED OUT:- SR. NO. PARTICULARS CAPITALIZED AMOUNT DEPRECIATION 1. WDV AS ON 01.04.91 38,73,66,757/- 9,48,74,358/- 2. ADJUSTMENT/ADDITIONS TO ASSETS DURING FY 1990-91 ACCOUNTED FOR FY 1991-92 2,99,28,593/- 74,82,148/- 3. ADDITIONS TO PLANT AND MACHINERY DURING FY 1991-92 56,89,27,290/- 17,26,194/- 4. ADDITIONS TO OTHER ASSETS DURING FY 91- 92 7,37,40,487/- 81,72,545/- TOTAL 1,05,99,63,127/- 28,31,73,245/- ITA NO. 476/AHD/2010 & CO NO. 92/AHD/2010 A.Y.199 2-93 PAGE NO THE DCIT., VS. GUJARAT STATE FERTILIZER& CHEMICALS LTD. 11 10. SO FAR THE ITEM NO. 1 ABOVE IS CONCERNED, WE D O NOT FIND ANY INFIRMITY INTO THE ORDER OF LD. CIT(A) AS THE DEPRE CIATION ON THE SAME HAS BEEN ALLOWED BY THE CO-ORDINATE BENCH IN THE EARLI ER YEAR. 11. FOR ITEM NO. 2, THERE IS A FINDING GIVEN BY THE LD. CIT(A) THAT THE ASSETS WERE COMMISSIONED IN EARLIER YEAR AND THE AD DITIONAL PAYMENTS WERE MADE ON ACCOUNT OF FINAL SETTLEMENT AND OTHER ADJUS TMENTS. SUCH CAPITAL ITEM HAD BEEN PUT TO USE IN EARLIER YEAR. ALTHOUGH THE REVENUE HAS NOT PLACED ANY CONTRARY MATERIAL REBUTTING THE FINDING OF THE LD. CIT(A), BUT AT THE SAME TIME, THE ASSESSEE HAS ALSO NOT PLACED ANY MATERIAL BEFORE US WHICH SUPPORTS THIS FINDING OF THE LEARNED CIT (A) AND IN THE ORDER OF LEARNED CIT (A) ALSO, THERE IS NO MENTION ABOUT ANY BASIS AS PE R WHICH THIS FINDING IS GIVEN BY HIM. THE FINDING OF LEARNED CIT (A) AS REP RODUCED ABOVE IS THIS THAT THE ADDITIONAL DEPRECIATION OF RS. 74,62,148/- WAS ON ACCOUNT OF FURTHER PAYMENTS MADE TO SUPPLIERS OF THE EQUIPMENT IN RESP ECT OF ASU (AIR SEPARATION UNIT) AND PIPE RACK, WATER DE-MINERALIZA TION PLANT, ELECTRICAL INSTALLATION, SPHERICAL VESSEL AND COOLING TOWERS. IN THE ABSENCE OF ANY FINDING THAT THESE ITEMS WERE PART OF THE ASSETS CA PITALIZED IN THE EARLIER YEAR ON WHICH DEPRECIATION WAS ALLOWED BY THE TRIBUNAL, THIS FINDING OF LEARNED CIT (A) CANNOT BE SUSTAINED. NO MATERIAL IS INDICAT ED BY LEARNED CIT (A) AND NOTHING IS AVAILABLE IN THE PAPER BOOK TO SHOW THAT SOME AMOUNT WAS CAPITALIZED IN EARLIER YEAR ALSO FOR THESE EQUIPMEN TS I.E. ASU, PIPE RACK, WATER DE MINERALISATION PLANT ETC. AND HOW MUCH A MOUNT WAS CAPITALIZED IN THAT YEAR AND THE RELEVANT CORRESPONDENCE TO SHO W THAT ADDITIONAL AMOUNT PAID IN THE PRESENT YEAR IS IN RESPECT OF THOSE ITE MS ONLY WHICH WERE PUT INTO USE IN MARCH 1991 AND WHY THAT WAS NOT CAPITALIZED IN THAT YEAR. IT MAY BE DUE TO EXCHANGE FLUCTUATION IF THESE ARE IMPORTED I TEMS AND IN THAT CASE, THE ITA NO. 476/AHD/2010 & CO NO. 92/AHD/2010 A.Y.199 2-93 PAGE NO THE DCIT., VS. GUJARAT STATE FERTILIZER& CHEMICALS LTD. 12 CLAIM IS ALLOWABLE. THAT IS ONE EXAMPLE. THERE MAY BE OTHER SITUATION ALSO BUT THE FACTS ARE TO BE BROUGHT ON RECORD WITH COGE NT EVIDENCE AND MERE GENERAL SUBMISSION IS NOT SUFFICIENT. HENCE, WE SET ASIDE THE ORDER OF LEARNED CIT (A) ON THIS PART OF THE CLAIM AND RESTORE THE M ATTER BACK TO HIS FILE FOR A FRESH DECISION AS PER ABOVE DISCUSSION AFTER PROVID ING ADEQUATE OPPORTUNITY OF BEING HEARD TO BOTH SIDES. 12. FOR ITEM NO. 3 AND 4 RELATING PARTLY TO PLANT A ND MACHINERY AND PARTLY TO OTHER ITEMS ACQUIRED DURING THE FINANCIAL YEAR 1 991-92, WE FIND THAT NEITHER THE ASSESSING OFFICER NOR THE LD. CIT (A) H AS COMPLIED WITH DIRECTIONS OF THE TRIBUNAL IN FIRST ROUND WHEREIN I T HAS BEEN SPECIFICALLY DIRECTED TO EXAMINE THE ASSESSEES CLAIM OF CONNECT IVITY OF THE RELEVANT FACILITIES WITH THE MAIN PLANT AND ALSO THEIR ACTUA L USER AND ADJUDICATE ON THE MATTER IN ACCORDANCE WITH LAW. SO FAR THE ASSESSEE HAS ALSO NOT FURNISHED THE MATERIAL SUGGESTING THAT HE PLANT WAS PUT TO USE. THE ASSESSEE HAS RELIED ON THE CERTIFICATE ISSUED BY EXECUTIVE DIRECTOR OF THE ASSESSEE-COMPANY. IN THE CERTIFICATE, IT HAS BEEN MENTIONED THAT THE INTEGRA TED WASTE INCINERATION UNIT IS SPECIALIZED TO RECOVER WASTE HEAT THROUGH GENERA TION OF THE STEAM BY BURNER CONCENTRATED WASTE STREAMS. BESIDES EFFICIE NTLY RECOVERING ENERGY, THE EQUIPMENT IS ALSO TO RECOVER CHEMICALS LIKE SOD A ASH WHICH OTHERWISE WOULD HAVE BEEN DISPOSED OFF AS EFFLUENT. THERE IS NOTHING ON RECORD SUGGESTING THAT THIS UNIT WAS PUT TO USE AND CONNEC TED WITH THE OLD PLANT. 13. THERE IS ALSO NO FINDING BY THE LD. CIT (A) THA T HOW MUCH SODA ASH WAS RECOVERED BY THE UNIT. WE FIND THAT THE LD. C IT(A) HAS RELIED ON THE CERTIFICATE ISSUED BY THE EXECUTIVE DIRECTOR OF THE ASSESSEE-COMPANY AND CAME TO THE CONCLUSION THAT THE PLANT WAS ACTUALLY BEEN PUT TO USE. DURING THE PROCEEDINGS BEFORE THE TRIBUNAL, A QUERY WAS RA ISED TO THE LD. AR OF THE ITA NO. 476/AHD/2010 & CO NO. 92/AHD/2010 A.Y.199 2-93 PAGE NO THE DCIT., VS. GUJARAT STATE FERTILIZER& CHEMICALS LTD. 13 ASSESSEE AS TO WHETHER ANY OTHER EVIDENCE IS AVAILA BLE TO PROVE THAT THIS UNIT WAS ACTUALLY PUT TO USE IN ADDITION TO THE CERTIFIC ATE OF E.D. IN RESPONSE TO THIS QUERY, LD. A.R. SUBMITTED THAT THE CERTIFICATE ISSUED BY THE EXECUTIVE DIRECTOR OF THE ASSESSEE-COMPANY IS SUFFICIENT EVID ENCE TO PROVE THAT THE PLANT AND MACHINERY WAS ACTUALLY PUT TO USE. THIS CONTENTION OF THE A.R. IS NOT ACCEPTABLE IN VIEW OF THE FACT THAT THE CERTIFI CATE ITSELF SPEAKS THAT BESIDES EFFICIENTLY RECOVERING ENERGY, THE EQUIPMENT IS ALS O ABLE TO RECOVER CHEMICAL SUCH AS SODA ASH WHICH OTHERWISE WOULD HAVE BEEN DI SPOSED OFF AS EFFLUENT. NEITHER BEFORE THE ASSESSING OFFICER NOR AT ANY STA GE THEREAFTER, THE ASSESSEE HAS PLACED ANYTHING ON RECORD SHOWING THE DETAILS O F SODA ASH RECOVERED. IN THE ABSENCE OF SUPPORTING EVIDENCE, WE CANNOT CO ME TO A POSITIVE FINDING THAT THE UNIT WAS IN FACT PUT TO USE AND THE ASSESS EE WAS ENTITLED TO DEPRECIATION AS CLAIMED. HOWEVER, NO EFFORT HAS BE EN MADE BY THE ASSESSING OFFICER OR THE LD. CIT(A) TO FIND OUT THE CONNECTIVITY OF THIS UNIT WITH OLD UNIT AS WELL AS THE FACT WHETHER THIS UNIT WAS PUT TO USE ON 31TH MARCH, 1992 AS CLAIMED BY THE ASSESSEE. IN THIS VI EW OF THE MATTER, THIS ISSUE IS REMITTED BACK TO THE FILE OF LD. CIT (A) T O DECIDE IT AFRESH AFTER EXAMINING AS TO WHETHER THE UNIT WAS IN FACT PUT TO USE ON 31TH MARCH, 1992 AND WAS CONNECTED WITH THE OLD PLANT AND HOW MUCH S ODS ASH ETC. WAS GENERATED BY PUTTING TO USE THIS UNIT. SINCE WE HA VE REMITTED BACK THE ISSUE OF INCINERATION UNIT, FOR THE 4 TH ITEM I.E. OTHERS ALSO, WE REMIT THE ISSUE TO LEARNED CIT (A) TO DECIDE IT AFRESH. WE WANT TO MAK E IT CLEAR THAT THE BURDEN IS ON THE ASSESSEE TO BRING COGENT MATERIAL ON RECO RD TO ESTABLISH THAT THESE ITEMS ARE PUT TO USE IN THIS YEAR AND THE LEARNED C IT (A) SHOULD PASS NECESSARY ORDER AS PER LAW AFTER PROVIDING ADEQUATE OPPORTUNITY TO BOTH SIDES. ITA NO. 476/AHD/2010 & CO NO. 92/AHD/2010 A.Y.199 2-93 PAGE NO THE DCIT., VS. GUJARAT STATE FERTILIZER& CHEMICALS LTD. 14 NOW WE TAKE UP THE CROSS OBJECTION NO. 92/AHD/2010 OF THE ASSESSEE 11. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS:- (1) THE LEARNED CIT (A) ERRED IN LAW AND ON FACTS IN UPHOLDING ORDER OF LEARNED ASSESSING OFFICER IN DISALLOWING C LAIM OF DEPRECIATION TO THE EXTENT OF RS. 1,90,80,843/- IN RESPECT OF PLANT & MACHINERIES LIKE LINKED CONTROL SYSTEM, OVERHEAD CR ANES, FIRE PROTECTION SYSTEM, PRESSURE SWING ABSORPTION UNIT A ND AIR- CONDITIONERS IN SPITE OF HOLDING IN PARA 4.2.5 OF H IS ORDER THAT THE SAME WERE INSTALLED DURING THE YEAR. (2) THE LEARNED CIT(A) ERRED IN LAW AND ON FACTS IN UPHOLDING DISALLOWANCE OF DEPRECIATION OF RS. 75,69,065/- IN RESPECT OF A PORTION OF PRE-OPERATIVE EXPENDITURE APPORTIONED TO ASSETS MENTIONED IN GROUND NO. 1 ABOVE. IT IS SUBMITTED THAT IT BE SO HELD NOW. (3) THE LEARNED CIT(A) ERRED IN NOT GIVING DIRECTIO N TO ALLOW THE DEPRECIATION ON THE SAID PRE-OPERATIVE EXPENDITURE APPORTIONED TO SUCH ASSETS IN THE YEAR IN WHICH THE SAME ARE PUT T O USE. (4) THE LEARNED CIT(A) WHILE UPHOLDING THE ORDER OF LEARNED A.O. TO THE EXTENT OF DISALLOWANCE OF DEPRECIATION MENTI ONED IN GROUND NOS. 1 & 2 ABOVE FAILED TO ADJUDICATE ON AN AMOUNT OF RS. 4,50,000/- OF DEPRECIATION CLAIMED BY THE ASSESSEE WHICH CAME TO BE DISALLOWED BY LEARNED A.O. (5) HONBLE CIT(A) ERRED IN NOT DECIDING GROUND NO. 4 ON CHARGING INTEREST U/S 234B OF THE I.T. ACT. 12. THE GROUNDS 1 TO 4 IN CROSS OBJECTION ARE INTER CONNECTED AND, THEREFORE, ARE HEARD TOGETHER AND DISPOSED OF TOGET HER. SINCE WE HAVE REMITTED THE ISSUE RELATED TO DEPRECIATION ON INCIN ERATION UNIT AND OTHERS AS MENTIONED IN PARA 3.2 AND PARA 4.2.5 TO THE FILE OF LD. CIT (A), THESE GROUNDS OF THE CROSS OBJECTION ALSO HAVE TO GO BACK TO THE LEARNED CIT (A) FOR FRESH DECISION AND HE SHOULD DECIDE AFRESH FOR THESE ITEMS ALSO. FOR ITA NO. 476/AHD/2010 & CO NO. 92/AHD/2010 A.Y.199 2-93 PAGE NO THE DCIT., VS. GUJARAT STATE FERTILIZER& CHEMICALS LTD. 15 GROUND NO. 5 ABOUT INTEREST U/S 234B, IT IS HELD TH AT THIS ISSUE IS CONSEQUENTIAL AND HENCE THIS GROUND IS REJECTED. 12. IN THE RESULT, THE APPEAL OF THE REVENUE AND C. O. OF THE ASSESSEE, BOTH ARE PARTLY ALLOWED FOR STATISTICAL PURPOSE. SD/- SD/- (A.K. GARODIA) (KUL BHARAT) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD : DATED 28/02/2013 AK / COPY OF ORDER FORWARDED TO:- 1. / APPELLANT 2. / RESPONDENT 3. / CONCERNED CIT 4. - / CIT (A) 5. , ! , '# / DR, ITAT, AHMEDABAD 6. $% &' / GUARD FILE. BY ORDER/ , /TRUE COPY/ ( / ' ) ! , '# STRENGTHENED PREPARATION & DELIVERY OF ORDERS IN TH E ITAT 1) DATE OF TAKING DICTATION 09-01-2013 2) DIRECT DICTATION BY MEMBER STRAIGHT ON COMPUTER/LAPTOP/DRAGON DICTATE N.A. 3) DATE OF TYPING & DRAFT ORDER PLACE BEFORE MEMBER 11-01-2013 4) DATE OF CORRECTION 5) DATE OF FURTHER CORRECTION 6) DATE OF INITIAL SIGN BY MEMBERS 27/02 7) ORDER UPLOADED ON 8) ORIGINAL DICTATION PAD HAS BEEN ENCLOSED IN THIS FILE YES 9) ORDER SENT TO BENCH CLERK 28/02