Sarvaraya Sugers Limited, V. THE DCIT, Kakinada

ITA 577/VIZ/2014

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 6474 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 3 year(s) 1 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-12-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2010-2011
• Appeal Filed On: 29-10-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R M MADHAVI
• Keywords: Capital asset; Depreciation; Revenue expenditure
• Section: 43B

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM . , . . , BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER & SHRI D.S. SUNDER SINGH , ACCOUNTANT MEMBER . / I . T .A.NO .577 / VIZ / 201 4 ( / ASSESSMENT YEAR: 20 10 - 11 ) M/S SRI SARVARAYA SUGARS LTD. CHELLURU RAYAVARAMMANDALAM EAST GODAVARI DISTRICT [ PAN : AA E CS6 55 4N] VS. JT .COMMISSIONER OF INCOME TAX, KAKINADA RANGE KAKINADA ( / APPELLANT) ( / RESPONDENT) / APPELLANT BY : SHRI G.V.N.HARI , A R / RESPONDENT BY : S MT.R. M.M ADHAVI , DR / DATE OF HEARING : 2 8 . 11 .2017 / DATE OF PRONOUNCEMENT : 20 . 1 2 .2017 / O R D E R PER D.S. SUNDER SINGH , ACCOUNTANT MEMBER : 1 . TH IS APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME - TAX (APPEALS) [CIT(A)], VI S A KHAPATNAM VIDE 2 ITA NO . 577 /VIZ/201 4 M/S SRI SARVARYA SUGARS LTD., CHELLURU ORDER NO.0128/2013 - 14/AC C - 1,KKD/2014 - 15 D ATED 14.08.2014 FOR THE A.Y. 20 10 - 11 . 2 . GROUND NO.1 AND 5 ARE GENERAL IN NATURE WHICH DOES NOT REQUIRE SPECIFIC ADJUDICATION. 3. GROUND NO. 2 IS RELATED TO THE INTEREST ON PURCHASE TAX. THE ASSESSING OFFICER (AO) FOUND THAT THE ASSESSEE HAS DEBITED A SUM OF RS.9,51,162/ - REPRESENTING THE INTEREST PAYABLE ON PU RCHASE TAX. SINCE THE AMOUNT REMAINED OUTSTANDING, THE AO HELD THAT THE INTEREST ON PURCHASE TAX IS COVERED BY THE PROVISIONS OF SECTION 43B OF IT ACT AND ALLOWABLE ON ACTUAL PAYMENT BASIS. THE AO RELIED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF MAHALAKSHMI SUGAR MILLS CO. VS. CIT (123 ITR 429) AND ACCORDINGLY DISALLOWED A ND ADDED BACK TO THE INCOME. 4. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE WENT ON APPEAL BEFORE THE CIT (A) AND THE LD.CIT (A) CONFIRMED THE ADDITION MADE BY THE AO HOLDING THAT THE INTEREST LIABILITY ON UNPAID PURCHASE TAX WOULD TAKE THE CHARACTER OF TAX AND REQUIRED TO BE ALLOWED AS DEDUCTION ON ACTUAL PAYMENT 3 ITA NO . 577 /VIZ/201 4 M/S SRI SARVARYA SUGARS LTD., CHELLURU BASIS. ACCORDINGLY, THE APPEAL OF THE ASSESSEE WA S DISMISSED BY THE LD.CIT(A). FOR THE SAKE OF CLARITY, AND CONVENIENCE WE EXTRACT PARA NO.5.2 OF LD.CIT(A) ORDER WHICH READS AS UNDER : 5.2. I HAVE CONSIDERED THE SUBMISSIONS. THE INTEREST LIABILITY ON UNPAID PURCHASE TAX WOULD FALL WITHIN THE PURVIEW OF 'ANY SUM PAYABLE BY WAY OF TAX, DUTY, CESS OR FEE (WHATEVER NAME CALLED WIDER ANY LAW FOR THE TIME BEING IN FARCE).' IT WOULD NOT FALL WITHIN THE PURV IEW OF DEFINITION OF INTEREST U/ S.2(28A) AS THERE IS NO ELEMENT OF BORROWING OF MONEY OR INCURRING OF DEBT OR AVAILING OF CREDIT FACI LTY. FURTHER, ONE OF THE PURPOSES OF SECTION 43B IS TO ENSURE ACTUAL PAYMENT OF THE TAX, DUTY FEE OR CESS, ETC., IN RESPECT OF WHICH TAX BENEFIT IS AVAILED BY WAY OF DEDUCTION. SUCH PURPOSE OF THE LEGISLATION WOULD BE DEFEATED IF THE INTEREST LIABILITY IS ALLOWED AS DEDUCTION EVEN THOUGH THE CORRESPONDING TAX WAS NOT PAID. THEREFORE THE INTEREST LIABILITY ON UNPAID PUR CHASE TAX WOULD NOT TAKE DIFFERENT CHARACTERISTICS FOR THE PURPOSE OF SECTION 43B AND CANNOT BE ALLOWED AS DEDUCTION UNLESS IT IS PAID. AS A RESULT, THE ASSESSING OFFICER IS JUSTIFIED IN MAKING THE IMPUGNED DISALLOWANCE. THIS GROUND OF APPEAL IS DISMISSED. 5. DURING THE APPEAL HEARING, THE LD.AR DID NOT BRING ANY OTHER DECISION TO CONTROVERT THE FINDING OF THE LD.CIT(A). THE INTEREST LIABILITY ON UNPAID PURCHASE TAX WOULD FALL WITHIN THE PURVIEW OF ANY SUM PAYABLE BY WAY OF TAX, DUTY FEE OR CESS, ETC. AND THE SAME CANNOT BE TREATED AS INTEREST WITHIN THE M EANING OF SECTION 2(28A) OF IT ACT. THE ASSESSEE HAS NOT PAID THE INTEREST ON MONIES BORROWED FOR THE PURPOSE OF BUSINESS. THE PURPOSE OF INTRODUCING THE SECTION 43B TO ALLOW THE DEDUCTION ON ACTUAL PAYMENT IS TO ENSURE THE COMPLIANCE. IN THE INSTANT CASE THE ASSESSEE FAILED TO MAKE THE PAYMENT OF PURCH ASE TA X AND PAID THE INTEREST THEREON WHICH TAKES THE CHARACTER OF TAX BUT NOT THE INTEREST. THEREFORE, THE INTEREST PAYABLE ON PURCHASE TAX IS HIT B Y SECTION 43B OF I.T.ACT AND REQUIRED TO BE ALLOWED ON ACTUAL PAYMENT BASIS. HENCE, WE 4 ITA NO . 577 /VIZ/201 4 M/S SRI SARVARYA SUGARS LTD., CHELLURU DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD.CIT(A) AND THE SAME IS UPHELD. THE APPEAL OF THE ASSESSEE ON THIS GROUND IS DISMISSED. 6. GROUND NO.3 IS RELATED TO T HE DEPRECIATION ON CO - GENERATION PLANT. DURING THE ASSESSMENT PROCEEDINGS, THE AO FOUND THAT THE ASSESSEE HAD CLAIMED THE DEPRECIATION @ 80% AND CO GENERATION POWER PLANT INCLUDING PHERIPHERAL ASSETS EXCEPT ON TURBINE AS UNDER : - SL.NO. NAME OF THE ASSET DATE PUT TO USE COST OF ASSET RATE OF DEPN.CLAIMED RATE OF ELIGIBLE DEPN. DEPRECIAITON CLAIMED DEPRECIATION ALLOWED 1. RCC CHIMNEY 25.12.08 2812912 80% 15% 1125165 210968 2. BAGASSE DRIER 25.12.08 12535483 80% 15% 5014193 940161 3. D.C.DRIER 25.12.08 10902253 80% 15% 4360901 817669 4. 12.35 KVA TURBINE 25.12.08 146098590 80% 80 % 58439436 58439436 5. STAM PIPING 25.12.08 5605451 80% 15% 2242180 420409 6. COAL GAS FEEDING SYSTEM 25.12.08 10378869 80% 15% 4151548 778415 7. COAL HANDLING SYSTEM 25.12.08 12377145 80% 15% 4950858 928286 8. SUBSTATION TOWER LINE 25.12.08 107737223 80% 15% 43094889 8080292 TOTAL 308447926 123379170 70615636 THE AO DISALLOWED THE DEPRECIATION CLAIMED BY THE ASSESSEE @80% AND REWORKED THE DEPRECIATION AT 15% EXCEPT IN THE CASE OF 12.35 KVA TURBINE AS PER THE DETAILS GIVEN . 5 ITA NO . 577 /VIZ/201 4 M/S SRI SARVARYA SUGARS LTD., CHELLURU 7. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE WENT ON APPEAL BEFORE THE CIT (A) AND THE LD.CIT(A) DISMISSED THE APPEAL OF THE ASSESSEE. AGG RIEVED BY THE ORDER OF THE LD.CIT (A) THE ASSESSEE FILED THE APPEAL BEFORE THE TRIBUNAL. 8. DURING THE APPEAL HEARING, THE LD.AR STATED THAT THIS ISSUE IS SQUARELY COVERED BY THE DECISION OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 20 09 - 10 IN ITA NO.367/VIZ/2013 DATED 19.12.2014. IN THE APPEAL CITED SUPRA, THE COORDINATE BENCH ALLOWED HIGHER RATE OF DEPRECIATION ON THE FOLLOWING ITEMS : (I) RCC CHIMNEY (II) BAGASSE DRIER (III) D.C.DRIER (IV) 12.35 KVA TURBINE (V) STAM PIPING (VI) COAL& GAS FEEDING SYSTEM (VII) COAL HANDLING SYSTEM (VIII) SUB - STATION TOWER LINE 6 ITA NO . 577 /VIZ/201 4 M/S SRI SARVARYA SUGARS LTD., CHELLURU IN THE CASE OF SUB STATION TOWER LINE, THE HONBLE ITAT ALLOWED THE SAME AS REVENUE EXPENDITURE. FOR THE SAKE OF CONVENIENCE AND CLARITY, WE EXTRACT RELEVANT PART OF THE ORDER OF THE TRIBUNAL WHICH READS AS UNDER: 16. BOTH PARTIES AGREED THAT THE ASSESSEE IS ENTITLED FOR HIGHER DEPRECIATION FOR COGENERATION SYSTEM. THE ONLY ISSUE IS WHETHER PARTICULAR EQUIPMENT IS PART OF COGENERATION SYSTEM OR NOT. BEFORE WE GIVE OUR FI NDINGS ON EACH AND EVERY ITEM, WE BRIEFLY TOUCH UPON THE FACTS OF THIS ISSUE. THE ASSESSEE COMPANY IS IN THE BUSINESS OF MANUFACTURING OF SUGAR FOR WHICH PURPOSE, IT REQUIRES STEAM. THE ASSESSEE COMPANY WAS HAVING SOME BOILERS WHICH WERE SERVING THE PURPOS ES OF ITS BUSINESS. DURING THE FINANCIAL YEAR 2006 - 07, THE ASSESSEE COMPANY DECIDED TO INSTALL 12.65 MW COGENERATION PLANT. AS THE COGENERATION PLANT REQUIRED A HIGHER EFFICIENCY BOILER, IT ACQUIRED ONE SUCH BOILER, WHICH WOULD FIT INTO THE DESIGN OF COGEN ERATION PLANT. IT WAS DONE IN THE FINANCIAL YEAR 2006 - 07. THIS HIGH EFFICIENCY BOILER WAS BEING USED FOR THE MANUFACTURING ACTIVITY OF THE ASSESSEE IN ADDITION TO THE BOILERS THAT THE COMPANY WAS ALREADY HAVING, WHILE AWAITING THE COGENERATION SYSTEM TO GE T IN STALLED. MEANWHILE, THE ASSESSEE CLAIMED HIGHER DEPRECIATION ON THE HIGHER EFFICIENCY BOILERS FOR THE ASSESSMENT YEAR 2007 - 08 ON THE GROUND THAT THIS IS AN ENERGY SAVING DEVICE AND FALLS IN (III) (8)(IX)(A). THE ASSESSING OFFICER ALLOWED THE HIGHER DE PRECIATION DURING THAT YEAR THOUGH THE COGENERATION PLANT HAD NOT BEEN COMMISSIONED. DURING THE PREVIOUS YEAR RELEVANT TO THE IMPUGNED ASSESSMENT YEAR, THE COGENERATION PLANT HAS BEEN COMMISSIONED. THE ASSESSEE HAS CLAIMED HIGHER DEPRECIATION IN RESPECT OF FOLLOWING ITEMS ON THE GROUND THAT THEY FORM PART OF COGENERATION SYSTEM: I ) RCC CHIMNEY II ) BAGASSE DRIER III) DC DRIER IV) STEAM PIPING; V ) 12.65 KVA TURBINE VI) COAL & GAS FEEDING SYSTEM; 7 ITA NO . 577 /VIZ/201 4 M/S SRI SARVARYA SUGARS LTD., CHELLURU VII) COAL HANDLING SYSTEM; VIII) SUB - STATION TOWER LINE 17. THERE IS NO DISPUTE ON THE ALLOWABILITY OF 12.65 KVA TURBINE FOR HIGHER RATE OF DEPRECIATION. THE DISPUTE RELATES TO OTHER ITEMS ONLY. 18. BEFORE WE CONSIDER EACH ITEM SEPARATELY, WE EXTRACT FOLLOWING NEW APPENDIX - I OF IT RULES, 1962 EFFECTIVE FROM ASSESSMENT YEAR 2006 - 07 ONWARDS : PART A: TANGIBLE ASSETS (III) PLANT AND MACHINERY: (8)(IX) ENERGY SAVING DEVICES, BEING A: SPECIALISED BOILERS AND FURNACES (D) HIGH EFFICIENCY BOILERS - (THERMAL EFFICIENCY HIGHER THAN 75% IN CASE OF COAL FIRED AND 80% IN CASE OF OIL/GAS FIRED BOILERS) D) COGENERATION SYSTEMS: (A) BACK PRESSURE PASS OUT, CONTROLLED EXTRACTION, EXTRACTION CUM CONDENSING TURBINES FOR CO - GENERATION ALONG WITH PRESSURE BOILERS. BEFORE GOING FURTHER, WE WOULD CONSIDER THE LEGAL POSITION ON THE ISSUE. 19. I N THE CASE O F SOUTH MADRAS ELECTRIC SUPPLY CORPORATION LIMITED (SUPRA), THE HON'BLEMADRAS HIGH COURT HAS HELD THAT HIGHER RATE OF DEPRECIATION TO AN ELECTRIC SUPPLY CORPORATION WOULD INCLUDE WITHIN ITS SCOPE DEPRECIATION OF SERVICE CONNECTION AND PARTS INCLUDING OVERH EAD CABLES AND WIRES. AT PARA - 4, IT IS HELD THAT 'IN OUR OPINION ON THAT ACCOUNT, IT CANNOT BE SAID THAT ELECTRICAL MACHINERY IN CL. E SHOULD BE READ AS EXCLUDING FROM ITS SCOPE OVERHEAD CABLES AND WIRES. THE USE OF THE 8 ITA NO . 577 /VIZ/201 4 M/S SRI SARVARYA SUGARS LTD., CHELLURU EXPRESSION 'ELECTRIC PLANT, MACHINER Y, BOILERS' IN CL. E APPEARS TO HAVE BEEN MADE IN A COMPREHENSIVE SENSE SO AS TO INCLUDE PARTS OF THE PLANT AS WELL AS ELECTRIC MACHINERY'. 20. THE HON'BLE DELHI HIGH COURT IN THE CASE OF BSES YAMUNA POWERS LIMITED (SUPRA) HELDAS FOLLOWS: 'WE ARE IN AGREEMENT WITH THE VIEW OF THE TRIBUNAL THAT COMPUTER ACCESSORIES AND PERIPHERALS SUCH AS PRINTERS, SCANNERS AND SERVER ETC FORM AN INTEGRAL PART OF THE COMPUTER SYSTEM. IN FACT, THE COMPUTER ACCESSORIES AND PERIPHERALS CANNOT BE USED WITHOUT THE COMPUTER. CONSEQUE NTLY, AS THEY ARE THE PART OF THE COMPUTER SYSTEM, THEY ARE ENTITLED TO DEPRECIATION AT THE HIGHER RATE OF 60 %.' 20.1 . IN THIS CASE, THE COMPUTER SYSTEM BY ITSELF CAN BE USED AS A STANDALONE BASIS WHICH IS LIKE BOILER IN THE CASE OF THE ASSESSEE. BUT THI S DOES NOT MEAN THAT ACCESSORIES AND PERIPHERALS ARE NOT ENTITLED TO HIGHER DEPRECIATION. THE REASONS GIVEN BY THE HON'BLE COURT IS THAT THESE PERIPHERALS AND ACCESSORIES CANNOT BE USED WITHOUT A COMPUTER. ON THIS SAME ANALOGY, THE EQUIPMENTS WHICH ARE NEC ESSARY IN THE SUCCESSFUL OPERATION OF A COGENERATION SYSTEM ARE PART OF THE COGENERATION SYSTEM AND WOULD BE ENTITLED FOR HIGHER DEPRECIATION IN ADDITION TO HIGHER DEPRECIATION ON THE BOILER AND HIGHER DEPRECIATION ON THE TURBINE WHICH WAS ALLOWED BY THE R EVENUE. 21. IN THE CASE OF COCHIN REFINERIES LTD (SUPRA), THE HON'BLE KERALA HIGH COURT AT PARA 6 HELD AS FOLLOWS: 'THE ASSESSEE HAD CLAIMED DEPRECIATION AND DEVELOPMENT REBATE AT THE HIGHER RATE ON CERTAIN ASSETS SUCH AS WASTE PONDS, FRESH WATER TANK, PIPE RACKS, ALLOY PIPING, JETTY FACULTIES, CHERRY PICKER CRANES, ETC. THE ASSESSEE CLAIMED DEPRECIATION AND DEVELOPMENT REBATE ON THESE ITEMS AT THE HIGHER RATE APPLICABLE TO THE REFINERY PLANT. THE ITO, HOWEVER, ALLOWED DEPRECIATION AND DEVELOPMENT REBATE ONL Y AT THE LOWER RATE APPLICABLE TO EACH OF THE ASSETS, DEPENDING UPON WHETHER IT REPRESENTED BUILDING, MACHINERY, ETC. THE MC, ON APPEAL, ALLOWED DEPRECIATION AND DEVELOPMENT REBATE AT THE HIGHER RATE IN RESPECT OF CERTAIN ITEMS, BUT ALLOWED ONLY LOWER RATE S IN RESPECT OF OTHER ITEMS. ON FURTHER APPEAL BY THE ASSESSEE, THE TRIBUNAL ALLOWED THE HIGHER RATE OF DEPRECIATION AND DEVELOPMENT REBATE FOR ALL THE ITEMS. IN OUR VIEW, THE TRIBUNAL WAS RIGHT IN DOING SO, FOR BY THE VERY NATURE OF THE ASSETS IN QUESTION , WE HAVE NO DOUBT THAT THEY FORM PART OF THE REFINERY PLANT AND ARE AS SUCH ENTITLED TO THESE ALLOWANCES AT THE HIGHER RATE. ACCORDINGLY, WE ANSWER QUESTION NO.3 IN THE AFFIRMATIVE, THAT IS, IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE.' 9 ITA NO . 577 /VIZ/201 4 M/S SRI SARVARYA SUGARS LTD., CHELLURU 21.1 THE PROPOSITION LAID DOWN IS THAT THE HIGHER RATE OF DEPRECIATION SHOULD BE ALLOWED EVEN ON SOME OF THE PERIPHERAL ITEMS WHEN THESE ASSETS FORM PART OF THE 'REFINERY PLANT' WHICH IS ELIGIBLE FOR HIGHER RATE OF DEPRECIATION. 22. IN THE CASE OF DCIT VS. VIPPYSOLVEX PRODUCTS LIMITED (SUPRA), THE HON'BLE M.P. HIGHCOURT WAS CONSIDERING THE CASE OF 100% DEPRECIATION ON HIGH EFFICIENCY BOILER. THE AUTOMATIC COAL SUPPLY SYSTEM CONSISTING OF COAL CONTAINER, COAL CONVEYER, BUCKET ELEVATOR AND DUST COLLECTING SYST EM WERE CONSIDERED AS INTEGRAL PART OF HIGH EFFICIENCY BOILER AND 100% DEPRECIATION WAS DIRECTED TO BE ALLOWED. THE HON'BLE COURT NOTED THE OBSERVATIONS OF THE TRIBUNAL THAT THE BOILER WILL NOT FUNCTION IN THE ABSENCE OF COAL SUPPLY SYSTEM AND HENCE, COA L SUPPLY SYSTEM WAS PART AND PARCEL OF THE BOILER AND HELD THAT THE ENTIRE COAL HANDLING SYSTEM IS ENTITLED TO 100% DEPRECIATION. THE ID CIT(A) DISPUTED THESE FINDINGS OF THE HON'BLE M.P. HIGH COURT. WE DO NOT FIND MUCH SUBSTANCE IN THE OBSERVATIONS OF THE I D CIT(A) AND HENCE WE DO NOT APPROVE THE SAME. 23. IN THE CASE OF ANDHRA ORGANICS VS ADDL. CIT, 40 CCH 038(HYD)(TRIB), IT WAS HELD THATTHE CLAIM OF THE ASSESSEE THAT IT HAS COMMENCED TRIAL PRODUCTION IN THE ABSENCE OF CONTROL PANEL CANNOT BE ACCEPTED. THE AO'S FINDINGS IN THAT CASE WAS THAT ON SEARCH OF INTERNET, HE FOUND THAT THE ASSET IS A 3MW COGENERATION CAPTIVE POWER PLANT CONSISTING OF COAL FIRED BOILER WITH EFFICIENCY OF 80% AND TURBINES. THE AO FURTHER WAS OF THE VIEW THAT THE BOILER AND TURBINE ARE NOT TWO DIFFERENT ASSETS BUT PART OF COGENERATION PLANT. HE FURTHER FOUND THAT THE CONTROL PANEL FOR TURBINE WAS PUT TO USE ONLY ON 6.10.2008. THEREFORE, IT WAS HELD THAT UNLESS THE ENTIRE SYSTEM BECOMES FUNCTIONAL, DEPRECIATION CANNOT BE ALLOWED ON THE INDIV IDUAL ITEMS. THESE FACTUAL FINDINGS HAVE BEEN RELIED UPON BY ID COUNSEL FOR THE ASSESSEE. 24. IN THE CASE OF IDC OF ORISSA LTD., (SUPRA), THE HON'BLE ORISSA HIGH COURT HELD THAT THE INSTRUMENTS FOR CONTROLLING AND MONITORING ELECTRICITY FLOW COMPRISING OF CIRC UIT BREAKER, TRANSFORMER, ISOLATOR, ARRESTOR, CONTROL PANEL, CAPACITOR BANK, ETC., FORMING PART OF AUTOMATIC ELECTRICAL LOAD MONITORING SYSTEM, FELL UNDER ITEM (A) OF CATEGORY B OF 'ENERGY SAVING DEVICES', HENCE ELIGIBLE FOR 100% DEPRECIATION. 25. LD D.R. RELI ED ON THE DECISION OF HON'BLE MADRAS HIGH COURT IN THE CASE OF CIT VS TTGINDUSTRIES LTD., 363 ITR 44 (MAD), WHEREIN, THE ISSUE OF 100% DEPRECIATION OF A GENERATOR SET WAS CONSIDERED. IN THIS CASE, THE MACHINERIES IN QUESTION WERE GENERATOR SET, DRILLING, B ORING MACHINES, BORING MACHINE FOR FOUNDATION WORK AND LATHE MACHINE, ETC. THESE WERE APPARENTLY USED BY THE ASSESSEE, FOR VARIOUS ENGINEERING WORKS INCLUDING, THE ACTIVITY OF MANUFACTURE OF WIND MILLS, ELECTRIC GENERATORS AND PUMPS. IN THE DEPRECIATION TA BLE, THE WORD 'EXCLUSIVELY USED' HAS NOT BEEN 10 ITA NO . 577 /VIZ/201 4 M/S SRI SARVARYA SUGARS LTD., CHELLURU MENTIONED. THE TRIBUNAL RELIED ON THE DECISION OF HON'BLE KARNATAKA HIGH COURT IN TH E CASE OF AMCO BATTERIES LTD., ( 1993) 203 ITR 614 (KARN) AND HELD THAT THE TERM 'EXCLUSIVELY' WAS PERHAPS IMPLIED IN THE ORDER . THE FACT OF THE CASE AT HAND IS DIFFERENT FROM THE CASE OF TTG INDUSTRIES LTD (SUPRA), WHEREIN, THE CASE OF COGENERATION SYSTEM WAS NOT CONSIDERED. THUS, THE PROPOSITIONS LAID DOWN IN THIS CASE LAW DO NOT APPLY TO THE FACTS OF THE CASE. 26. RELIANCE WAS PLAC ED ON THE DECISION OF HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS.H.B. LEASING & FINANCE LTD., 360 ITR 362 (DEL). THIS IS A CASE WHERE THE HON'BLE COURT HELD THAT A TANKER OR A GAS CYLINDER ATTACHED TO THE BODY OF A TRUCK CONTINUED TO BE A GAS CYLINDER AND WAS, ACCORDINGLY, ENTITLED TO DEPRECIATION @ 100%. THE ARGUMENTS OF THE REVENUE THAT PARTS CANNOT BE SEGREGATED FOR THE PURPOSE OF CLAIMING DEPRECIATION AT THE DIFFERENT RATES ON DIFFERENT PARTS WAS REJECTED. IN THE CASE AT HAND THE TERM IS USED 'SYSTE M'. HENCE, EVEN SEPARATE PART, WHICH CONSTITUTES 'SYSTEM' ARE ELIGIBLE TO HIGHER DEPRECIATION. THIS CASE RELIED UPON BY THE REVENUE IS OF NO AVAIL. 27. IN THE CASE OF KERALA SPONGE IRON LTD VS ACIT, 32 ITR (TRIB) 0718, RELIED UPON BY L DD.R., THE BENCH WAS CONSIDERING THE CLAIM OF THE ASSESSEE FOR HIGHER DEPRECIATION ON THE GROUND THAT CERTAIN EQUIPMENTS ARE 'POLLUTION CONTROL EQUIPMENT'. ON FACTS, THE TRIBUNAL CAME TO A CONCLUSION THAT CERTAIN ASSETS LIKE AIR POLLUTION CONTROL EQUIPMENT AND WATER POLLUTION CONTROL EQUIPMENT, ETC DO NOT QUALIFY AS POLLUTION CONTROL EQUIPMENT. THIS IS A FACTUAL ISSUE AND HAS NO RELEVANCE TO THE CASE AT HAND. 28. IN THE LIGHT OF THE ABOVE LEGAL POSITION, WE NOW CONSIDER THE CONTENTION OF THE ASSESSEE THAT THE HIGHER EFFICIENCY BOIL ER AND 12.65 KVA TURBINE HAVE TO BE CONSIDERED TOGETHER ALONG WITH OTHER EQUIPMENTS NECESSARY FOR GENERATION OF POWER, AS THE INTEGRATED COGENERATION SYSTEM. IN OUR VIEW, THERE CANNOT BE TWO OPINIONS THAT HIGH EFFICIENCY BOILER ALONG WITH TURBINE AND THE A SSOCIATED EQUIPMENTS CONNECTING THEM, INCREASING ITS EFFICIENCY ETC., ARE TO BE CONSIDERED AS PART OF COGENERATION SYSTEM AND ARE THEREFORE ELIGIBLE FOR HIGHER DEPRECIATION ALLOWANCE. 29. THE ID CIT(A) OBSERVED THAT RCC CHIMNEY AND BAGASSE DRIER ARE PART OF THE HIGHEREFFICIENCY BOILER. THIS FACTUAL FINDING IS NOT DISPUTED BEFORE US BY THE REVENUE. THUS, BOTH THESE ITEMS HAVE TO BE CONSIDERED AS INTEGRAL PART OF THE COGENERATION SYSTEM. THE VERY EXPRESSION 'COGENERATION' REFERS TO SIMULTANEOUS GENERATION OF TWO FORMS OF POWER I.E. HEAT AND ELECTRICITY. BOILER IS ONE COMPONENT OF SUCH SYSTEM WHEREFROM THE ROOT POWER I.E. STEAM IS GENERATED AND IT IS THIS STEAM THAT IS CONVERTED INTO ELECTRICIT Y POWER WITH THE USE OF A TURBINE. THUS, THE BOILER HAS A DUAL UTILITY I.E. AS STANDALONE ITEM AND ALSO A PART OF COGENERATION SYSTEM. HIGH EFFICIENCY BOILERS ARE REQUIRED FOR GENERATION OF POWER. THEREFORE, RCC 11 ITA NO . 577 /VIZ/201 4 M/S SRI SARVARYA SUGARS LTD., CHELLURU CHIMNEY AND BAGASSE DRIER FORMING PART OF BO ILER SYSTEM ARE ELIGIBLE FOR HIGHER DEPRECIATION. 30. COMING TO DC DRIER WHICH ARE ENERGY SAVING DEVICES, WE ARE OF THE VIEW THAT THIS CANNOTBE USED INDEPENDENTLY IN A COGENERATION SYSTEM. THESE ARE ENERGY SAVING DEVICE AND ARE ELIGIBLE EVEN ON STANDALONE BAS IS FOR HIGHER RATE OF DEPRECIATION. THEY FELL WITHIN ONE OF THE SPECIFIC CATEGORY IN ENERGY SAVING DEVICE. HENCE, HIGHER RATE OF DEPRECIATION SHOULD BE ALLOWED ON THIS EQUIPMENT ALSO. 31. STEAM PIPING IS PART OF THE BOILER. WE DO NOT APPRECIATE THE FINDINGS OF THE REVENUEAUTHORITIES THAT STEAM PIPING CANNOT BE CONSIDERED AS PART OF COGENERATION SYSTEM. EVEN APPLYING THE TEST LAID DOWN BY VARIOUS COURTS, WE HAVE TO NECESSARILY HOLD THAT STEAM PIPING CANNOT BE USED INDEPENDENTLY OR STANDALONE BASIS. IT IS AN INTE GRAL PART OF COGENERATION SYSTEM, HENCE, ELIGIBLE FOR HIGHER DEPRECIATION. 32. COMING TO THE COAL & GAS FEEDING SYSTEM AND COAL HANDLING SYSTEM, WE APPLY THEDECISION OF HON'BLE M.P. HIGH COURT IN THE CASE OF VIPPYSOLVEX PRODUCTS LTD (SUPRA) AND COME TO OUR CON CLUSION THAT THIS IS AN INTEGRAL PART OF HIGH EFFICIENCY BOILER. THE VERY DESCRIPTION OF NATURE OF THE EQUIPMENT DEMONSTRATES THAT IT CANNOT BE INDEPENDENTLY USED AND HAS TO BE USED ALONG WITH THE BOILER. THUS, WE DIRECT THE AO TO TREAT THE COAL & GAS FEED ING SYSTEM AND COAL HANDLING SYSTEM AS INTEGRATED PART OF COGENERATION SYSTEM AND ALLOW HIGHER DEPRECIATION ON THE SAME. 33. WITH REGARD EXPENDITURE ON SUB - STATION POWER LINE, WE CANNOT AGREE WITH THE CONTENTIONOF THE APPELLANT THAT EXPENDITURE INCURRED ON SUB - STATION POWER LINE IS ALSO PART OF THE COGENERATION SYSTEM. THIS EXPENDITURE IS NECESSARY FOR ONWARD DISTRIBUTION OF THE POWER GENERATED IN A COGENERATION SYSTEM AND HENCE CANNOT BE CONSIDERED AS AN INTEGRAL PART OF THE COGENERATION SYSTEM. 34. WE NOW CON SIDER THE ADDITIONAL GROUND RAISED BY THE ASSESSEE ON THE ISSUE OFEXPENDITURE INCURRED ON SUB - STATION POWER LINE, WHICH WAS ULTIMATELY HANDED OVER TO APTRANSCO. BOTH THE PARTIES AGREED THAT THIS IS LEGAL CLAIM AND THAT THE FACTS ARE ON RECORD. UNDER THESE CIRCUMSTANCES, WE HOLD THAT THE ID CIT(A) SHOULD HAVE ADMITTED THIS ADDITIONAL GROUND OF THE ASSESSEE AND ADJUDICATED THE SAME FOLLOWING THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF NTPC LTD., (SUPRA). 35. COMING TO ALLOWABILITY OF THIS CLAIM, THE HON' BLE RAJASTHAN HIGH COURT IN THE CASE OF CITVS. HINDUSTAN ZINC LTD., (2009) 221 CTR (RAJ) 637 CONSIDERED THE FOLLOWING QUESTION NO.2 AND ANSWER AS FOLLOWS: 12 ITA NO . 577 /VIZ/201 4 M/S SRI SARVARYA SUGARS LTD., CHELLURU 'COMING TO THE QUESTION NO.2, IT IS TO BE NOTICED THAT THE POWER LINE HAD BEEN ERECTED BY THE ASSESSE E FOR FACILITATING ROUTINE OPERATIONS AND SMOOTH FUNCTIONING OF THE BUSINESS OF THE ASSESSEE. IT IS NOT DISPUTED BEFORE US THAT THE POWER LINE REMAINS THE PROPERTY OF THE ELECTRICITY BOARD AND THE ASSESSEE HAD NOT ACQUIRED ANY CAPITAL ASSET OR ANY ENDURING BENEFIT OR ADVANTAGE. THEREFORE, FOR THE PARITY OF THE REASONS ASSIGNED BY US IN DECIDING QUESTION NO. 1,, AGAINST THE REVENUE AND IN FAVOUR OF THE ASSESSEE, THE QUESTION NO.2 ALSO DESERVES TO BE DECIDED AGAINST THE REVENUE AND IN FAVOUR OF THE ASSESSEE. 36. CONSISTENT WITH THE VIEW TAKEN THEREIN, WE DIRECT THE AO TO TREAT THE EXPENDITURE INCURRED BY THE ASSESSEE ON CONSTRUCTION OF SUB - STATION POWER LINES AS INCURRED IN THE REVENUE FIELD AND ALLOW THE CLAIM OF THE ASSESSEE. NEEDLESS TO SAY THAT SINCE THE ENTIRE EXPENDITURE INCURRED BY THE ASSESSEE IS ALLOWED AS REVENUE EXPENDITURE THE QUESTION OF A LLOWANCE OF DEPRECIATION DOES NOT ARISE. 37. THIS BRINGS US TO GROUND NO.5 WHICH IS THE CLAIM OF THE ASSESSEE THAT THE EXPENDITURE INCURRED FOR SANCTION OF HT POWER LINE IS IN THE REVENUE FIELD. THE AMOUNT IS PAID AS NON REFUNDABLE AMOUNT TO OBTAIN APPROVAL OF POWER DISTRIBUTION COMPANY LTD., FOR EXTENSION OF POWER SUPPLY. NO ASSET HAS BEEN CREATED AND HENCE, THE QUESTION OF TREATING THE EXPENDITURE AS CAPITAL IN NATURE DOES NOT ARISE. CONSISTENT WITH THE VIEW TAKEN BY US IN THE CASE OF SUB STATION POWER LINE, W HICH WAS HANDED OVER TO APTRANSCO, WE DIRECT THE AO TO ALLOW THIS EXPENDITURE AS IN THE REVENUE FIELD. 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL PLACED ON RECORD. SINCE T HE FACTS OF THE CASE ARE IDENTICAL , RESPECTFULLY FOLLOWING THE DECISIO N OF THE COORDINATE BENCH, WE HOLD THAT THE ASSESSEE IS ENTITLED FOR A HIGHER RATE OF DEPRECIATION IN THE CASE OF RCC CHIMNEY, BAGASEE DRIER, DC DRIER, STEAM PIPING, COAL AND GAS FEEDING SYSTEM AND COAL HANDLING SYSTEMS. IN THE CASE OF SUB STATION TOWER L INE, THE EXPENDITURE REQUIRED TO 13 ITA NO . 577 /VIZ/201 4 M/S SRI SARVARYA SUGARS LTD., CHELLURU BE TREATED AS REVENUE EXPENDITURE. ACCORDINGLY WE DIRECT THE AO TO ALLOW HIGHER RATE OF DEPRECIATION ON THE ITEMS MENTIONED ABOVE AND IN THE CASE OF SUBSTATION TOWER LINE TO ALLOW THE SAME AS REVENUE EXPENDITURE. THE APPEAL OF THE ASSESSEE IN GROUND NOS. 3 AND 4 ARE ALLOWED. 10. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 20 TH DEC 17. SD/ - SD/ - ( . ) ( . . ) (V. DURGA RAO) ( D.S. SUNDER SINGH ) /JUDICIAL MEMBER /ACCOUNTANT MEMBER /VISAKHAPATNAM /DATED : 20 . 1 2 .2017 L. RAMA, SPS 14 ITA NO . 577 /VIZ/201 4 M/S SRI SARVARYA SUGARS LTD., CHELLURU / COPY OF THE ORDER FORWARDED TO: - 1. / THE APPELLANT - M/S SRI SARVARAYA SUGARS LTD., CHELLURU, RAYAVARAM MANDALAM, EAST GODAVARI DISTRICT 2 . / THE RESPONDENT JT.COMMISSIONER OF INCOME TAX, KAKINADA RANGE KAKINADA 3. THE PR. COMMISSIONER OF INCOME TAX , VIJAYAWADA 4 . THE COMMISSIONER OF INCOME TAX (APPEALS) , VIJAYAWADA 5 . , , / DR, ITAT, VISAKHAPATNAM 6 . / GUARD FILE / BY ORDER // TRUE COPY // SR. PRIVATE SECRETARY ITAT, VISAKHAPATNAM