M/s. Shri Ram Hotels, JODHPUR V. ITO, JODHPUR

ITA 591/JODH/2009

• Counselvise Citation: 59123314 RSA 2009
• Duration Of Justice: 2 year(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-12-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 30-11-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 26-11-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: RAJENDER JAIN
• Keywords: Depreciation; Bad and doubtful debts; Capital expenditure

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL JODHPUR BENCH, JODHPUR (BEFORE SHRI R.K. GUPTA AND SHRI .N.L. KALR A ) ITA NO.591/JU/2009 ASSESSMENT YEAR : 2006-07 PAN: AAQFS 2527 L M/S. SHRI RAM HOTELS VS. THE ITO JODHPUR WARD- 1, JODHPUR (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI RAJENDER JAIN DEPARTMENT BY: SHRI MAHESH KUMAR DATE OF HEARING: 30-11-2011 DATE OF PRONOUNCEMENT: 09-12-2011 ORDER PER N.L. KALRA, AM:- THE ASSESSEE HAS FILED AN APPEAL AGAINST THE ORDER OF THE LD.CIT(A), JODHPUR DATED 20-10-2009 FOR THE ASSESSMENT YEAR 2006-07. 2.1 THE FIRST GRIEVANCE OF THE ASSESSEE IS THAT LD .CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF DEPRECIATION OF RS. 16,86,411/- OUT OF TOTAL CLAIM OF DEPRECIATION AT RS. 61,87,545/- ON WIND MILL WHICH IS A COMPOSITE UNIT AND CAPITAL EXPENDITURE CLAIMED ON INSTALLATION OF WIND MILL CANNOT BE BIFURCATED AS D ONE BY THE AO. 2.2 THE ASSESSEE MADE AN INVESTMENT OF RS. 1,54,68, 862/- ON WINDMILL AND CLAIMED DEPRECIATION @ 80% WHICH AMOUNTED TO RS. 61,87,545/ -. THE AO HAS GIVEN THE DETAILS OF THE AMOUNT OF INVESTMENT ON VARIOUS ITEMS AT PAGE 7 OF THE ASSESSMENT ORDER. IN RESPECT OF FOLLOWING ITEMS, THE AO HAS NOT ALLOWED DEPRECIA TION @ 80% AND IN RESPECT OF OTHER 2 ITEMS, HE HAS ALLOWED DEPRECIATION @ 80%. LOOKING TO THE ISSUE BEFORE US, WE ARE REPRODUCING BELOW THE ITEMS ON WHICH THE AO HAS NOT ALLOWED DEPRECIATION @ 80%. ITEMS AMOUNT OF INVESTMENT / BILL PRESCRIBED RATE ALLOWABLE DEPRECIATION CLOSING WDV POWER EVACUATION CHARGE @ RS. 17 LAC PER MW (FOR 1 WTG OF 0.35 MW 350 KW 595000 15% (BEING P&M) 44625 550375 CIVIL WORK CONSISTING OF CONSTRUCTION OF WINDMILL FOUNDATION, TRANSFORMER PLINTH, CONTROL ROOM, ELECTRICAL YARD FENCING, ROAD, CRANE PLATFORM 1705540 10% (BEING CIVIL CONSTRUCTION 85277 1620263 SUPPLY AND INSTALLATION OF HT ELECTRICAL YARD AND TRANSMISSION LINE FROM WINDMILL TO GRID INTERCONNECTION POINT 1757222 15% (BEING P&M) 131792 1625430 TOWARDS CONTRIBUTION FOR POWER EVACUATION INFRASTRUCTURE FACILITIES 1000000 15% (BEING P&M) 75000 925000 2.3 THE LD.CIT(A) HAS REFERRED TO THE DECISION OF I TAT PUNE BENCH IN THE CASE OF POONAWALA FINVEST & AGRO (P) LTD., 118 TTJ 68 IN WH ICH IT WAS HELD AS UNDER:- SINCE THE CIVIL WORK OF CONTROL ROOM, THE SITE DE VELOPMENT AND THE INTERNAL ROAD DEVELOPMENT ARE NOT SPECIALLY DESIGNED DEVICES HENCE IN OUR CONSIDERED OPINION AS PER THE DISCUSSION MADE HEREINABOVE, ARE NOT ENTITLED FOR 100% DEPRECIATION . 2.4 ON THE BASIS OF THE DECISION OF ITAT PUNE BENCH , THE LD.CIT(A) HAS CONFIRMED THE FINDING OF THE AO IN NOT ALLOWING THE DEPRECIAT ION @ 8O% ON CERTAIN ITEMS . THIS 3 ISSUE HAS BEEN CONSIDERED BY JODHPUR BENCH VIDE ORD ER DATED 11-02-2011 IN ITA NO. 195/JU/2010 IN THE CASE OF DCIT VS DELHI RAJASTHAN TRANSPORT CO. LTD. IT WILL BE USEFUL TO REPRODUCE THE FOLLOWING PARAGRAPH FROM THAT ORD ER. 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 THA T THEY ARE NOT INTEGRAL PART OF THE WIND MILL. THE DEPRECIATION IN RESPECT OF FOUNDATION IS CONCERNED THE FOUNDATION FOR THE PURPOSE OF THE WIN D MILL IS DIFFERENT FROM THE OTHER CIVIL WORKS. WIND MILL IS A HEAVY MA CHINE AND A SPECIALLY DESIGNED FOUNDATION IS REQUIED, THEREFORE, THE AO H AS NOT JUSTIFIED IN COMPARING THE FOUNDATION OF THE WIND MILL FROM OTHE R CIVIL WORKS IN THE CASE OF CIT VS HERDILLIA CHEMICALS LTD. 216 ITR 742 (BOM) WHEREIN THE HON'BLE HIGH COURT OF MUMBAI HAS HELD THE EXPENDITU RE INCURRED ON FOUNDATION FIXING THE PLANT AND MACHINERY WOULD FOR M PART OF THE COST OF PLANT AND MACHINERY AND THE ASSESSEE WOULD BE ENTI TLED TO DEPRECIATION AT THE SAME RATE AS APPLICABLE TO THAT PLANT AND MACHI NERY. IN THE CASE OF ACIT VS MADRAS CEMENTS LTD. , 110 IT 281 (MAD.), HA S HELD THAT 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. ISP AT LTD. 123 CTR (RAJ.) WHERE THE JURISDCTIONAL HIGH COURT CATEGORICALLY H ELD THAT THE MASSIVE REINFORCED CONCRETE STRUCTURE, ESPECIALLY DESIGNED TO TAKE UP LOADS, CONSTITUTED PLANT WITHIN THE MEANING OF SECTION 4 3(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 WINDM ILL IS AMOUNTING TO PART AND PARCEL OF THE WIND MILL AND IT IS PLANT AN D MACHINERY AND ACCORDINGLY THE ASSESSEE IS ELIGIBLE FOR HIGHER RAT E OF DEPRECIATION 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 ELIGIBL E FOR HIGHER DEPRECIATION. 4 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 AND DIRECT THE AO TO ALLOW HIGHER DEPRECIATION C LAIM 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 PURPOSE S. 2.5 THE JAIPUR BENCH VIDE ITS ORDER IN ITA NO. 745/ JP/07 AND 731/JP/07 DATED 18-07- 2008 IN THE CASE OF M/S. VIJAY INDUSTRIES VS ITO HE LD THAT DEPRECIATION IS TO BE ALLOWED O THE ROOM ALSO. IT WILL BE USEFUL TO REPRODUCE PARA 6 OF ITAT JAIPUR ORDER AS UNDER:- 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUS ED THE FACTS OF THE CASE. THE PROVISIONS OF ALLOWING DEPRECIATION ON TH E 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 COMPLET E WIND MILL. THEREFORE, THE LD. CIT(A) IS NOT JUSTIFIED IN SEGRE GATING THE COST OF THE CONSTRUCTION OF THE ROOM FROM THE SAID WIND MILL. T HE SAID CONSTRUCTION OF THE ROOM , AS ARGUED HAS BEEN SPECIALLY DESIGNED FO R 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 WIN D MILLS. THUS GROUND NO. 6 OF THE ASSESSEE IS ALLOWED. 2.6 FROM THE ABOVE REFERRED DECISIONS, WE HOLD THAT THE ASSESSEE WILL BE ENTITLTED TO DEPRECIATION @ 80% ON THE CIVIL WORK CONSTRUCTION O F WINDMILL, FOUNDATION, TRANSFORMER , CONTROL ROOM AND CRANE PLATFORM ETC. ON WHICH THE COST IS TO BE ADOPTED BY THE AO AFTER GIVING OPPORTUNITY TO THE ASSESSEE. IN RESPECT OF OTHER CIVIL WORK LIKE ROAD ETC., THE ISSUE 5 IS SET ASIDE AS PER THE DECISION OF JODHPUR BENCH. CONSIDERING THE FUNCTIONAL TEST, WE FEEL THAT SUPPLY AND INSTALLATION OF HT ELECTRICAL YARD AND TRANSMISSION LINE FORM WINDMILL TO GRID INTERCONNECTION POINT IS PART OF THE WINDMILL AND DEPRECIATION @ 80% WILL BE ADMISSIBLE ON THE INVESTMENT OF RS. 17,57,222/- ADO PTED BY THE AO. THIS IS ON THE SAME PRINCIPLES ON WHICH ACCESSORIES TO THE COMPUTER HAV E BEEN HELD TO BE ALLOWABLE FOR DEPRECIATION @ 60% ADMISSIBLE ON COMPUTER. SUCH ACC ESSORIES INCLUDE UPS, PRINTERS ETC. 2.7 IN RESPECT OF OTHER ITEMS NO. 1 AND 4, THE ALL OWABILITY OF DEPRECIATION IS RESTORED BACK ON THE FILE OF THE AO IN VIEW OF THE DECISION OF JODHPUR BENCH IN THE CASE OF DELHI RAJASTHAN TRANSPORT CO. LTD. (SUPRA). THE AO WILL V ERIFY AS TO WHETHER SUCH ITEMS ARE PART OF THE WINDMILL AND WHETHER THESE CAN BE CONSI DERED AS ACCESSORIES OF THE WINDMILL. 3.1 THE SECOND GRIEVANCE OF THE ASSESSEE IS THAT TH E LD.CIT(A) HAS ERRED IN UPHOLDING THE DISALLOWANCES OF RS. 25,891/- OUT OF MISCELLANE OUS AMOUNT DUE FROM CUSTOMER AND WRITTEN OFF IN THE BOOKS OF ACCOUNT AS NOT RECOVERA BLE. 3.2 THIS ISSUE STANDS COVERED BY THE DECISION OF HO N'BLE APEX COURT IN THE CASE OF TRF LTD. VS. CIT, 323 ITR 397. FOLLOWING THAT ORD ER, WE HOLD THAT THESE DEBTS ARE ALLOWABLE AS BAD DEBTS. 4.1 THE THIRD GROUND OF APPEAL OF THE ASSESSEE IS T HAT THE LD.CIT(A) HAS ERRED IN CHARGING INTEREST U/S 234D AND WITHDRAWING INTEREST ALLOWED U/S 244A(3) OF THE ACT 4.2 WE HAVE HEARD BOTH THE PARTIES. THE CHARGING OF INTEREST IS MANDATORY AND CONSEQUENTIAL IN NATURE. 6 5.0 IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 09-12-2011 SD/- SD/- (R.K. GUPTA) (N.L. KALRA) JUDICIAL MEMBER ACCOUNTANT MEMBER JAIPUR DATED: 09 /12/2011 MISHRA COPY TO: 1. M/S. SHRI RAM GUM & CHEMICALS, JODHPUR 2. THE ACIT, CIRCLE- 1, JODHPUR 3.THE LD. CIT (A) BY ORDER 4.THE CIT 5.THE D/R 6.THE GUARD FILE (ITA NO. 591/JU/09) A.R.. ITAT: JAIPUR