Assitant Commissioner of Income-tax, V. Arvind Dyeing & Bleaching Mills Pvt. Ltd., Kolhapur

ITA 701/PUN/2015

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 1836 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-05-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 14-05-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KIRAN S DESHPANDE
• Keywords: Depreciation; Capital expenditure
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE , !, # $ BEFORE MS. SUSHMA CHOWLA, JM AND SHRI PRADIP KUMAR KEDIA, AM ITA NO.701/PN/2015 ASSESSMENT YEAR : 2011-12 THE ASSTT. COMMISSIONER OF INCOME TAX, ICHALKARANJI CIRCLE, ICHALKARANJI. . APPELLAN T VS. ARVIND DYEING & BLEACHING MILLS PVT. LTD., ARVIND HOUSE, OLD INDL. ESTATE, ICHALKARANJI, DIST. KOLHAPUR. PAN : AABCA5543N . RESPONDENT / APPELLANT BY : KIRAN S. DESHPANDE / RESPONDENT BY : NONE / DATE OF HEARING : 04.05.2016 / DATE OF PRONOUNCEMENT: 18.05.2016 % / ORDER PER PRADIP KUMAR KEDIA, AM : THE CAPTIONED APPEAL FILED BY THE REVENUE IS AGAINS T THE ORDER OF CIT(A)-1&2, KOLHAPUR DATED 27.02.2015 RELATING TO A SSESSMENT YEAR 2011-12 PASSED UNDER SECTION 143(3) OF THE INCOME-TAX ACT, 1961 (IN SHORT THE ACT). 2. AT THE TIME OF HEARING, NONE APPEARED ON BEHALF OF THE ASSESSEE/RESPONDENT INSPITE OF SERVICE OF NOTICE. THE LD. DEPARTMENTAL REPRESENTATIVE, KIRAN S. DESHPANDE APPEARED ON BEHA LF OF THE APPELLANT/REVENUE. INITIALLY, THE HEARING WAS FIXE D ON 03.02.2016. ON 03.02.2016, THE APPEAL WAS ADJOURNED TO 04.05.2016 AT THE REQUEST OF THE ASSESSEES LETTER DATED 01.02.2016 RECEIVED BY FAX. HOWEVER, ON 04.05.2016 NEITHER APPEARED ON BEHALF OF THE ASSESSEE NOR ANY ADJOURNMENT WAS SOUGHT BY THE ASSESSEE. IT APPEARS THAT ASSESSEE IS NOT INTE RESTED IN PURSUING THE APPEAL. 2 ITA NO.701/PN/2015 IN THE ABSENCE OF ANY APPEARANCE BY THE ASSESSEE IN PERSON OR THROUGH AUTHORIZED REPRESENTATIVE INSPITE OF SERVICE OF NOT ICE, WE PROCEED TO DISPOSE OF THE APPEAL EX-PARTE QUA THE ASSESSEE AFTER HEARING THE APPELLANT/REVENUE O N MERITS IN TERMS OF RULE 24 OF THE INCOME TAX (APPEL LATE TRIBUNAL) RULES, 1963. 3. THE SOLITARY ISSUE RAISED BY THE REVENUE IN ITS APPEAL IS DISALLOWANCE OF DEPRECIATION ON WINDMILLS TO THE TUNE OF RS.53,41,8 67/- MADE BY THE ASSESSING OFFICER. 4. BRIEFLY STATED, THE RELEVANT FACTS CONCERNING TH E ISSUE RAISED BY THE REVENUE ARE THAT THE ASSESSEE COMPANY HAS INSTALLED WINDMILLS OF VARIOUS CAPACITIES AT SATARA, SANGLI, SADAWAGHAPUR AND MALO SHI. ASSESSING OFFICER ASKED THE ASSESSEE TO EXPLAIN WHY NOT THE DEPRECIAT ION CLAIMED ON THESE WINDMILLS IN RESPECT OF CIVIL WORK THEREOF IS DISAL LOWED IN VIEW OF DECISION OF ITAT PUNE IN THE CASE OF POONAWALA FINVEST AND AGRO PVT. LTD. 118 TTJ 68. AS PER THE ASSESSING OFFICER, ACCELERATED AND SPECI AL RATE OF DEPRECIATION ALLOWABLE FOR THE WINDMILL CANNOT BE EXTENDED TO CI VIL WORK AND THE DEPRECIATION IN RESPECT OF CIVIL WORK, ERECTION COM MISSION AND ELECTRICAL INSTALLATION SHOULD BE ALLOWED NOT @ 80% BUT AT THE RATE APPLICABLE TO THE RESPECTIVE COMPONENTS. ASSESSEE HAS EXPLAINED THAT CIVIL CONSTRUCTION IS AN INTEGRAL PART OF THE MACHINERY AND IS UTMOST NECESS ARY TO INSTALL AND PUT THE WINDMILL INTO USE. ANY EXPENDITURE TO PUT THE ASSET IN WORKING CONDITION IS TO BE TREATED AS COST OF THE ASSET AND SHOULD BE DEPRE CIABLE ACCORDINGLY. THE ASSESSEE HAD DISCUSSED STRUCTURE AND SETUP OF A PEC ULIAR WINDMILL SO AS TO EXPLAIN THE ESSENTIALITY OF FOUNDATION AS FAR AS WO RKING OF A WINDMILL IS CONCERNED. THE ASSESSEE HAS EXPLAINED THE VARIOUS C OMPONENTS SUCH AS ELECTRICAL POWER COLLECTION SYSTEM, SUB-STATION AND INTRA-CONNECTION, FOUNDATION, CONTROL AND COMMUNICATION SYSTEM, ACCES S ROADS, OPERATION AND MAINTENANCE FACILITY AND STRUCTURE OF A WIND TURBIN E GENERATING SYSTEM. IT WAS CLAIMED THAT CIVIL WORK INCLUDING FOUNDATION IS INS EPARABLE PART 3 ITA NO.701/PN/2015 OF THE WINDMILL AND IS THEREFORE, ENTITLED TO 80% R ATE OF DEPRECIATION. ASSESSING OFFICER WHOLLY RELIED ON THE DECISION OF POONAWALA FINVEST AND AGRO PVT. LTD. (SUPRA). HE COMPUTED THE DEPRECIATION ALLOWABLE FOR CIVIL WORK SEPARATELY AND WORKED OUT EXCESS DEPRECIATION CLAIMED AT RS.53,41, 867/- WHICH WAS DISALLOWED. AGGRIEVED BY THE SAID ACTION OF THE AS SESSING OFFICER, ASSESSEE CARRIED THE MATTER BEFORE THE CIT(A). 5. THE CIT(A) FOLLOWING THE ORDER OF THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF DCIT VS. AMINITY DEVELOPERS AND BUILDERS IN ITA NO.1505/PN/2011 DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE AND DIR ECTED THE ASSESSING OFFICER TO DELETE THE IMPUGNED DISALLOWANCE. THE RELEVANT OBSERVATIONS OF THE ORDER OF THE CIT(A) READ AS UNDER :- 4. IN APPEAL THE APPELLANT HAS CONTENDED THAT ASSE SSING OFFICER HAS GROSSLY ERRED IN RESTRICTING DEPRECIATION ON CIVIL FOUNDATI ON AND CONSTRUCTION REQUIRED FOR ERECTION OF WIND TURBINE GENERATOR AND ELECTRICAL I NSTALLATION, ESSENTIAL TO RUN WINDMILL, @ 10% AND 15%, RESPECTIVELY, WHEREAS THE SAME ELIGIBLE FOR DEPRECIATION @ 80% BEING PART AND PARCEL OF WINDMILL. APPELLANT RELIED ON THE DECISION OF ITAT PUNE IN THE CASE OF AMINITY DEVELOPERS AND BUILDERS ITA NO.1505/PN/2011 FOR ASSESSMENT YEAR 2008-09. THE APPELLANT HAS SUBMITTE D THAT IN THIS CASE HONOURABLE ITAT HAVE DECIDED SIMILAR ISSUE IN FAVOUR OF ASSESS EE AND EMPHASIZED ON FUNCTIONAL TEST AND RULED THAT COST OF COMMISSIONING AND ERECT ION OF WINDMILL CANNOT BE SAID TO BE SEPARATE FROM WINDMILL AND IS DIRECTLY RELATED T O THE FUNCTIONING OF THE WINDMILL. LEARNED ASSESSING OFFICER HAS MISUNDERSTO OD AND MISINTERPRETED THE BASICS OF THE ISSUE INVOLVED AND HAS FORMED HIS OPINION PU RELY ON PRESUMPTIONS AND ASSUMPTIONS AT THE COST OF DISOBEYING THE ORDER OF JURISDICTIONAL TRIBUNAL. 5. ON THE ABOVE FACTS, IT IS SEEN THAT THE BASIC DI SPUTE IS WHETHER OR NOT FOUNDATION AND CIVIL STRUCTURE ARE INTEGRAL PART OF WINDMILL. ON THIS ISSUE HONOURABLE PUNJAB AND HARYANA HIGH COURT IN THE CAS E OF CIT-I, LUDHIANA V/S EASTMAN IMPEX ITA NO. 350/2013 DATED 18/12/2014 NOT ED THAT A WINDMILL WHICH IS A SOURCE OF RENEWABLE ENERGY CANNOT FUNCTION WITHOUT POWER EVACUATION INFRASTRUCTURE AND THEREFORE TO HOLD THAT IT IS NOT INTEGRAL TO A WINDMILL WOULD BE TRAVESTYING OF FACTS AND JUSTICE. IT WOULD BE NECESSARY TO QUALIFY THAT WE ARE NOT DEALING WITH ORDINARY TYPES WHERE TRANSMISSION LINE AND ELECTRIC ITY GENERATION DEVICES ARE INVOLVED, BUT WHICH OBVIOUSLY CANNOT SUPPLY ELECTRI CITY WITHOUT POWER EVACUATION INFRASTRUCTURE. THE HIGH COURT GAVE DECISION IN FAV OUR OF ASSESSEE. ON THE OTHER HAND, ASSESSING OFFICER HAS RELIED ON DECISION OF I TAT IN THE CASE OF POONAWALA FINVEST AND AGRO PVT. LTD. (SUPRA) WHICH HELD THAT DEPRECIATION ON CONTROL ROOM, SITE DEVELOPMENT EXPENDITURE AND INTERNAL ROAD ARE NOT THE STRUCTURES SO DESIGNED THAT THEY COULD ONLY BE USED FOR POWER GENERATION B Y WINDMILL, THEREFORE, THESE ARE NOT ENTITLED TO 100% DEPRECIATION. (THIS RATE OF 100% HAS BEEN CHANGED TO 80% BY SUBSEQUENT AMENDMENT TO THE INCOME-TAX ACT). THE ITAT ALSO DECIDED THAT DP STRUCTURE WAS ENTITLED TO 100% DEPRECIATION. WHI LE DEALING WITH THE CASE OF DCIT, CIRCLE-1, SANGLI V/S AMINITY DEVELOPERS AND B UILDERS IN ITA NO. 4 ITA NO.701/PN/2015 1505/PN/2011 THE HONOURABLE MEMBERS IN BENCH 'B', I TAT, PUNE DISCUSSED THE DECISION IN THE POONAWALA FINVEST AND AGRO PVT. LTD . (SUPRA) CASE. THE MEMBERS FOUND THAT IN THE CASE OF POONAWALA FINVEST AND AGR O PVT. LTD. THERE WAS NOTHING ON RECORD TO ESTABLISH THAT SITE CONSTRUCTI ON OF CONTROL ROOM, INTERNAL ROADS ETC. WERE INTEGRAL PART OF WINDMILL. HOWEVER, IN THE CASE OF AMINITY DEVELOPERS AND BUILDERS (SUPRA), CONSIDERING THE FU NCTIONING OF FOUNDATION OF WINDMILL, ITS LAYOUT AND NATURE OF SUPPORT PROVIDED IT WAS FOUND THAT THE FOUNDATION HAS TO BE HELD AS INTEGRAL PART OF WINDMILL. THEREF ORE, THE DECISION WAS GIVEN IN FAVOUR OF ASSESSEE AND DEPRECIATION WAS ALLOWED @ 8 0%. 6. FACTS IN THE PRESENT CASE ARE NOT DIFFERENT. WIN DMILL WHICH IS A SOURCE OF RENEWABLE ENERGY NEEDS FOUNDATION AND CIVIL STRUCTU RES IN ORDER TO GENERATE POWER AND SUPPLY THE POWER GENERATED TO THE GENERAL GRID. FUNCTION OF THE FOUNDATION IS NOT ONLY TO TRANSFER LOAD OF THE SUPER STRUCTURE TO THE EARTH BELOW BUT IT PROVIDES STIFFNESS TO THE TOWER, PROTECT AGAINST SETTLEMENT AND TILTING OF TOWER, TRANSFER THE TORQUE GENERATED BY UNEQUAL FORCES, WITHSTAND THE S HEAR AND PULLOUT AND PROVIDING OVERTURNING AND SLIDING RESISTANCE. THERE FORE, FOLLOWING THE LATEST DECISION IN THE CASE OF AMINITY DEVELOPERS AND BUIL DERS (SUPRA) OF ITAT, PUNE 'B' BENCH, I DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE AND DIRECT THE ASSESSING OFFICER TO DELETE THE DISALLOWANCE. 7. IN THE RESULT, APPEAL IS ALLOWED. 6. AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVENU E IS IN APPEAL BEFORE THE TRIBUNAL. 7. THE LD. DEPARTMENTAL REPRESENTATIVE FOR THE REVE NUE RELIED UPON THE ORDER OF THE ASSESSING OFFICER. 8. WE FIND THAT DECISION OF PUNE BENCH OF THE TRIBU NAL IN THE CASE OF POONAWALA FINVEST AND AGRO PVT. LTD. (SUPRA) RELIED UPON BY ASSESSING OFFICER INFACT SUPPORTS THE CASE OF ASSESSEE. 9. WE ALSO FIND THAT THE CONTROVERSY IN THE PRESENT CASE IS SQUARELY COVERED BY THE RECENT DECISION OF THE PUNE BENCH OF THE TRI BUNAL IN THE CASE OF SHREEM ELECTRIC LIMITED VS. JCIT IN ITA NO.2107/PN/2013, O RDER DATED 30.11.2015 WHEREIN THE TRIBUNAL HAS DECIDED THE ISSUE IN FAVOU R OF THE ASSESSEE. THE RELEVANT EXTRACT OF THE ORDER OF THE TRIBUNAL ON TH E ISSUE IS REPRODUCED HEREINBELOW :- 8. WE HAVE CAREFULLY CONSIDERED THE ORDERS OF THE AUTHORITIES BELOW AND SUBMISSIONS MADE ON BEHALF OF THE REVENUE. THE ONL Y ISSUE FOR ADJUDICATION BEFORE 5 ITA NO.701/PN/2015 US IS ALLOWABILITY OF SIMILAR DEPRECIATION RATE AS APPLICABLE TO WINDMILLS, ALSO TO THE FOUNDATION & CIVIL WORK AND ERECTION & COMMISSIO NING WORK EXECUTED FOR THESE WINDMILLS. IT IS THE CASE OF THE ASSESSEE BEFORE T HE ASSESSING OFFICER AS WELL AS BEFORE THE CIT(A) THAT ENTIRE EXPENDITURE TOGETHER WITH COST OF WINDMILL IS ENTITLED TO SAME RATE OF DEPRECIATION AT 80% AS THE OTHER EXPEN DITURE INCURRED TOWARDS FOUNDATION & CIVIL WORK AND ERECTION & COMMISSIO NING WORK, ETC. ARE INTEGRAL PART OF WINDMILLS AND ARE DIRECTLY ATTRIBUTABLE TO INSTALLATION AND OPERATIONAL FUNCTIONING OF WIND TURBINE. SINCE THE CIVIL WORK AND ERECTION & COMMISSIONING EXPENSES INCURRED ARE IN RELATION TO INSTALLATION O F WINDMILL, DEPRECIATION ON THE SAME SHOULD BE PROVIDED AT THE RATE APPLICABLE TO W INDMILL. WE FIND THAT THE AFORESAID ASSERTIONS MADE ON BEHALF OF THE ASSESSEE BEFORE THE REVENUE REMAINS UNCONTROVERTED. ACCORDINGLY, WE ARE OF THE FIRM VI EW THAT THE EXPENSES INCURRED ON ERECTION & COMMISSIONING, CIVIL WORK, ETC. BEING NE CESSARY ADJUNCT TO THE WINDMILL AND IS NOT MEANT FOR ANY OTHER PURPOSES OTHER THAN FOR OPERATIONAL FUNCTIONING OF WIND TURBINE AND THEREFORE CANNOT BE TREATED DIFFER ENTLY. THEREFORE, IMPUGNED CAPITAL EXPENDITURE TOWARDS CIVIL WORK & COMMISSION ING ETC. ALSO WILL QUALIFY FOR THE SAME RATE OF DEPRECIATION AS APPLICABLE TO WIND TUR BINE ITSELF. THE ISSUE IS NO LONGER RES-INTEGRA AND IS COVERED BY THE DECISION OF CO-OR DINATE BENCH OF THE TRIBUNAL IN THE CASE OF POONAWALA FINVEST & AGRO (P.) LTD. VS. ACIT, (2008) 118 TTJ 68 (PUNE) WHEREIN IT HAS BEEN CLEARLY HELD THAT THE CAPITAL E XPENDITURE INCIDENTAL TO THE WINDMILL HAS TO BE TESTED ON THE TOUCHSTONE OF THE FUNCTIONAL TEST AND THE ASSESSEE WILL BE ENTITLED TO HIGHER RATE OF DEPRECIATION ON SUCH INCIDENTAL EXPENDITURE, IF IT HAS NO OTHER USE EXCEPT FOR POWER GENERATION DONE B Y THE WINDMILL. OUR VIEW IS ALSO SUPPORTED BY ANOTHER DECISION OF THE CO-ORDINATE BE NCH OF PUNE TRIBUNAL IN THE CASE OF M/S D.J. MALPANI VS. ACIT IN ITA NOS.1148 T O 1154/PN/2013, ORDER DATED 30.10.2015. ACCORDINGLY, WE HOLD THAT THE REVENUE IS MISDIRECTED ITSELF IN LAW IN MAKING THE IMPUGNED DISALLOWANCE OF DEPRECIATION. 10. IN THE LIGHT OF THE AFORESAID PRECEDENTS ON THE ISSUE, WE FIND NO MERIT IN THE GROUNDS RAISED BY THE REVENUE. THUS, REVENUE F AILS ON ITS GROUNDS. 11. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. ORDER PRONOUNCED ON THIS 18 TH DAY OF MAY, 2016. SD/- SD/- ( SUSHMA CHOWLA ) ( PRADIP KUMAR KEDIA ) / JUDICIAL MEMBER # / ACCOUNTANT MEMBER PUNE ; DATED : 18 TH MAY, 2016. 6 ITA NO.701/PN/2015 % & '() *)' / COPY OF THE ORDER IS FORWARDED TO : 1) THE ASSESSEE; 2) THE DEPARTMENT; 3) THE CIT(A)-1&2, KOLHAPUR; 4) THE CIT-II, KOLHAPUR; 5) THE DR A BENCH, I.T.A.T., PUNE; 6) GUARD FILE. %+ / BY ORDER , ' # //TRUE COPY// $ %& # '( / SR. PRIVATE SECRETARY ) '* , / ITAT, PUNE