DCIT, CHENNAI V. Century Flour Mills Ltd., CHENNAI

ITA 715/CHNY/2014

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 0573 (ITAT-CHENNAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-12-1969
• Appeal Filed By: Department
• Bench Allotted: B
• Next Hearing Date: 17-10-2022
• Assessment Year: 2006-2007
• Appeal Filed On: 20-03-2014
• Court: TRIBUNAL
• Assessee Lawyers: S. NAGARAJAN
• Keywords: Depreciation; Additional depreciation; TDS
• Section: 143(3); 14A; 32(1)(iia); 80IA

Judgement Text

आयकर अपील य अ धकरण, ‘बी’ यायपीठ, चे नई IN THE INCOME TAX APPELLATE TRIBUNAL ‘B’ BENCH : CHENNAI ी ए. मोहन अलंकामणी, लेखा सद य एवं ी एस. एस. गोदारा, या!यक सद य के सम" । [BEFORE SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER AND SHRI S. S. GODARA, JUDICIAL MEMBER] आयकर अपील सं./I.T.A.Nos. 715 to 718/Mds/2014 नधा रण वष /Assessment years : 2006-07 to 2009-10 The Dy. Commissioner of Income-tax Company Circle I(3) Chennai Vs. M/s Century Flour Mills Ltd Indian Chamber Buildings First Floor, Esplanade Chennai 600 018 [PAN AAACC 1223 C] ( अपीलाथ%/Appellant) (&'यथ%/Respondent) आयकर अपील सं./I.T.A.Nos.70 & 71/Mds/2014 नधा रण वष /Assessment years : 2008-09 and 2009-10 M/s Century Flour Mills Ltd Indian Chamber Buildings First Floor, Esplanade Chennai 600 018 Vs. The Asst. Commissioner of Income-tax Company Circle I(3) Chennai ( अपीलाथ%/Appellant) (&'यथ%/Respondent) Department by : Shri P. Radhakrishnan, JCIT Assessee by : Shri S. Nagarajan, CA स ु नवाई क तार ख/Date of Hearing : 10 -11-2014 घोषणा क तार ख /Date of Pronouncement : 21-11-2014 I.T.A.Nos. 715 to718/14 70 & 71/14 :- 2 -: आदेश / O R D E R PER BENCH: These Revenue’s appeals for assessment years 2006-07 to 2009-10 and assessee’s cross appeals for the latter two assessment years are directed against a common order of the Commissioner of Income-tax (Appeals)(C)-II Chennai dated 31.10.2013, passed in I.T.A.Nos.364 to 367/13-14, in proceedings under section 143(3) of the Income-tax Act, 1961 (in short the ‘Act’). 2. For the sake of convenience and brevity, we proceed assessment year wise to decide this batch of six appeals. A.Y 2006-07 Revenue’s appeal I.T.A.No.715/Mds/2014 3. The Revenue’s sole substantive ground raised in this case (also common in all appeals) is that the CIT(A) has erred in allowing deduction u/s 80IA by treating each of the assessee’s windmills a separate unit for granting additional depreciation benefit. 4. The assessee is a ‘company’ running wheat flour mills. It had filed its return on 25.11.2006 admitting income of ` 83,23,304/-. The same was ‘summarily’ processed. I.T.A.Nos. 715 to718/14 70 & 71/14 :- 3 -: 5. The Assessing Officer took up ‘scrutiny’. The assessee had installed its windmill in September 2005. The same was put to use for less than 180 days upto 31.3.2006. The windmill’s cost reads ` 2.64 crores. The assessee had claimed depreciation @ 50% amounting to ` 1.32 crore including additional depreciation @ 10% u/s 32(1)(iia). The Assessing Officer observed that this additional depreciation would be allowable only in case of manufacture or production of an article or a thing. He opined that the assessee’s main business of wheat flour mill was distinct than the eligible unit u/s 80IA. He also held that the power generated was neither manufacture nor production of an article or a thing led to disallowance of the aforesaid additional depreciation of ` 26,40,000/-. 6. The CIT(A) has accepted the assessee’s aforesaid claim of additional depreciation as under: “ 5.2 I have considered the submission of the appellant and have also gone through the decisions relied on by the appellant and I find that the issue of allowability of additional depreciation on windmills is squarely covered by the decisions of the Hon 'ble jurisdictional High Court of Madras in the cases relied on by the appellant. The relevant extract of the decision of the jurisdictional High Court in the case of Commissioner of Income Tax v. Hi Tech Arai Ltd. [2010] 321 ITR 477 (MAD.) is reproduced as under: I.T.A.Nos. 715 to718/14 70 & 71/14 :- 4 -: “.. 5. In the case on hand, the assessee is stated to have set up two wind mills in addition to the already existing four wind mills and thereby increased its power generation capacity by above 50 per cent. It is true that the assessee is a company engaged in the business of manufacture of oil seeds, moulded rubber parts, reed value assemblies apart from generation of power. After the installation of the additional wind mills, both prior to as well as after the installation of the additional wind mills, the assessee was using wind energy for generating power for its captive consumption apart from selling the surplus power generated to the Tamil Nadu Electricity Board. As far as application of section 32(1)(iia) of the Act is concerned, what is required to be satisfied in order to claim the additional depreciation is that the setting up of a new machinery or plant should have been acquired and installed after March 31, 2002 by an assessee, who was already engaged in the business of manufacture or production of any article or thing. The said provision does not state that the setting up of a new machinery or plant, which was acquired and installed up to March 31, 2002, should have any operational connectivity to the article or thing that was already being manufactured by the assessee. Therefore, the contention that the setting up of a wind mill has nothing to do with the power industry, namely, manufacture of oil seeds, etc., is totally not germane to the specific provision contained in section 32(1)(iia) of the Act.." Further, it is pertinent to refer to the decision of the jurisdictional High Court in the case of Commissioner of Income Tax, Madhurai v. VTM Ltd. [2010] 187 TAXMAN 319 (MAD.). The relevant extract of the decision is reproduced as under: " .. As far as the application of section 32(1)(iia ) is concerned, what is required to be satisfied in order to claim the additional depreciation is that a new machinery or plant, which has been set up, should have been acquired and installed after 31-3-2002 by an assessee) who was already engaged in the business of manufacture or production of any article or thing. The said provision does not state that the setting up of a new machinery or plant) which was acquired and installed after 31-3-2002 should have any operational connectivity to the article or thing that was already being manufactured by the assessee. Therefore, the contention that the setting up of a windmill had nothing to do with the manufacture of textile goods was totally not germane to the specific provision contained in section 32(1)(iia). [Para 5] I.T.A.Nos. 715 to718/14 70 & 71/14 :- 5 -: It could also not be said that setting up of a windmill would not fall within the expression (setting up of a new machinery or plant). Therefore) there was no error in the conclusion of the Tribunal. [Para 6] .. " 5.3 Respectfully following the decision of the jurisdictional High Court of Madras in the cases reported in 321 ITR 477 (Mad) and 187 Taxman 319 (Mad) I hold that the appellant is entitled to additional depreciation under section 32(1)(iia). The AO is therefore directed to delete the disallowance made in this regard. The grounds of appeal, as they relate to this issue, are therefore allowed. ” Therefore, the Revenue is in appeal. 7. We have heard both the parties and gone through the case file. Relevant facts stand narrated. The Revenue supports the Assessing Officer’s view that assessee’s flour mill and windmill are distinct businesses for the purpose of additional depreciation to press for restoration of the impugned disallowance. The hon'ble jurisdictional high court (supra) has already rejected the Revenue’s identical plea and held that this distinction sought to be drawn is totally not germane for granting additional depreciation benefit. The Revenue fails to draw any distinction on facts. In these circumstances, we affirm the CIT(A)’s findings under challenge. The Revenue’s grounds are rejected. I.T.A.No.715/Mds/2014 is dismissed. I.T.A.Nos. 715 to718/14 70 & 71/14 :- 6 -: A.Y 2007-08 Revenue’s appeal I.T.A.No.716/Mds/2014 8. Both parties inform us that the sole issue raised in the present appeal pertains to claim of additional depreciation relating to the assessee’s windmill installed and put to use for less than 180 days. So, we reject the Revenue’s grounds in light of our observations on identical issue in assessment year 2006-07 decided hereinabove. The CIT(A)’s order is upheld. I.T.A.No.716/Mds/2014 is dismissed. A.Y 2008-09 Revenue’s appeal I.T.A.No.717/Mds/2014 & Assessee’s appeal I.T.A.No. 70/Mds/2014 9. The Revenue’s grounds raise a single issue of additional depreciation akin to that decided in preceding assessment years hereinabove. We follow suit in this impugned assessment year as well and uphold the CIT(A)’s findings. The Revenue’s appeal I.T.A.No.717/Mds/2014 is dismissed. 10. Now we come to the assessee’s appeal I.T.A.No.70/ Mds/2014 challenging disallowance of ` 1,21,700/- made u/s 14A r.w.r 8D(2)(ii) of the Income-tax Rules. 11. In ‘scrutiny’, the Assessing Officer noticed the assessee to have made substantial investments in share holding of its subsidiary I.T.A.Nos. 715 to718/14 70 & 71/14 :- 7 -: M/s Century Biscuits Ltd. It had also operated its mutual fund investment portfolio. The Assessing Officer drew an inference that the assessee’s interest bearing loans or a part thereof had been diverted for these investments. The assessee’s gross interest outgo in the relevant year comes to ` 138.64 lakhs. The Assessing Officer invoked section 14A and computed disallowance/addition u/r 8D(2)(ii)& (iii) of ` 1,21,700/- and 0.132 lakhs respectively totalling to ` 1.349 lakhs. The CIT(A) has affirmed the Assessing Officer’s findings. 12. We have heard both the parties and perused the relevant findings. The assessee confines its challenge to disallowance under rule 8D(2)(ii) of ` 1,21,700/- (supra) only. It has incurred total interest expenditure of ` 1,38,64,225/- and also files particulars stating heads thereof as under: “ INTEREST ON OCC (A) 1,331,309.00 Interest – others FINANCE CHARGES Interest INTEREST CHARGES – CARGIL INDIA PVT.LTD INTEREST IN THE INSTANT CASE, LTD INTEREST ON – ICD/Loans 89,752.00 867,861.00 4,582,884.00 1,952,561.00 (B) 7,493,058.00 Interest on Term Loan Interest on Machinery Loan 575,178.00 I.T.A.Nos. 715 to718/14 70 & 71/14 :- 8 -: Interest on Wind Mill Term loan Interest paid for Enercon Windmill 854,876.00 Interest paid for NEG Micon 1,068,598.00 Interest paid for Vestas 225 KW 406,027.00 New windmill Interest paid for Vestas 500 KW New Windmill 1,836,091.00 Interest paid for prior year 299,088.00 4,464,680.00 (C) 5,039,858.00 Total interest paid (A) + (B) + (C) 13,864,225.00” The Revenue fails to rebut this factual position. We find that neither the Assessing Officer nor the CIT(A) have specifically dealt with the assessee’s interest accounts statement reproduced hereinabove. The Assessing Officer’s findings alleging diversion of interest bearing funds prove to be contrary to the case record. Thus, we observe that the impugned disallowance is not sustainable and accept the assessee’s arguments. The impugned disallowance of ` 1,21,700/- stands deleted. The assessee’s appeal I.T.A.No.70/Mds/2014 is allowed. A.Y 2009-10 Revenue’s appeal I.T.A.No. 718/Mds/2014 & Assessee’s appeal I.T.A.No.71/Mds/2014 13. The Revenue’s appeal I.T.A.No.718/Mds/2014 challenges the CIT(A)’s order allowing additional depreciation in case of assessee’s I.T.A.Nos. 715 to718/14 70 & 71/14 :- 9 -: windmill (identical to our findings in assessment years 2006-07 to 2008-09 decided hereinabove) and accepting the depreciation claim @ 60% on UPS as against Assessing Officer’s action restricting it @ 15% in the course of assessment. The assessee’s grievance is also two folded. It challenges disallowance of ` 1,49,146/- u/s 14A r.w.r 8D(2)(ii) and the other of ` 58,98,472/- qua consignment sales. We proceed to deal with the Revenue’s appeal first. 14. It is to be seen that the Revenue’s former ground of additional depreciation is covered by our findings on identical issue decided hereinabove in preceding assessment years. The Revenue’s ground is accordingly rejected. 15. The Revenue’s second ground is regarding rate of depreciation on the assessee’s UPS system. The Assessing Officer restricted this claim of depreciation @ 15%. The lower appellate authority treats it as a part of computer and grants depreciation relief @ 60%. We find that a co-ordinate bench of the 'tribunal' in I.T.A.No. 1774/Mds/2012 Sundaram Asset Management Co. Ltd vs DCIT, dated 19.7.2013 has treated a UPS device as a part of computer entitled for 60% depreciation. A catena of case law has also been discussed. The I.T.A.Nos. 715 to718/14 70 & 71/14 :- 10 -: Revenue fails to refer any distinction on facts or any other case law to the contrary. Therefore we uphold the CIT(A)’s findings and reject the Revenue’s ground. The Revenue’s appeal I.T.A.No.718/Mds/2014 is dismissed. 16. In assessee’s appeal, its first ground challenges disallowance u/s 14A r.w.r 8D(2)(ii) of `1,49,496/-. The factual position is found to be identical to that involved in the preceding assessment year dealt with hereinabove. The assessee also files details of its interest outgo dispelling lower authorities’ findings holding diversion of interest bearing funds. Therefore, we follow our order in I.T.A.No.70/Mds/2014 and delete this disallowance as well. 17. The second ground challenges disallowance of ` 58,98,472/- pertaining to consignment sales. The assessee has duly deducted TDS on these payments for claiming the same as expenditure. The authorities below observe that in assessment years 2006-07, 2007-08 and 2008-09, the assessee had contested non-deductibility of TDS and preferred appeals against the disallowance which have not become final. We do not agree with this reasoning. The fact remains that the assessee in the relevant previous year has complied with the TDS provisions before making payments for the consignment sales. In these I.T.A.Nos. 715 to718/14 70 & 71/14 :- 11 -: circumstances, we accept the assessee’s contentions and hold that once TDS has been duly deducted, its mere action of pursuing appeal in earlier assessment years does not bar it from claiming the payments as expenditure. The assessee succeeds on this issue as well. The assessee’s appeal I.T.A.No.71/Mds/2014 is allowed. 18. To sum up, the Revenue’s appeals I.T.A.Nos.715 to 718/Mds/2014 are dismissed and assessee’s appeals I.T.A.Nos.70 & 71/Mds/2014 are allowed. Order pronounced on Friday, the 21 st of November , 2014, at Chennai. Sd/- Sd/- (ए. मोहन अलंकामणी) (A. MOHAN ALANKAMONY) लेखा सद य/ACCOUNTANT MEMBER (एस. एस. गोदारा) (S. S. GODARA) या!यक सद य/JUDICIAL MEMBER चे नई/Chennai दनांक/Dated: 21 st November, 2014 RD आदेश क " त#ल$प अ%े$षत/Copy to: 1. अपीलाथ'/Appellant 4. आयकर आय ु (त/CIT 2. ")यथ'/Respondent 5. $वभागीय " त न,ध/DR 3. आयकर आय ु (त (अपील)/CIT(A) 6. गाड फाईल/GF