ACIT, Ludhiana V. M/s Eastman International, Ludhiana

ITA 821/CHANDI/2012

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 68374 (ITAT-CHANDIGARH)
• Duration Of Justice: 11 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-08-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 16-07-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 06-08-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: J S NAGAR
• Keywords: Depreciation; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH B, CHANDIGARH BEFORE SHRI T.R. SOOD, A.M AND MS. SUSHMA CHOWLA, JM ITA NO. 821 & 1127/CHD/2012 ASSESSMENT YEAR : 2008-09 & 2009-10 A.C.I.T. CIRCLE I V M/S EASTMAN INTERNATIONAL LUDHIANA B-XXX/2185/C-203/1 PHASE VII, FOCAL POINT LUDHIANA AAAFE 3449D (APPELLANT) (RESPONDENT) APPELLANT BY SHRI J.S. NAGAR RESPONDENT BY: SHRI ASHWANI KUMAR DATE OF HEARING 16.7.2013 DATE OF PRONOUNCEMENT 2.8.2013 O R D E R PER T.R.SOOD, A.M THESE APPEALS BY THE REVENUE ARE DIRECTED AGAINST T HE COMMON ORDER DATED 10.5.2012 OF THE LD. CIT(A)-I, L UDHIANA. THE APPEALS WERE HEARD TOGETHER AND ARE DISPOSED OF F BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. ITA NO. 821/CHD/2012 2 THE FIRST COMMON ISSUE IS REGARDING ALLOWANCE OF DEPRECIATION @ 80% ON THE CONTRIBUTION MADE BY THE ASSESSEE FOR USE OF POWER EVACUATION INFRASTRUCTURE FACILITI ES. 3 BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IN STALLED WIND MILL. THE ASSESSEE MADE SOME CONTRIBUTION TOW ARDS POWER EVACUATION INFRASTRUCTURE FACILITIES AND CLAI MED 80% DEPRECIATION ON THE SAME. THE DEPRECIATION WAS DIS ALLOWED ON THE BASIS THAT THE ASSESSEE WAS NOT OWNER OF THIS F ACILITY AND IN ANY CASE THIS FACILITY IS NOT IN THE NATURE OF RENE WAL ENERGY 2 DEVICE. IN THIS BACKGROUND THE ASSESSING OFFICER AL LOWED DEPRECIATION ONLY @ 15%. 4 ON APPEAL, THE LD. CIT(A) WAS OF THE OPINION THAT POWER EVACUATION INFRASTRUCTURE FACILITIES IS ABSOLUTELY ESSENTIAL FOR THE WIND MILL TO GENERATE ELECTRICITY TO BE PRACTIC ALLY AVAILABLE TO THE EVENTUAL CUSTOMERS. IN OTHER WORDS, WITHOUT SUCH FACILITY THE INSTALLATION OF WIND MILL WOULD BE MEANINGLESS. HE ALSO OBSERVED THAT POWER EVACUATION INFRASTRUCTURE FACI LITIES BY ITSELF CANNOT BE DESCRIBED AS RENEWAL ENERGY DEVICE . HOWEVER, SAME ALONG WITH ASSOCIATION OF WIND MILL W OULD DETERMINE THE TRUE CHARACTER. ACCORDINGLY HE ALLO WED THE DEPRECIATION @ 80%. 5 BEFORE US, THE LD. DR FOR THE REVENUE STRONGLY SU PPORTED THE ORDER OF ASSESSING OFFICER. 6 ON THE OTHER HAND, THE LD. COUNSEL OF THE ASSESS EE SUBMITTED THAT THE ISSUE IS COVERED BY THE ORDER OF THE TRIBUNAL IN CASE OF ACIT V. EASTMAN INTERNATIONAL, ITA NO. 1127/CHD/2012. 7 AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND THAT IDENTICAL ISSUE CAME UP FOR CONSIDERATION OF THE TR IBUNAL IN CASE OF ACIT V. EASTMAN IMPEX, LUDHIANA, ITAS NO. 8 19 & 820/CHD/2012 AND THE SAME HAS BEEN ADJOURNMENT VIDE PARA 10 WHICH IS AS UNDER: 10. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. IN THE PRESENT CASE IT IS NOTICED THAT THE FACTS OF THE PR ESENT CASE ARE SIMILAR TO THE FACTS INVOLVED IN THE CASE OF TRUMAC ENGINEERING CO. PVT. LTD. MUMBAI VS. ITO(SUPRA) WHEREIN VIDE OR DER DATED 27.06.2008 RELEVANT FINDING GIVEN BY THE ITAT, MUMB AI BENCH I IN PARA 21 TO 24 READ AS UNDER: 21. COMING TO THE NEXT ITEM, I.E. DISALLOWANCE OF DEPRECIATION OF RS. 42,50,000/- IN RESPECT OF CONTR IBUTION MADE TO GEDA, LD. COUNSEL REITERATED THE SUBMISSIONS MAD E BEFORE 3 THE REVENUE AUTHORITIES AND SUBMITTED THAT THE POWE R GENERATED FROM THE WIND MILL FARM AT NAVADRA / BHOG AT SITE IS DELIVERED TO THE SUB-STATION OF GEDA THROUGH HT LIN ES. THIS POWER IN TURN IS TRANSFERRED TO GEDA FOR FURTHER TR ANSMISSION. FOR THIS PURPOSE, CONNECTION OF GRID AT SUBSTATION IS REQUIRED. THE CONTRIBUTION MADE TO GEDA IS TOWARDS SETTING UP OF CENTRALIZED SUBSTATION AT LAMBA, THROUGH WHICH THE ELECTRICITY GENERATED BY THE WIND FARM WOULD BE DELIVERED TO TH E GRID. THE CLAIM WAS MADE ON THE BASIS OF INFORMATION AVAILABL E. IN FACT, SUBSEQUENTLY, ASSESSEE RECEIVED CONFIRMATION, AS ST ATED IN THE PRECEDING PARA, FROM GEDA, FOR FIXING THE CONTRIBUT ION OF RS. 35,60,862.75 OUT OF RS. 42,50,000/- FOR FORMATION O F SUBSTATION AND THE BALANCE, IT WAS INTIMATED, WILL BE UTILIZED TOWARDS RUNNING AND MAINTENANCE OF SUBSTATION. 22. IN THE ALTERNATE, LEARNED COUNSEL SUBMITTED THA T THE PAYMENT MADE TO GEDA AT LEAST TO BE TREATED AS REVE NUE EXPENDITURE. IF THE REVENUE TREATS THIS AS NOT SOME THING OWNED BY THE ASSESSEE (SUBSTATION), THEN IT NATURALLY FOL LOWS THAT ASSESSEE CONTRIBUTED THE ABOVE AMOUNT FOR CREATION OF SUBSTATION, WHICH IS THE PROPERTY OF GEDA. IN THAT CASE, LEARNED COUNSEL SUBMITTED, THE DECISION OF THE HON BLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. BIRLA JU TE MANUFACTURING LTD., REPORTED IN 182 ITR 497 (CAL) I S CLEARLY APPLICABLE; LEARNED COUNSEL SUBMITTED, THE SAME VIE W HAS BEEN TAKEN BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. EXCEL INDUSTRIES LTD., REPORTED IN 122 ITR 995 (BOM). 23. LEARNED DR, ON THE OTHER HAND, SUBMITTED THAT T HE ASSESSEE IS NOW IMPROVING THE METHOD OF TRANSACTION BY INSTALLING NEW MACHINERIES, WITHOUT WHICH ALSO THE WINDMILL WILL CONTINUE TO OPERATE. THIS CANNOT BE TREATED AS AN I NTEGRAL PART OF THE WINDMILL AS SUCH. THIS HAS INDEPENDENT STAND ING. ASSESSEES WINDMILL WORKED EVEN WITHOUT THESE MACHI NERIES. AS SUCH LD. DR FOR THE REVENUE SUBMITTED THAT THE O RDERS OF THE REVENUE AUTHORITIES MAY BE UPHELD. 24. CONSIDERING THE RIVAL SUBMISSIONS, WE ARE OF TH E VIEW THAT THE ASSESSEES APPEAL IS TO BE ALLOWED ON MERIT. FI RSTLY, IT IS TO BE SEEN THAT THESE MACHINERIES HAD NO INDEPENDENT FUNCTIONING AS SUCH. MERELY BECAUSE IT IMPROVES THE WORKING SYSTEM OR CONTROLLING / MONITORING SYSTEM, IT CANNO T BE TREATED AS AN INDEPENDENT MACHINERY AND NOT PART OF THE INT EGRATED MACHINERY. THE SUBMISSION OF THE LEARNED COUNSEL IS THAT IF THE MACHINERY INSTALLED AT THE FIRST STAGE OF INSTALLIN G THE WINDMILL ITSELF, THE CLAIM OF THE ASESSEE; WOULD HAVE BEEN A LLOWED, MERELY BECAUSE FOR SOME REASON OR OTHER IT WAS SUBS EQUENTLY INSTALLED, DOES NOT MEAN THAT IT IS NOT A PART OF T HE MACHINERY AS SUCH,. SINCE THE MACHINERY HAD NO INDEPENDENT FU NCTIONING, WE ARE OF THE VIEW THAT THE DECISION OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF BIRLA JUTE MANUFACTURING; LTD. (SUPRA) IS CLEARLY APPLICABLE. IN THE CASE OF EXCEL INDUSTRIES LTD. (SUPRA), THE HONBLE BOMBAY HIGH COURT HELD; P AYMENT MADE FOR OVERHEAD SERVICE LINE, WHICH REMAINED THE PROPERTY OF ELECTRICITY BOARD, IS ALLOWABLE AS REVENUE EXPEN DITURE; ON FACTS, IN THE INSTANT CASE OF THE ASSESSEE, THE PAY MENT TO GEDA IS TO BE ALLOWED IN THE LIGHT OF THIS DECISION OF THE 4 JURISDICTIONAL HIGH COURT. HENCE, APPEAL BY THE ASS ESSEE WITH REGARD TO GROUND NO. 1,2,3 AND 4 ARE ALLOWED. SINCE THE FACTS OF THE PRESENT CASE ARE SIMILAR TO THE FACTS INVOLVED IN THE AFORESAID REFERRED TO CASE OF TRUMA C ENGINEERING CO. PVT. LTD. MUMBAI VS. ITO (SUPRA), S O, RESPECTFULLY FOLLOWING THE AFORESAID REFERRED TO DE CISIONS DATED 27.06.2008 OF ITAT, MUMBAI BENCH I, WE DO NOT SEE ANY VALID GROUND TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A). FOLLOWING THE ABOVE, WE FIND NOTHING WRONG IN THE O RDER OF THE LD. CIT(A) AND WE CONFIRM THE SAME. 8 SECOND ISSUE IS REGARDING ALLOWANCE OF DEPRECIATI ON ON ELECTRICITY LINE FOR TRANSMISSION OF METERING. 9 AFTER HEARING BOTH THE PARTIES WE FIND THAT THE A SSESSEE HAD INCURRED SOME EXPENDITURE FOR INSTALLATION OF T RANSMISSION LINE AND THE SAME WAS ADDED TO THE COST OF WIND MIL L AND THUS CLAIMED DEPRECIATION @ 80%. THE ASSESSING OFFICER WAS OF THE OPINION THAT THE SAME COULD NOT BE CALLED RENEWAL E NERGY DEVICE AND THEREFORE, WAS ALLOWED @ 15%. 10 ON APPEAL THE LD. CIT(A) ALLOWED THE DEPRECIATIO N @ 80% ON THE SAME LOGIC AS IN CASE OF POWER EVACUATION INFRASTRUCTURE FACILITIES. 11 BEFORE US, THE LD. DR FOR THE REVENUE STRONGLY S UPPORTED THE ORDER OF ASSESSING OFFICER. 12 ON THE OTHER HAND, THE LD. COUNSEL OF THE ASSES SEE SUBMITTED THAT THIS ISSUE HAS BEEN ADJUDICATED BY T HE TRIBUNAL BY THE TRIBUNAL IN CASE OF ACIT V. EASTMAN IMPEX, L UDHIANA, ITAS NO. 819 & 820/CHD/2012. 13 AFTER CONSIDERING THE RIVAL SUBMISSIONS AND ON T HE BASIS OF LOGIC GIVEN BY THE TRIBUNAL IN CASE OF ACIT V. EASTMAN IMPEX (SUPRA) WHICH WE HAVE REPRODUCED ABOVE. WE F IND 5 NOTHING WRONG IN THE ORDER OF THE LD. CIT(A) AND CO NFIRM THE SAME. 14 ONE MORE ISSUE HAS BEEN RAISED IN ITA NO. 1127/CHD/2012 FOR ALLOWING DEPRECIATION AT 80% BECAUSE EQUIPMENT WAS USED FOR ONLY 180 DAYS. 15 AFTER HEARING BOTH THE PARTIES WE FIND THAT THE ISSUE HAS BEEN ADJUDICATED BY THE ASSESSING OFFICER AS UNDER: IN VIEW OF THE DISCUSSION ABOVE, IT IS HELD THAT E XPENDITURE RELATABLE TO POWER EVACUATION INFRASTRUCTURE FACILI TIES AMOUNTING TO RS. 86,03,400/- (43,01,700/- + 43,01,7 00/-) IS A CAPITAL EXPENDITURE WHICH CANNOT BE TREATED AS PART OF THE BLOCK OF RENEWABLE ENERGY DEVICES BEING WIND MILL E LIGIBLE FOR DEPRECIATION @ 80% THEREFORE, ENTIRE DEPRECIATION C LAIMED ON THE SAID EXPENDITURE @40% (AS BOTH MACHINES WERE PU T TO USE FOR LESS THAN 180 DAYS) AMOUNTING TO RS. 34,41,360/ - [ 17,20,680/- + 17,20,680/-] IS HEREBY DISALLOWED AND ADDED BACK TO THE INCOME OF THE ASSESSEE. BY SHOWING THE SAID EXPENDITURE AS A PART OF BLOCK OF WIND MILL ELIGIBL E FOR DEPRECIATION @ 80% THE ASSESSEE HAS RESORTED TO FUR NISHING OF INACCURATE PARTICULARS OF INCOME TO CLAIM EXCESSIVE DEPRECIATION. PENALTY PROCEEDINGS U/S 271(1)(C) ARE BEING INITIAT ED SEPARATELY FOR FURNISHING OF INACCURATE PARTICULARS OF INCOME. 16 BEFORE US, THE LD. DR FOR THE REVENUE SUBMITTED THAT ONCE IT WAS HELD THAT MACHINERY WAS USED FOR LESS THAN 1 80 DAYS THEN IF THE ASSESSEE WAS ELIGIBLE FOR DEPRECIATION AT 80% ONLY 50% OF SUCH ELIGIBLE DEPRECIATION COULD HAVE BEEN G RANTED. 17 ON THE OTHER HAND, THE LD. COUNSEL OF THE ASSES SEE FAIRLY CONCEDED THAT SINCE THE MACHINES HAVE BEEN USED ONL Y FOR 180 DAYS THEREFORE, DEPRECIATION CAN BE GRANTED AT 50% ON NORMAL DEPRECIATION. 18 AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND THAT THE LD. CIT(A) HAS NOT DISC USED THIS ISSUE AND SINCE IT HAS BEEN ADMITTED THAT POWER EVACUATION INFRASTRUCTURE FACIL ITIES WAS USED FOR LESS THAN 180 DAYS, DEPRECIATION CAN BE GR ANTED AT 6 ONLY 40% (I.E. 50% OF THE NORMAL DEPRECIATION OF 80 %). THEREFORE, IN THIS RESPECT WE RESTORE THE ORDER OF THE ASSESSING OFFICER. 19 IN THE RESULT, APPEAL OF THE REVENUE IN ITA NO. 821/CHD/2012 IS DISMISSED AND ITA NO. 1127/CHD/2012 IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 2.8.2013 SD/- SD/- (SUSHMA CHOWLA) (T.R. SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 2.8.2013 SURESH COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT/THE C IT(A)/THE DR