V.K.Rajendran, Karur V. DCIT, Trichy

ITA 823/CHNY/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 7765 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 2 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-07-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 25-06-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 04-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR S MOHARANA
• Assessee Lawyers: N QUADIR HOSEYN
• Keywords: Depreciation
• Section: 133A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI BEFORE SHRI ABRAHAM P.GEORGE, ACCOUNTANT MEMBER AND SHRI VIKAS AWASTHY, JUDICIAL MEMBER ITA NO.823/MDS/2011 (ASSESSMENT YEAR: 2005-06) MR. V.K.RAJENDRAN, PROP. ARASI FABRICS, NO.7, PERIYAR NAGAR, KARUR. PAN:AAFOPR4556B VS. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-II, TRICHY. (APPELLANT) (RESPONDENT) APPELLANT BY : MR. N.QUADIR HOSEYN, A DVOCATE RESPONDENT BY : DR. S. MOHARANA, CIT DR DATE OF HEARING : 25 TH JUNE, 2012 DATE OF PRONOUNCEMENT : 25 TH JULY, 2012 O R D E R PER VIKAS AWASTHY, JUDICIAL MEMBER: THE APPEAL HAS BEEN FILED BY THE ASSESSEE IMPUGNIN G THE ORDER OF THE CIT(A), TIRUCHIRAPALLI DATED 25.02 .2011 WHEREBY THE CLAIM OF DEPRECIATION OF THE ASSESSEE O N WINDMILL HAS BEEN REJECTED. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A MANUFACTURER AND EXPORTER OF COTTON FABRICS. THE AS SESSEE IS ALSO ENGAGED IN PRODUCTION AND SALE OF POWER GENERA TED BY WINDMILL. THE ASSESSEE FILED RETURN OF INCOME RELE VANT TO THE ITA NO.823 /MDS/2011 2 ASSESSMENT YEAR 2005-06 ON 12.4.2006 RETURNING TOTA L LOSS OF ` 5,19,150/-. THE RETURN OF THE ASSESSEE WAS PROCESSE D UNDER SECTION 143(1) OF THE INCOME TAX ACT, 1961 (HEREINA FTER REFERRED TO AS THE ACT). THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY AND NOTICE UNDER SECTION 143( 2) WAS ISSUED ON 7.7.2006. THE ASSESSING OFFICER VIDE ASSE SSMENT ORDER DATED 12.9.2007 MADE CERTAIN ADDITIONS IN TH E INCOME RETURNED BY THE ASSESSEE. ONE OF THE ADDITION MADE BY THE ASSESSING OFFICER TO THE TUNE OF ` 1,24,09,409/- WAS ON ACCOUNT OF DISALLOWANCE OF DEPRECIATION ON WINDMILL . THE ASSESSING OFFICER HELD THAT THE WINDMILL INSTALLED BY THE ASSESSEE WAS NOT COMMISSIONED IN THE YEAR RELEVANT TO THE ASSESSMENT YEAR 2005-06. AGGRIEVED AGAINST THE ASSESSMENT ORDER, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A). THE CIT(A), UPHOLDING THE ORDER OF THE ASSESSING OFFICER, DISMISSED THE APPEAL OF THE ASSESSEE. NOW THE ASSESSEE HAS COME IN SECOND APPEAL BEFORE THE TRIBUNAL ASSAILING THE ORDER OF THE CIT(A). THE ONLY GROUND OF APPEAL IS AGAINST DISALLOWANCE OF DEPRECIATION O N WINDMILL ITA NO.823 /MDS/2011 3 WHICH ACCORDING TO THE ASSESSEE WAS COMMISSIONED ON 31.3.2005. 3. MR. N.QUADIR KOSEYN, ADVOCATE APPEARING ON BEHAL F OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAD INSTAL LED WINDMILL ON 31.3.2005 DESPITE THE FACT THAT THE REL EVANT DOCUMENTS WERE PRODUCED BEFORE THE ASSESSING OFFICE R, THE ASSESSING OFFICER BRUSHED ASIDE ALL THE DOCUMENTS P RODUCED BEFORE HIM TO HOLD THAT THE ASSESSEE IS NOT ENTITLE D TO CLAIM DEPRECIATION ON THE WINDMILL. HE SUBMITTED THAT A SURVEY UNDER SECTION 133A WAS CONDUCTED IN THE OFFICE OF E XECUTIVE ENGINEER, UDUMALPET. DURING THE COURSE OF SURVEY, I T WAS FOUND THAT A NUMBER OF WINDMILLS THAT WERE NOT COMM ISSIONED ON 31.3.2005 WERE CERTIFIED AS COMMISSIONED BY TNE B. IT WAS ALLEGED THAT THE SAID EXECUTIVE ENGINEER HAD G IVEN LIST OF CASES WHERE SERVICE CONNECTIONS HAVE BEEN COMPLETED AND THE NAME OF THE ASSESSEE HAD ALSO FIGURED IN THE LI ST. HOWEVER, DURING THE COURSE OF ASSESSMENT PROCEEDING S THE ASSESSING OFFICER NEITHER PROVIDED THE COPY OF THE STATEMENT OF THE EXECUTIVE ENGINEER NOR THE COPY OF LETTERS WHEREIN THE EXECUTIVE ENGINEER HAD CERTIFIED THAT IN ALL THE CA SES SERVICE ITA NO.823 /MDS/2011 4 CONNECTIONS HAVE BEEN COMPLETED. THE COUNSEL FOR T HE ASSESSEE SUBMITTED THAT ANY SUCH STATEMENT RECORDED UNDER SECTION 133A HAS GOT NO EVIDENTIARY VALUE AND ANY A DMISSION MADE DURING SUCH STATEMENT CANNOT BY ITSELF BE MADE THE BASIS FOR ADDITION. IN ORDER TO SUPPORT HIS CONTEN TION, HE RELIED ON THE JUDGEMENT OF THE HONBLE MADRAS HIGH COURT I N THE CASE OF CIT VS. S.KHADER KHAN SON, REPORTED AS 300 ITR 157. 4. THE COUNSEL FOR THE ASSESSEE FURTHER SUBMITTED T HAT THE ASSESSEE HAD PRODUCED ALL THE RELEVANT DOCUMENTS SU CH AS CERTIFICATE FROM THE EXECUTIVE ENGINEER, TNEB DATED 5.5.2005 TO THE EFFECT THAT THE HT SUPPLY FOR THE WIND ENERG Y GENERATOR HAS BEEN EFFECTED ON 31.3.2005 SATISFACTORILY, WHIC H IS AT PAGE 27 OF THE PAPER BOOK, TEST REPORT SHOWING THE DATE OF COMMENCEMENT OF SUPPLY AS 31.3.2005 AT PAGE 28 TO 3 1 OF THE PAPER BOOK. STATEMENTS SHOWING ENERGY GENERATED BY THE WINDMILL DURING THE PERIOD FROM 31.3.2005 TO 12.4.2 005 WHICH IS AT PAGE 34 OF THE PAPER BOOK. THE AGREEMENT FOR SUPPLY OF POWER WAS ALSO EXECUTED BETWEEN THE ASSESSEE AND TN EB ON 31.3.2005. THE COUNSEL SUBMITTED THAT DESPITE T HE FACT ITA NO.823 /MDS/2011 5 THAT THESE DOCUMENTS WERE FURNISHED TO THE ASSESSIN G OFFICER, THE ASSESSING OFFICER MERELY RELIED ON THE STATEMEN T OF EXECUTIVE ENGINEER MADE DURING THE SURVEY. THE C OUNSEL SUBMITTED THAT THE CIT(A) HAS ALSO NOT TAKEN INTO CONSIDERATION THE DOCUMENTS WHICH WERE SUBMITTED BE FORE THE ASSESSING OFFICER ALTHOUGH A REMAND REPORT WAS CALL ED FOR BY HIM. THE ASSESSING OFFICER IN THE REMAND REPORT HA S STATED AS UNDER:- AS PER HIS LETTER, IT IS APPARENT THAT THE GENERAT ION OF ELECTRICITY AS ON 31.3.2005 HAS NOT BEEN ESTABLISHED. ALSO CONSIDERING THE CAPACITY OF THE WINDMILL I.E. 750 KW THE GENERATION AS CERTIFIED BY THE EE (O&M) UDUMALPET UPTO 12.4.2005 IS JUST 400 UNITS FROM WHICH IT CAN BE REASONABLY CONCLUDED THA T THE COMMERCIAL PRODUCTION HAS NOT STARTED AS ON THAT DATE. IN THE ABSENCE OF THE GENERATION OF ANY ELECTRICITY UNITS AS ON 31.3.2005 AND ALSO GOING BY THE REPORT OF THE EE, WIND FARM PROJECT THAT THE UN IT WAS NOT COMMISSIONED AS ON 31.03.2005, THE CIT(A) MAY CONCLUDE THAT THE WINDMILL WAS NOT PUT INTO OPERATION DURING THE RELEVANT PREVIOUS YEAR AN D THEREFORE NO DEPRECIATION IS ALLOWABLE FOR THE ASSESSMENT YEAR 2005-06. ITA NO.823 /MDS/2011 6 THE CIT(A) WAS CARRIED AWAY WITH THE OBSERVATION OF THE ASSESSING OFFICER IN REMAND REPORT SINCE THERE WAS NO COMMERCIAL PRODUCTION MADE BY THE APPELLANT AND NO ELECTRICITY UNIT WAS GENERATED AS ON 31.3.2005, THE REFORE, IT CANNOT BE SAID THAT UNIT WAS COMMISSIONED ON 31.3.2 005. 5. ON THE OTHER HAND, DR.S.MOHARANA APPEARING ON BE HALF OF THE REVENUE SUBMITTED THAT SINCE ALL THE DOCUMEN TS WERE EXECUTED IN MARCH, 2005 AND ALL THE AGREEMENTS AND CERTIFICATES WERE SIGNED ON A SINGLE DAY I.E. 31 ST MARCH, 2005 HAD RAISED SUSPICION ON THE GENUINENESS OF THE DOCU MENTS. THE METER READING FOR A PARTICULAR PERIOD DOES NOT SHOW USAGE OF WINDMILL ON 31.3.2005. THE STATEMENT AT PA GE 34 OF THE PAPER BOOK SHOWS READING BETWEEN 31.3.2005 AND 12.4.2005 AND NOT OF 31.3.2005 ALONE. THE PERIOD AF TER 1.4.2005 FALLS IN THE NEXT ASSESSMENT YEAR. HE FURT HER CONTENDED THAT AT THE MOST IT CAN BE SAID THAT THE WINDMILL HAS GOT SERVICE CONNECTION AND WAS NOT ACTUALLY COMMISS IONED. THEREFORE, THE WINDMILL IS NOT ENTITLED FOR THE BEN EFIT OF DEPRECIATION. ITA NO.823 /MDS/2011 7 6. WE HAVE HEARD THE SUBMISSIONS MADE BY THE PARTIE S AND HAVE ALSO GONE THROUGH THE ORDERS OF THE AUTHOR ITIES BELOW AND THE DOCUMENTS REFERRED DURING THE SUBMIS SIONS MADE BY THE RESPECTIVE PARTIES. AS PER THE PROVISIO NS OF INCOME TAX ACT FOR CLAIMING DEPRECIATION FOLLOWING CONDITIONS SHOULD BE SATISFIED:- I) THE ASSET MUST BE OWNED BY THE ASSESSEE; II) IT MUST BE USED FOR THE PURPOSE OF BUSINESS; & III) IT SHOULD BE USED DURING THE RELEVANT PREVIOUS YEAR. IN THE PRESENT CASE, THERE IS NO DISPUTE ABOUT THE SATISFACTION OF CONDITIONS NO. 1 & 2. IT IS THE CONDITION NO.3 I .E. USE OF ASSET DURING THE RELEVANT PREVIOUS YEAR WHICH IS IN DISPU TE. THE COUNSEL FOR THE ASSESSEE HAS REFERRED TO A CERTIF ICATE DATED 5.5.2005 ISSUED BY EXECUTIVE ENGINEER (O & M), UDU MALPET, AT PAGE 27 OF PAPER BOOK WHICH CERTIFIES THAT HT SU PPLIED FOR THE WINDMILL GENERATOR WAS EFFECTED ON 31.3.2005 SATISFACTORILY. AT PAGE 28 TO 31 OF THE PAPER BOO K THERE IS A TEST REPORT FROM TNEB WHICH CLEARLY INDICATES THAT TEST RUN OF THE WINDMILL WAS CONDUCTED ON 31.3.2005 AND THE DA TE OF COMMENCEMENT OF SUPPLY IS 31.3.2005. AT PAGE 34 OF THE ITA NO.823 /MDS/2011 8 PAPER BOOK, THERE IS A STATEMENT SHOWING ENERGY GEN ERATED BY THE WINDMILL BETWEEN 31.3.2005 AND 12.4.2005 AN D A CERTIFICATE ISSUED BY THE EXECUTIVE ENGINEER (O&M), UDUMELPET AT PAGE 35 OF THE PAPER BOOK STATING THAT AS PER THE RECORDS WINDMILL HAS GENERATED 400 UNITS DURING THE PERIOD FROM 31.3.2005 TO 12.4.2005. AN AGREEMENT FO R THE SUPPLY OF POWER EXECUTED BETWEEN TNEB AND THE ASSES SEE ON 31.3.2005 IS AT PAGE 75 TO 82 OF THE PAPER BOOK. THE COUNSEL FOR THE ASSESSEE HAS ALSO POINTED OUT THAT AS PER THE TERMS AND CONDITIONS OF THE AGREEMENT BETWEEN THE A SSESSEE AND THE VENDOR OF THE WINDMILL I.E. M/S. NEG MICON (INDIA) PVT. LTD. AT PAGE 64 TO 74 OF THE PAPER BOOK, THE E NTIRE AMOUNT OF ` 11.02 LAKHS BEING FULL PAYMENT FOR ERECTION AND COMMISSIONING OF THE WINDMILL WAS TO BE PAID ON COMMISSIONING OF THE PROJECT. SINCE THE ENTIRE AMO UNT WAS PAID ON OR BEFORE 31.3.2005 IT CLEARLY INDICATED TH AT WINDMILL WAS COMMISSIONED ON 31.3.2005. ALL THESE DOCUMENTS PROVE BEYOND ANY SHADOW OF DOUBT THAT THE WINDMILL OF THE ASSESSEE WAS COMMISSIONED ON 31.3.2005 AND THE TRIA L RUN OF THE WINDMILL HAD TAKEN PLACE ON 31.3.2005. IT IS A WELL SETTLED ITA NO.823 /MDS/2011 9 LAW THAT EVEN TRIAL RUN OF THE MACHINERY WOULD FALL WITHIN THE AMBIT OF THE TERM USED FOR THE PURPOSE OF BUSINES S. FURTHER THE ASSESSEE CANNOT BE DENIED THE BENEFIT OF DEPREC IATION ON THE GROUND THAT MACHINERY WAS USED FOR SHORT DURATI ON FOR TRIAL RUN. IN OUR CONSIDERED OPINION, THE 3 RD CONDITION FOR CLAIMING DEPRECIATION I.E. THE ASSET SHOULD BE USED DURING T HE RELEVANT PREVIOUS YEAR IS ALSO SATISFIED. THE WINDMILL WAS COMMISSIONED AND WAS PUT TO USE ON 31.3.2005, THERE FORE, THE ASSESSEE IS ENTITLED FOR THE BENEFIT OF DEPRECI ATION ON THE SAME IN THE ASSESSMENT YEAR 2005-06. . OUR VIEW IS FURTHER FORTIFIED BY THE ORDER OF THE CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF AUROFOOD LTD. VS. DCIT, REPORTED AS 4 SOT 345(CHENNAI). THE TRIBUNAL IN THE AFORESAID CASE HA S OBSERVED AS UNDER:- 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFULLY. WE PRINCIPALLY AGREE WITH THE CONTENTION OF THE LEARNED D.R. THAT DEPRECIATION CAN BE ALLOWED ONLY WHEN PLANT & MACHINERY HAS BEEN REALLY USED. BUT THE MOOT QUESTION IS WHEN PLANT & MACHINERY IS USED FOR TRIAL PRODUCTION, WHETHER THE SAME CAN ALS O BE SAID TO BE USED OR NOT. IN OUR CONSIDERED OPINIO N THAT WOULD AMOUNT TO USED BECAUSE WEAR AND TEAR ITA NO.823 /MDS/2011 10 IN THE PLANT & MACHINERY WOULD START FROM THE DAY WHEN PLANT AND MACHINERY IS USED IN TRIAL PRODUCTION. WE ALSO FIND THAT THE LOWER AUTHORITIES HAVE NOT REACHED ANY CLEAR CONCLUSION AS TO WHEN THE PLANT & MACHINERY WAS PUT TO USE FOR TRIAL PRODUCTION. THEREFORE, WE SET ASIDE THE ORDER OF TH E LEARNED CIT(A) AND RESTORE THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO F IND OUT WHEN THE TRIAL PRODUCTION COMMENCED. WE MAKE IT CLEAR THAT DEPRECIATION SHOULD BE ALLOWED IF THE PLANT & MACHINERY HAS BEEN PUT TO USE FOR TRIAL PRODUCTION. NEEDLESS TO SAY THAT THE ASSESSEE SHOULD BE GIVEN ADEQUATE OPPORTUNITY TO REPRESENT ITS CASE. IN THE PRESENT CASE, THE ASSESSEE IS ON A BETTER FO OTING. THE ASSESSEE HAS BEEN ABLE TO SHOW THAT THE TRIAL PRODU CTION HAD TAKEN PLACE ON 31.3.2005. THE ELECTRICITY WAS GENE RATED AS PER THE CERTIFICATE ISSUED BY THE COMPETENT AUTHORI TY. SOME UNITS OF ELECTRICITY WERE GENERATED ON THE DATE OF COMMISSIONING ITSELF. THEREFORE, THE ASSESSEE IS EN TITLED FOR THE BENEFIT OF DEPRECIATION ON THE WINDMILL. ITA NO.823 /MDS/2011 11 7. THE ASSESSING OFFICER AS WELL AS THE CIT(A) HAVE HEAVILY RELIED ON THE STATEMENT OF THE EXECUTIVE EN GINEER MADE DURING THE SURVEY UNDER SECTION 133A OF THE AC T. THE HONBLE MADRAS HIGH COURT IN THE CASE OF S.KHADER K HAN SON (SUPRA) HAS HELD AS UNDER:- IN CONTRADISTINCTION TO THE POWER UNDER SECTION 133A, SECTION 132(4) OF THE IT ACT ENABLES THE AUTHORIZED OFFICER TO EXAMINE A PERSON ON OATH AND ANY STATEMENT MADE BY SUCH PERSON DURING SUCH EXAMINATION CAN ALSO BE USED IN EVIDENCE UNDER THE IT ACT. ON THE OTHER HAND, WHATEVER STATEMENT IS RECORDED UNDER SECTION 133A OF THE IT ACT IT IS NOT GIVEN ANY EVIDENTIARY VALUE OBVIOUSLY FOR THE REASON THAT THE OFFICER IS NOT AUTHORIZED TO ADMINISTER OATH AND TO TAKE ANY SWORN STATEMENT WHICH ALONE HAS EVIDENTIARY VALUE AS CONTEMPLATED UNDER LAW, VIDE PAUL MATHEWS & SONS VS. CIT (SUPRA). 8. THE LEARNED D.R. COULD NOT SHOW ANY JUDGEMENT CONTRARY TO THE AFORESAID JUDGEMENT OF THE HONBLE JURISDICTIONAL HIGH COURT. IN VIEW OF THE ABOVE, WE HOLD THAT THE STATEMENT OF THE EXECUTIVE ENGINEER CANNOT BE U SED ITA NO.823 /MDS/2011 12 AGAINST THE ASSESSEE. EXCEPT FOR THE STATEMENT OF E XECUTIVE ENGINEER, THE DEPARTMENT HAS NO OTHER CONCLUSIVE EV IDENCE TO SHOW THAT THE WINDMILL WAS NOT COMMISSIONED OR N O UNIT OF ELECTRICITY WAS GENERATED ON 31.3.2005. WE SET ASI DE THE ORDER OF THE CIT(A) AND ALLOW THE APPEAL OF THE ASS ESSEE. ORDER PRONOUNCED IN THE OPEN COURT ON WEDNESDAY, T HE 25 TH OF JULY, 2012 AT CHENNAI. SD/- SD/- ( ABRAHAM P.GEORGE ) ( VIKAS AWASTHY ) ACCOUNTANT MEMBER JUDICIAL MEMBER CHENNAI, DATED THE 25 TH JULY, 2012. SOMU COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT (4) CIT(A) (5) D.R. (6) G.F .