The Dy. Commissioner of Income Tax, Central Circle-2(3), Ahmedabad V. Friends Salt Works and Allied Industries, Gandhidham-Kutch

ITSSA 165/AHD/2016

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 3223 (ITAT-RAJKOT)
• Duration Of Justice: 6 year(s) 2 month(s) 2 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 11-08-2022
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 04-07-2022
• Assessment Year: 2009-2010
• Appeal Filed On: 08-06-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; TDS; Set aside
• Section: 144; 14A; 40(a)(ia); 37(1); 195; 251; 143(2); 208; 192; 142(2A); 44AB; 9(1); 9(1); 9(1); 73; 153; 145(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT Before: Shri Waseem Ahmed, Accountant Member And Shri Siddhartha Nautiyal, Judicial Member The Deputy Commi ssioner of Inco me-tax, Central Circle-2(3), Ah medabad-3800 14 (Ap pellan t) Vs Friends Salt Works & Allied Indus, Maitri Bh avan Pl No . 18, Sector No. 8, Gandhid ham-Kutch -3 70201 PAN: AACF K1 906F (Resp ondent) Friend s Salt Wo rks & Allied Indus, Maitri Bhav an Pl No. 18, Sector No . 8, Gandh idham- Kutch-37020 1 PAN: A ACF K1 906F (Ap pellan t) Vs The Dep uty Commissioner of Inco me-tax , Central Circle-2(3), Ah med abad-3800 14 (Resp ondent) Asses see by : Shri K. C. Thaker, A. R. Revenue by : Shri Aarsi Pra sad, CIT-D. R. Date of hearing : 05-07 -2 022 Date of pronouncement : 12-08 -2 022 IT(SS)A Nos. 165, 166, 167 & 168/Ahd/2016 A.Y. 2009-10, 2010-11, 2011-12 & 2012-13 C.O. Nos. 192, 193, 194 & 195/Ahd/2016 (in IT(SS)A Nos. 165, 166, 167 & 168/Ahd/2016) A.Y. 2009-10, 2010-11, 2011-12 & 2012-13 I.T(SS)A Nos. 165 to 168/Ahd/2016 & CO 192 to 195/Ahd/2016 AY.2009-10 to 2012-13 Page No DCIT vs. Friends Salt Works & Allied Indus & Friends Salt Works & Allied Indus vs. DCIT 2 आदेश/ORDER PER BENCH:- These are cross appeals filed by the Revenue and the Assessee against the orders by Ld. CIT(Appeals) for assessment years 2009-10, 2010-11, 2011-12 & 2012-13. Since common issues are involved in the years under consideration and the appeals are emanating from common order of Ld. CIT(Appeals) for various assessment years under consideration, we are disposing of the appeals by way of a common order. Assessment year 2009-10 2. The Department has raised the following grounds of appeal: “1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in law and/or on facts in deleting the disallowance of washing/handling loss of Rs. 1,77,72,599/-. 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in Jaw and/or on facts in deleting the disallowance of interest expenses of Rs.5,05,07,683/- made u/s.36(1)(iii) of the Act. 3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in law and/or on facts in deleting the disallowance of depreciation on Rice Plant of Rs.4,56,771/-. 4. On the facts and in the circumstances of the case and in law, the CIT(A) ought to have upheld the order of the A.O. 5. It is, therefore, prayed that the order of the CIT (A) be set aside and that of the A.O. be restored to the above extent.” I.T(SS)A Nos. 165 to 168/Ahd/2016 & CO 192 to 195/Ahd/2016 AY.2009-10 to 2012-13 Page No DCIT vs. Friends Salt Works & Allied Indus & Friends Salt Works & Allied Indus vs. DCIT 3 2.1 The assessee has raised the following Grounds in its Cross Objection: “1. The Learned CIT (A) has erred in law and on fact in confirming the disallowance of Rs. 38,86,400/- being the depreciation claimed on "providing easy and free access and keeping the area vacant surrounding lease land where wind mill of the respondent is installed and allowing the same on monthly proportionate basis. 2. The learned CIT (A) has further erred in law and on facts in refusing to expunge the AO's unwarranted observation in the assessment order imputing "non-cooperative attitude" on the part of the appellant holding that there is no positive evidence on record justifying expungement thereof and in holding that no prejudice is caused to the appellant on account .of the same, disregarding the material placed on record in the appellate proceedings. 3. The learned CIT (A) has also erred in law and on facts in disregarding the material placed before him and holding that the action u/s. 142(2A) of the Act for assigning the case for special audit at the fag end of limitation for completion of assessment was not to unlawfully extend the limitation and that the assessment was not barred by limitation due to illegal exercise of invoking S. 142(2A) of the Act.” Assessment year 2010-11 3. The Department has raised the following grounds of appeal: “1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in law and/or on facts in deleting the disallowance of expenses on Road Construction of Rs.1,64,42,008/-. 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in law and/or on facts in deleting the disallowance of Washing/Handling loss of Rs.3,93,23,259/-. I.T(SS)A Nos. 165 to 168/Ahd/2016 & CO 192 to 195/Ahd/2016 AY.2009-10 to 2012-13 Page No DCIT vs. Friends Salt Works & Allied Indus & Friends Salt Works & Allied Indus vs. DCIT 4 3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in law and/or on facts in deleting the disallowance of interest u/s 36(l)(iii) of Rs.5,31,21,047/-. 4. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in law and/or on facts in deleting the disallowance of depreciation on Rice Plant of Rs.3,88,257/-. 5. On the facts and in the circumstances of the case and in law, the CIT(A) ought to have upheld the order of the A.O. 6. It is, therefore, prayed that the order of the CIT (A) be set aside and that of the A.O. be restored to the above extent.” 3.1 The assessee has raised the following Grounds in its Cross Objection: “1. The learned CIT(A) has erred in law and on facts in concluding that "assessment" for the year under appeal remains "live and pending" and therefore, shall "abate" within the meaning of second proviso to Section 153 A of the Act ignoring the fact that there being no notice issued and served u/s. 143(2) of the Act on or before the date of search, proceedings for assessment had not even commenced and therefore the question of proceedings being pending on that date did not arise. In the circumstances the assessment did not abate and additions de hors material found during search ought to have been deleted. 2. The Learned CIT (A) has further erred in law and on fact in confirming the disallowance of Rs. 67,32,280/- being the depreciation claimed on "providing easy and free access and keeping the area vacant surrounding lease land where wind mill of the respondent is installed and allowing the same on monthly proportionate basis. 3. The learned CIT (A) has also erred in law and on facts in refusing to expunge the AO's unwarranted observation in the assessment order imputing "non-cooperative attitude" on the part of the appellant holding that there is no positive evidence on record I.T(SS)A Nos. 165 to 168/Ahd/2016 & CO 192 to 195/Ahd/2016 AY.2009-10 to 2012-13 Page No DCIT vs. Friends Salt Works & Allied Indus & Friends Salt Works & Allied Indus vs. DCIT 5 justifying expungement thereof and in holding that no prejudice is caused to the appellant on account of the same, disregarding the material placed on record in the appellate proceedings. 4. The learned CIT (A) has also erred in law and on facts in disregarding the material placed before him and holding that the action u/s. 142(2A) of the Act for assigning the case for special audit at the fag end of limitation for completion of assessment was not to unlawfully extend the limitation and that the assessment was not barred by limitation due to illegal exercise of invoking S. 142(2A) of the Act.” Assessment year 2011-12 4. The Department has raised the following grounds of appeal: “1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in law and/or on facts in deleting the disallowance of brokerage and commission expenses of Rs.1,69,39,884/-. 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in law and/or on facts in deleting the disallowance of Washing/Handling loss of Rs.6,18,83,151/-. 3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in law and/or on facts in deleting the disallowance of interest u/s 36(l)(iii) of Rs.6,00,63,000/-. 4. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in law and/or on facts in deleting the disallowance of depreciation on Rice Plant of Rs.3,30,018/-. 5. On the facts and in the circumstances of the case and in law, the CIT(A) ought to have upheld the order of the A.O. 6. It is, therefore, prayed that the order of the CIT (A) be set aside and that of the A.O. be restored to the above extent.” I.T(SS)A Nos. 165 to 168/Ahd/2016 & CO 192 to 195/Ahd/2016 AY.2009-10 to 2012-13 Page No DCIT vs. Friends Salt Works & Allied Indus & Friends Salt Works & Allied Indus vs. DCIT 6 4.1 The assessee has raised the following Grounds in its Cross Objection: “1. The Learned CIT (A) has erred in law and on fact in confirming the disallowance of Rs. 2,09,16,656/- being the depreciation claimed on "providing easy and free access and keeping the area vacant surrounding lease land where wind mill of the respondent is installed and allowing the same on monthly proportionate basis. 2. The learned CIT (A) has further erred in law and on facts in refusing to expunge the AO's unwarranted observation in the assessment order imputing "non-cooperative attitude" on the part of the appellant holding that there is no positive evidence on record justifying expungement thereof and in holding that no prejudice is caused to the appellant on account of the same, disregarding the material placed on record in the appellate proceedings. 3. The learned CIT (A) has also erred in law and on facts in disregarding the material placed before him and holding that the action u/s. 142(2A) of the Act for assigning the case for special audit at the fag end of limitation for completion of assessment was not to unlawfully extend the limitation and that the assessment was not barred by limitation due to illegal exercise of invoking S. 142(2A) of the Act.” Assessment year 2012-13 5. The Department has raised the following grounds of appeal: “1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in law and/or on facts in deleting the disallowance of Washing/Handling loss of Rs.6,78,22,703/-. 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in law and/or on facts in deleting the disallowance of interest u/s 36(l)(iii) of Rs.6,59,62,444/-. I.T(SS)A Nos. 165 to 168/Ahd/2016 & CO 192 to 195/Ahd/2016 AY.2009-10 to 2012-13 Page No DCIT vs. Friends Salt Works & Allied Indus & Friends Salt Works & Allied Indus vs. DCIT 7 3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in law and/or on facts in deleting the disallowance of depreciation on Rice Plant of Rs.2,80,515/-. 4. On the facts and in the circumstances of the case and in law, the CIT(A) ought to have upheld the order of the A.O. 5. It is, therefore, prayed that the order of the CIT (A) be set aside and that of the A.O. be restored to the above extent.” 5.1 The assessee has raised the following Grounds in its Cross Objection: “1. The Learned CIT (A) has erred in law and on fact in confirming the disallowance of Rs. 94,61,331/- being the depreciation claimed on "providing easy and free access and keeping the area vacant surrounding lease land where wind mill of the respondent is installed and allowing the same on monthly proportionate basis. 2. The learned CIT (A) has further erred in law and on facts in refusing to expunge the AO's unwarranted observation in the assessment order imputing "non-cooperative attitude" on the part of the appellant holding that there is no positive evidence on record justifying expungement thereof and in holding that no prejudice is caused to the appellant on account of the same, disregarding the material placed on record in the appellate proceedings. 3. The learned CIT (A) has also erred in law and on facts in disregarding the material placed before him and holding that the action u/s. 142(2A) of the Act for assigning the case for special audit at the fag end of limitation for completion of assessment was not to unlawfully extend the limitation and that the assessment was not barred by limitation due to illegal exercise of invoking S. 142(2A) of the Act.” Assessment Year 2009-10: I.T(SS)A Nos. 165 to 168/Ahd/2016 & CO 192 to 195/Ahd/2016 AY.2009-10 to 2012-13 Page No DCIT vs. Friends Salt Works & Allied Indus & Friends Salt Works & Allied Indus vs. DCIT 8 Ground No. 1 of the Department Appeal: Deletion of disallowance of washing/ handling loss of Rs. 1,77,72,599/- 6. The brief facts in relation to this ground of appeal are that during the year the assessee had claimed shortages/handling loss of 90,019.970 MT on production of 343,064.930 MT. During the course of assessment, the Ld. Assessing Officer asked the assessee to prove the shortages which have been claimed at the exorbitant rate of 26% with the help of day-to-day basic records of production viz a viz shortages/handling loss maintained at site. At the outset, the assessee submitted that the special auditor is not right and working out the shortage of 90,019.970 MT in respect of onlyin the quantity of production of 343,064.930 MT, but the shortage is made up of two items: washing loss of 68,588.585 MT from production and unwashed purchases and second is handling loss of 21,431.385 MT on sales quantity. The assessee submitted before AO that it has to submit monthly statement to the Salt Department of the government of India every month giving particulars of opening stock of the month, production of the month, salt exported, issued for consumption, and wastage and written off if any, and balance at the close of the month. It was submitted that the officers of the salt department make a one or two surprise visits of the site and check the salt stock on hand at the time of visit. Based on these statements, the assessee submitted a summary statement before the AO. The AO however rejected the assessee’s argument and held that the shortage has to be worked out in respect of the production of salt only. The AO held that the assessee has not furnished any documentary evidences regarding the washing loss claimed by it in different assessment years before the auditor and also before the AO. The assessee has not maintained and produced any basic records maintained at site I.T(SS)A Nos. 165 to 168/Ahd/2016 & CO 192 to 195/Ahd/2016 AY.2009-10 to 2012-13 Page No DCIT vs. Friends Salt Works & Allied Indus & Friends Salt Works & Allied Indus vs. DCIT 9 relating to any such actual loss on day to day basis, though specifically called for. Accordingly, the AO allowed 10% of the production/manufacturing lost during the year and accordingly made an addition of 1,77,72,599/-. In appeal, Ld. CIT(Appeals) gave complete relief to the assessee with the following observations: “9.5 I have perused the assessment order and the submissions made on behalf of the appellant. I have considered the rival submissions made at the time of hearing. I notice that the only substantive ground on which the AO has made the addition is that the appellant has suffered and claimed a quantity of washing and handling loss of salt which is considered by him to be higher than what as per his own standard would be a reasonable loss. The second ground is "non-maintenance of day-to-day quantity records" by the appellant as alleged by him. After considering the material available, at the outset I agree with the AR that arbitrariness and unreasonableness in the AO' action is written large on the face of the assessment order. The AO, even in the face of the categorical submission of the appellant about field visits by the Special Auditors to witness the process/stock, has preferred to simply go by the observation of the Special Auditor completely overlooking the appellant's submissions. Second, I fail to understand how and why the simple submission of the appellant that washing loss is to be seen in light, and as a percentage, of the total quantity handled, and not merely of the quantity produced, and which comes to only 10.40% of both the quantity of unwashed salt handled and of production and only 2% of quantity handled, and not 26.20% as alleged, failed to find AO's approval, and on the other hand why he simply relied on factually incorrect "wide variation" in loss claimed by the appellant and group concerns across years. Third, AR is absolutely right that the books of accounts ? audited u/s 44AB arid have not been rejected u/s 145(3) by the AO. The elementary rule, as rightly pleaded by the AR, that estimated additions cannot made without rejection of books of accounts u/s 145(3) on the basis of demonstrated defects in books of accounts, and consequent completion of the assessment as provided u/s 144 of the Act, as is held I.T(SS)A Nos. 165 to 168/Ahd/2016 & CO 192 to 195/Ahd/2016 AY.2009-10 to 2012-13 Page No DCIT vs. Friends Salt Works & Allied Indus & Friends Salt Works & Allied Indus vs. DCIT 10 by Jurisdictional Tribunal in the case of Associated Petroleum (supra), has completely been overlooked by the AO while making the addition. Fourth, it is still a mystery as to how the AO has arrived at the figure of "reasonable loss" at 10%, particularly when even the independent experts have opined that the washing/manufacturing loss is likely in the range of 20.16% to 29.26%, which thus clearly leads to an inescapable conclusion of arbitrariness on the part of the AO. Fifth, the business reality of the appellant, as explained, that loss also occurs on account of natural forces, loading, unloading and inaccuracy inherent in the transactions due to volumetric quantification, and such loss is in the range of 2% on the over-all quantity transacted by the appellant, regardless of whether the quantity is in opening stock, has also been completely brushed aside by the AO. On the other hand, I am of the considered and firm opinion that in view of specific business realities of appellant's business - namely, high physical volume and low monetary value per metric ton of the goods transacted, and also stocks getting stored in open - and also, the submission before the AO that the quantity of loss is a partially derived figure, noticing of higher washing loss or "wide variation in loss" per se can only, if at all, be a starting point for further probe, enquiry and marshalling oj evidences by the AO and certainly not in itself a ground for making any addition. I also find that the observation of the Ld. AO that day-to-day quantity records of loss are not maintained, is wholly unrealistic and superfluous because maintenance of such day-to-day stock records is patently impossible considering the volume, nature and low value of commodity transacted by the appellant. I also agree with the Ld. AR that the certificates from M/s. Gupta & Associates (Assessors) Pvt. Ltd. and from Central Salt & Marine Chemical ..Research Institute filed in the case of KSAIL (supra) sufficiently support the fact of loss occurring in the manufacturing process of salt, and thus repels effectively the observation of the AO about non-maintenance of day-to-day records of loss. In view of these factors, I find the addition wholly unsustainable being arbitrary, baseless arid founded on pure conjectures and surmises and in complete disregard of the fact that complete and periodic quantity records are maintained by the appellant. Similarly, I also find considerable force in the macro-level argument of the AR that the absence of Incriminating material or assets even remotely indicative (leave aside evidencing), of I.T(SS)A Nos. 165 to 168/Ahd/2016 & CO 192 to 195/Ahd/2016 AY.2009-10 to 2012-13 Page No DCIT vs. Friends Salt Works & Allied Indus & Friends Salt Works & Allied Indus vs. DCIT 11 unaccounted sale/purchase by the appellant or excess unaccounted stock or other valuable assets found or seized during the course of search must necessarily lead to a positive finding that claim of washing loss is genuine (and reasonable), as obviously, the surplus unaccounted stock, consequent to alleged excess/bogus claim of washing loss, can't vanish in thin air. Similarly, I fully agree with the Ld. AR that even after marshalling of the evidences of wrong/bogus claim of washing loss (which is evidently not the case), the AO has to further demonstrate the defects in the books of accounts, reject the books of accounts u/s 145(3) and thereafter, frame a best judgement assessment, as provided u/s 144 so as to validly disturb the audited book results and make any addition on account of noticing by him of any higher washing loss. TM&- fundamental, legal and jurisdictional requirement for making the estimated addition mandated by Jurisdictional Tribunal in Associated Peroleum (supra) has also not been met by the Ld. AO. Thus and therefore, I am in complete agreement with the submissions made on behalf of the appellant that the addition as made by the AO is completely arbitrary, devoid of authority in law and not justified on facts. Considering the totality of facts and circumstances, I am of the considered view that there is no merit in the addition and therefore the same to the tune of Rs. 1,77,72,599/- is deleted. The appellant gets a relief of Rs. 1,77,72,599/-. Related ground 3(i) succeeds. 9.6 Perusal of table in para 1.1 above would indicate that the same kind of disallowance is made by the Ld. AO for all the three subsequent assessment years under appeal also-. The facts leading to the disallowance for the A.Yrs.2010-11 to 2012-13 are exactly identical as discussed above and as can be seen from the table in para 9.1. In view of the same, the additions as under on account of washing/handling loss of salt is deleted for all the years under appeal. The appellant gets relief as under: A.Y. Relief (Rs.) 2009-10 1,77,72,599/- 2010-11 3,93,23,259/- I.T(SS)A Nos. 165 to 168/Ahd/2016 & CO 192 to 195/Ahd/2016 AY.2009-10 to 2012-13 Page No DCIT vs. Friends Salt Works & Allied Indus & Friends Salt Works & Allied Indus vs. DCIT 12 2011-12 6,18,83,151/- 2012-13 6,78,22,703/- 7. Before us, the Department placed reliance on the observations made by the AO in the assessment order and submitted that all losses are based on an estimated basis by the assessee. The assessee does not have any proper record to substantiate the losses claimed by it. Accordingly, in the instant set of facts, the AO has correctly disallowed the excessive loss claimed by the assessee. In response, counsel for the assessee reiterated the submissions made before Ld. CIT(Appeals). He submitted that the disallowances have been made by the AO on the basis of reports submitted by the special audit. The counsel for the assessee has submitted that notably the AO has not rejected the books of accounts of the assessee. There is no allegation that any unspecified stock outside the books of accounts has been sold in the open market. The counsel for the assessee refer to pages 181 of the paper book (project report on assessment of washing loss in salt washery- by Central Salt and Marine Chemicals Research Institute, Bhavnagar) to argue that the assessee has claimed the losses on account of handling/washing of salt on a very reasonable basis, and no disallowance is called for on this account. 8. We have heard the rival contentions and perused the material on record. In our considered view, Ld. CIT(Appeals) has passed a well reasoned order and we find no infirmity in the same. The AO has not given I.T(SS)A Nos. 165 to 168/Ahd/2016 & CO 192 to 195/Ahd/2016 AY.2009-10 to 2012-13 Page No DCIT vs. Friends Salt Works & Allied Indus & Friends Salt Works & Allied Indus vs. DCIT 13 any sound basis as to why losses should be restricted to 10% and why 10% of the losses can be considered “reasonable” in the light of the instant set of facts. Secondly, the AO has not rebutted the assessee’s argument as to why washing loss should not be computed as a percentage of total quantity of salt handled and why it should be seen merely as a percentage of quantity of salt produced. Thirdly, the AO has not rejected the assessee’s books of accounts audited under section 44 AB of the Act u/s 145(3) of the Act, and it is settled principle that estimated additions cannot be made without rejecting the assessee’s books of accounts. Therefore, in view of the above, we are of the considered view that the Ld. CIT(Appeals) has not erred in facts and in law in allowing the assessee’s appeal with respect to this ground of appeal. 9. In the result, ground number 1 of the Department’s appeal is hereby dismissed. Ground number 2 of the Department appeal: deletion of disallowance of interest expenses of 5,05,07,683/- u/s 36(1)(iii) of the Act: 10. The brief facts in relation to this ground of appeal are that during the course of assessment, the AO observed that the assessee firm had taken loan on/for hypothecation of stock in trade, FD-OD, machinery, windmills etc. and vehicles and the assessee had paid interest and processing charges and other charges totaling to 530 lakhs on such interest -bearing loan. The AO called for details from the assessee, and on the basis of perusal of the same observed that partners’ capital is less than the fixed assets of the assessee and thus the interest free advances made are out of interest-bearing funds. The AO further held that assessee has not established that interest free I.T(SS)A Nos. 165 to 168/Ahd/2016 & CO 192 to 195/Ahd/2016 AY.2009-10 to 2012-13 Page No DCIT vs. Friends Salt Works & Allied Indus & Friends Salt Works & Allied Indus vs. DCIT 14 advances are for any business expediency. The AO held that assessee has not proved the nexus that the non-interest bearing funds have been utilised for the purpose of giving non-interest-bearing loans. The AO accordingly held that the corresponding interest at the rate of 12% on loans and advances works out to 5,05,07,683/ -and accordingly disallowed and added the same to the total income of the assessee. In appeal before Ld. CIT(Appeals), he gave complete relief to the assessee the following observations: “10.9 Similarly, and, on the other hand, having perused the assessment order as also the decisions relied upon by the AO therein, I, agree with the Id. AR that there is no mention by the AO as to how the decisions, in facts of the appellant's case, justify and support the addition made by the AO or that how the decisions in themselves "establish" that the interest-free advances made by the appellant are indeed from interest-bearing funds or that there is no business expediency in grant of such interest-free advances. I also find that in at least five of the cases, the SC decision in S.A. Builders 158 Taxman 54 (SC) has not been considered. In the only jurisdictional decision in Inamullaq S. Iraki (supra), the decision is based on the fact of absence of commercial expediency in making the interest-free advances, thus not applicable per se without a finding of absence of commercial expediency. The other decisions lay down the principle, in the face of S.A. Builders (SC), that the non-business or personal use or purely charitable use of the fund by the recipient of interest-free funds would take out the interest-free advances from the purview of "business expediency". But such a finding of non-business use is not borne on records. Thus I agree with the appellant that there is no strength available from any of the decisions cited by the AO in support of the disallowance. 1 also notice that the decisions cited by AO are indeed not from Jurisdictional. Authorities on one hand, are rendered in completely different set of facts on the other, and, SC decision in S.A. Builders (supra) has not been considered in most of the decisions, and that the direct, more recent and Jurisdictional Authorities, including SC decisions relied upon by the appellant need to be considered in deciding the issue. In view of the discussion as above, It is clearly I.T(SS)A Nos. 165 to 168/Ahd/2016 & CO 192 to 195/Ahd/2016 AY.2009-10 to 2012-13 Page No DCIT vs. Friends Salt Works & Allied Indus & Friends Salt Works & Allied Indus vs. DCIT 15 noticeable from the balance-sheet extracts filed by the appellant and extracted in para 10.2 that for all the assessment years under appeal, the thematic average of interest-free advances is far less than the available interest-free funds, and the borrowed funds also appear to have been deployed in fixed assets, closing stock and trade receivables for which primarily the funds have been borrowed. I accordingly hold, firstly, that broadly, the advances prima facie appear to have been made out of interest-free funds available with the appellant. I secondly hold &: J the AO has not discharged the onus of establishing clear-cut and direct nexus between interest-bearing loans and interest-free advances so as to j disallowance in light of ratio of Reliance Utility and Hero Cycles (supra), nor my examination of available accounts and final accounts of the group concerns could show such nexus, and therefore, as a matter of fact, it is to be held that such a nexus does not exist warranting any disallowance u/s 36(l)(iii). I thirdly hold that there is clear and self-evident mutuality and business-expediency in sizable inter-se transactions between appellant and recipients of funds, and, further that there does not appear any noticeable personal or non-business use by recipients of the funds received interest-free and thus, on fact of the case as also in view of the law as explained by the Supreme Court in S.A. Builders and Hero Cycles (supra), there is no case to invoke the provision of section 36(l)(iii) of the Act for making any disallowance. Accordingly, the disallowance of Rs. 5,05,07,683/- made by the AO is deleted. The ground 3(ii) thus succeeds. 10.10 It is seen from the table in para 1.1 above that the issue of disallowance u/s 36(1)(iii) is involved in all other assessment years under appeal. It can immediately be seen from the table on page no. 19 that the interest-free funds available with the appellant is more than the thematic average of interest-free advances made by the appellant with regard to which the disallowance has been made by the Id. AO for each of the assessment year. Moreover, the appellant both before the AO and before me by way of written submissions, has submitted the details of the parties and the purpose for which the advances were made indicating that most of the advances were made out of interest-free funds available, were directly for the purposes of business, or for commercial expediency and, further that, interest- bearing loans are also deployed in business assets. Nothing adverse so as to discharge the onus mandated by R. L. Kalathia Engineering I.T(SS)A Nos. 165 to 168/Ahd/2016 & CO 192 to 195/Ahd/2016 AY.2009-10 to 2012-13 Page No DCIT vs. Friends Salt Works & Allied Indus & Friends Salt Works & Allied Indus vs. DCIT 16 (supra) has been brought on record by the AO. Thus, for none of the assessment years under appeal, the disallowance u/s 36(l)(iii) was called for or can be sustained. The related ground succeeds for all the four assessment years under appeal and the appellant gets relief on this ground as under: A.Y. Relief 2009-10 Rs. 5,05,07,683/- 2010-11 Rs.5,31,21,047/- 2011-12 Rs.6,00,63,000/- 2012-13 Rs. 6,59,62,444/- 11. Before us, the Ld. DR placed reliance on the observations made by the AO in the assessment order. In response, counsel for the assessee drew our attention to “statement showing interest free advances and available interest- free funds at a glance” at page 20 of order passed by Ld. CIT(Appeals) and submitted that interest-free funds available are far more than interest-free advances made by the assessee. A perusal of the chart shows that while the assessee advanced amount of 42 crores as interest-free advances, it had a total of Rs.165.50 crores available with it as interest-free funds. The partners’ capital itself was to the tune of 68.96 crores, as evident from page 148 paper book. 12. We have heard the rival contentions and perused the material on record. The Gujarat High Court in numerous decisions has consistently taken the position that if interest-free funds available with the assessee I.T(SS)A Nos. 165 to 168/Ahd/2016 & CO 192 to 195/Ahd/2016 AY.2009-10 to 2012-13 Page No DCIT vs. Friends Salt Works & Allied Indus & Friends Salt Works & Allied Indus vs. DCIT 17 exceed the investments made in funds yielding exempt income, then no disallowance is called for under section 14A of the Act. In the case of Hitachi Home and Life Solutions (I) Ltd.[2014] 41 taxmann.com 540 (Gujarat), the Gujarat High Court held that where assessee's interest free funds exceeded investment made for earning exempted dividend income, disallowance under section 14A was not justified. Again, in the case of UTI Bank Ltd[2018] 99 taxmann.com 392 (Gujarat), the Gujarat High Court held that no disallowance could be made under section 14A where assessee's interest-free funds far exceeded its interest-free investments. In the case of Gujarat Narmada Valley Fertilizers Co. Ltd[2014] 42 taxmann.com 270 (Gujarat), the Gujarat High Court held that where assessee-company received dividend on UTI and shares and investment in same was made in earlier years and interest free funds available with assessee were much larger as compared to investment, disallowance of assessee's claim for interest expenditure by applying section 14A was incorrect. In case of Gujarat Fluoro chemicals Ltd. [2020] 120 taxmann.com 433 (Gujarat), the Gujarat High Court again reiterated that where interest free funds available with assessee were far more than gross investment, it could safely be harboured that interest bearing funds was not invested by assessee and, thus, no disallowance under section 14A to be made. In view of the consistent position taken by the Gujarat High Court, as applied to the facts instant case, in our considered view, Ld. CIT(Appeals) has not erred in facts and in law in allowing the assessee’s appeal on this issue. 13. In the result, Ground No. 2 of the Revenue’s appeal is dismissed. I.T(SS)A Nos. 165 to 168/Ahd/2016 & CO 192 to 195/Ahd/2016 AY.2009-10 to 2012-13 Page No DCIT vs. Friends Salt Works & Allied Indus & Friends Salt Works & Allied Indus vs. DCIT 18 Ground No. 3: depreciation on rice plant Rs. 4,56,771/-: 14. The brief facts in relation to this ground of appeal of the Department are that during the course of assessment, the AO observed that the assessee had claimed depreciation amounting to 4,56,771/ - on rice plant, but there was no activity during the year and accordingly AO sought to disallow the depreciation on rice plant. During the course of assessment, the assessee submitted that though there is no activity during the year, the plants were in a state of readiness and in the eventuality of assessee getting the orders/customers, the necessary activity could and would have been carried out. However the AO held that as per the provisions of section 32(1) of the Act, and depreciation is to be allowed only when the assets are used for the purpose of business during the previous year and accordingly disallowed the claim of depreciation to the extent of 4,56,771/-. In appeal, Ld. CIT(Appeals) allowed the assessee’s appeal and the following observations: “12.1 Before me, the Ld. AR has more or less reiterated the submissions made before the AO. Additionally, the Ld. AR submitted the copy of Jurisdictional High Court decision in the case of Sonal Gum Industries (2010) 322 ITR 542 (Guj) brought my attention to para 5 and 6 of the order wherein the Hon. High Court has'^ approved the observation of the ITAT that from A.Y. 1988-89 when the concept of block of assets has been brought on the statute book, depreciation is allowable on all assets falling within a block of assets and that individual items included in the block are not to be considered separately for the purpose of grant or rejection of claim of depreciation. Once it is found that the assets (comprised in the block of assets] are used for business, it is not necessary that all the items falling within plant & machinery have to be simultaneously used for being entitled to claim of depreciation. I.T(SS)A Nos. 165 to 168/Ahd/2016 & CO 192 to 195/Ahd/2016 AY.2009-10 to 2012-13 Page No DCIT vs. Friends Salt Works & Allied Indus & Friends Salt Works & Allied Indus vs. DCIT 19 12.2 I have considered the facts on record, observations of the Ld. AO and submissions made on behalf of the appellant. I have perused the Authorities relied upon by the appellant. Having done so, I am of the considered opinion that the facts are squarely covered by the decision of the Gujarat High Court in Sonal Gum Industries (supra). Indeed, once the item on which depreciation has been claimed forms part of the block of assets, the individual item loses its identity and the grant of depreciation is to be on the written down value of the block of assets as brought forward on the first day of previous year as increased/reduced by the value of assets acquired/transfer red during the previous year. Thus, the Ld. AOs action of picking up an item of block of assets for a treatment different from the whole block of assets has no basis or authority in law. I am, therefore, in full agreement with the submission made on behalf of the appellant that the depreciation on wheat/rice plant needed to be allowed notwithstanding the fact that the same were not actually operated during the previous year. Thus, the depreciation to the tune of Rs.4,56,771/- is held allowable. Appellant gets a relief of Rs.4,56,771/-. Related ground 3(iv) succeeds.” 15. Before us, the Ld. DR submitted that it is an admitted fact that the assets were not actually put to use during the year under consideration. During the year under consideration, there was no business of the assessee in connection with its rice plant. In fact, DR pointed out that there was no business in this connection with the past 4 years and also there was no business in assessment year 2013-14 as well. Therefore, the Ld. DR submitted that the Ld. CIT(Appeals) has erred in facts and in law in allowing the assessee’s appeal on this issue. In response, counsel for the assessee placed reliance on the observations made by Ld. CIT(Appeals) in the appeal order. I.T(SS)A Nos. 165 to 168/Ahd/2016 & CO 192 to 195/Ahd/2016 AY.2009-10 to 2012-13 Page No DCIT vs. Friends Salt Works & Allied Indus & Friends Salt Works & Allied Indus vs. DCIT 20 16. We have heard the rival contentions and perused the material on record. In the case of CIT v. Sonal Gum Industries [2010] 322 ITR 542 (Gujarat), the High Court held that once it is found that assets are used for business, it is not necessary that all items falling within plant and machinery have to be simultaneously used for being entitled to depreciation. In the case of Nirma Credit & Capital Ltd. v. ACIT [2017] 82 taxmann.com 109 (Gujarat), the facts were that the assessee company is engaged in the business of manufacture of detergents. During the year under consideration, manufacturing activity was not carried out by the assessee. Therefore, the assessee claimed depreciation on the block of Plant & Machinery from the earlier year. However, the Assessing Officer passed the assessment order disallowing the depreciation. The CIT(A) allowed the assessee’s appeal. Being dissatisfied with the same, the Revenue filed appeals before the Tribunal. However, all the appeals filed by the Revenue were dismissed. Hence, Revenue filed Appeal before the Gujarat High Court. The Gujarat High Court, while deciding in favour of the assessee observed as below: “The record reveals that the reason assigned by the Assessing Officer for rejecting the depreciation is that the assessee had stopped the manufacturing activity and therefore, the question of use of machinery does not arise. However, the CIT(A) reversed the findings of the Assessing Officer on the premise that individual items included in the block are not to be considered separately for the purposes of granting depreciation in light of the amended provisions. We do not find any legal infirmity in the aforesaid view adopted by the first appellate authority since the assessment order itself reveals that it is not the case of Assessing Officer that the assets were not put to use at all. Once the factory building is put to use, it is not possible to restrict the depreciation on the said building by stating that only a portion I.T(SS)A Nos. 165 to 168/Ahd/2016 & CO 192 to 195/Ahd/2016 AY.2009-10 to 2012-13 Page No DCIT vs. Friends Salt Works & Allied Indus & Friends Salt Works & Allied Indus vs. DCIT 21 thereof has been put to use. Similarly, in relation to block of assets, it is not possible to segregate items falling within the block for the purposes of granting depreciation or restricting the claim thereof. Once it is found that the assets are used for business, it is not necessary that all the items falling within plant and machinery have to be simultaneously used for being entitled to depreciation. 16.1 In PCIT v. Babul Products (P.) Ltd [2018] 96 taxmann.com 82 (Gujarat) the facts were that Assessing Officer disallowed depreciation claimed by assessee on ground that factory of assessee was closed and assessee was not using assets for which depreciation was claimed. On appeal, Tribunal allowed claim of assessee on ground that assessee was in business, however, it could not run factory in year under consideration because of stay order granted by Court. The Gujarat High Court held that where assessee had not closed its business permanently, rather, on account of stay from Court it could not run factory in year under consideration, depreciation could not be denied on account of closure of business. 16.2 In the case of Swati Synthetics Ltd. v ITO [2010] 38 SOT 208 (MUM.), the facts were that assessee had two divisions, one at Dombivili and the other at Surat. The division at Surat was closed since two/ three years. The assessee claimed depreciation on the assets of the said Surat division which was rejected by the AO and the CIT (A) on the ground that the assets were not “used” and depreciation could not be allowed. On appeal by the assessee, ITAT held allowing the appeal in Gulati Saree Centre 71 ITD 73 (Chd.) (SB), that: I.T(SS)A Nos. 165 to 168/Ahd/2016 & CO 192 to 195/Ahd/2016 AY.2009-10 to 2012-13 Page No DCIT vs. Friends Salt Works & Allied Indus & Friends Salt Works & Allied Indus vs. DCIT 22 (i) even after introduction of the concept of block of assets, the identity of individual assets was not lost & the AO could restrict depreciation u/s 38(2) having regard to the user of the assets. However, s. 38 (2) applies only to a case when the asset is not exclusively used for business purposes but is used for non business purposes as well. S. 38 (2) does not apply to an asset which is neither used for business purposes nor for non business purposes but remains in the block of assets; (ii) The concept of allowing depreciation on block of assets was introduced w.e.f. 01.04.1988 with the object of avoiding separate book keeping. A harmonious reading of the expression ‘used for the purposes of the business’, would show that it only means that the assessee has used the machinery for the purposes of the business in earlier years; (iii) The doubt as to how deprecation can be allowed on assets which are not used for the purpose of business is answered by the legislative scheme that though the profit of that year is reduced, the WDV is reduced and the gain is taxed u/s 50 when the asset is sold and block ceases to exist; (iv) The “use” of an individual asset can be examined only in the first year when the asset is purchased. In subsequent years the use of block of assets is to be examined. The existence of an individual asset in block of asset itself amounts to use for the purpose of business. This is supported by the proviso to s. 32 which provides half depreciation for assets acquired in the year and held for less than 180 days. Once an asset is I.T(SS)A Nos. 165 to 168/Ahd/2016 & CO 192 to 195/Ahd/2016 AY.2009-10 to 2012-13 Page No DCIT vs. Friends Salt Works & Allied Indus & Friends Salt Works & Allied Indus vs. DCIT 23 included in the block of assets it remains there and can only be removed when it is sold, discarded etc u/s 43(6)(c)(i)(B) or used for non-business purposes u/s 38 (2) or where the entire block ceases to exist. (v) On facts, though the entire division was closed, the assets were a part of the block of assets and depreciation was allowable thereon. 16.3 In the case of DCIT v. Coromandal Bio Tech Industries (I) Ltd. [2012] 20 taxmann.com 520 (Hyd.) the facts were that the assessee- company was incorporated on 12-3-1992 to carry on the business of acqua farms and shrimp farming. The assessee's name was subsequently changed in 1997 and it entered the business of handling transportation. For the relevant assessment years, the assessee filed its returns claiming depreciation on ponds and plant and machinery which business was discontinued long back. The Assessing Officer rejected the assessee's claim holding that for claiming depreciation, the assessee should not only own the assets, but also the assets should be put to use in the relevant assessment year. On appeal, the Commissioner (Appeals), however, allowed the assessee's claim. On revenue's appeal, ITTA held that in order to allow claim for depreciation, use of individual asset for purpose of business can be examined only in first year of purchase and, in subsequent years when use of block of assets is to be examined, existence of individual asset in block of assets itself amounts to use for purpose of business. I.T(SS)A Nos. 165 to 168/Ahd/2016 & CO 192 to 195/Ahd/2016 AY.2009-10 to 2012-13 Page No DCIT vs. Friends Salt Works & Allied Indus & Friends Salt Works & Allied Indus vs. DCIT 24 16.4 In Hindustan Engineering & Industries Ltd. v. DCIT [2018] 90 taxmann.com 230 (Kolkata - Trib.), ITAT heldthat where a sick company amalgamated with assessee-company, by operation of law assets of sick company fell in 'Block of assets' of assessee-company and thus even through such assets were non-functional, yet they could not be segregated and depreciation had to be allowed in respect of same. 16.5 In DCIT v. Boskalis Dredging India (P.) Ltd. [2012] 23 taxmann.com 4 (Mum.) ITAT held that where asset purchased by assessee has been used for purpose of its business and same has been included in 'block of asset', depreciation is to be allowed thereon even if same could not be used during relevant assessment year due to some reasons beyond control of assessee; 16.6 In CIT v. Chennai Petroleum Corpn. Ltd. [2013] 37 taxmann.com 332 (Madras), Madras High Court held that where assessee claimed depreciation on plant and Assessing Officer declined depreciation on plea that plant had never been put to use for purposes of business during whole of previous year, since assessee's business was a going concern and plant could not be put to use due to raw material paucity, assessee was entitled to depreciation on plant and machinery. 16.7 Now, we note that in the instant facts, the Department has never disputed the fact that the assets were in a state of “ready to use”. It is also not the case that the assessee had not earlier earned revenue from this division, though in the instant year no revenue could be earned from the rice I.T(SS)A Nos. 165 to 168/Ahd/2016 & CO 192 to 195/Ahd/2016 AY.2009-10 to 2012-13 Page No DCIT vs. Friends Salt Works & Allied Indus & Friends Salt Works & Allied Indus vs. DCIT 25 division. It is also an undisputed fact that the assets formed part of block of assets and had been put to use in earlier years. In our view, respectfully following the decision of Gujarat High Court in the case of CIT v. Sonal Gum Industries 322 ITR 542 (Guj), Nirma Credit & Capital Ltd supra and PCIT v. Babul Products (P.) Ltd supra and various other judicial precedents cited above, in our view, Ld. CIT(A) erred in disallowing the claim of the assessee in respect of depreciation on plant and machinery forming part of block of assets notwithstanding the fact that assets were not put to use in the present year. 17. In the result, ground number 3 of the Department’s appeal is hereby dismissed. 18. The other Grounds of Appeal of the Revenue for assessment year 2009-10 are general in nature and do not require any specific adjudication. Cross Objection by the assessee for assessment year 2009-10 19. The outset, the counsel for the assessee has submitted that he shall not be pressing ground numbers 2 and 3 of the cross objection. Hence the same are dismissed as not pressed. Ground Number 1 of the assessee’s Cross Objection: Disallowance of 38,86 400/- being depreciation claimed on providing easy and free access and keeping the area vacant surrounding the lease I.T(SS)A Nos. 165 to 168/Ahd/2016 & CO 192 to 195/Ahd/2016 AY.2009-10 to 2012-13 Page No DCIT vs. Friends Salt Works & Allied Indus & Friends Salt Works & Allied Indus vs. DCIT 26 land available where the windmill of the of the assessee is installed in allowing the same on monthly proportionate basis: 20. The brief facts in relation to this ground of appeal are that during the year under consideration, the assessee firm had installed 7 windmills. During the course of assessment, the AO observed that the assessee had claimed depreciation on cost of windmills which included civil work i.e. building and foundation and land cost. The AO was of the view that depreciation at the rate of 80% is not allowable in respect of civil works and accordingly made disallowance of 38,86,400/-. In appeal, Ld. CIT(Appeals) gave part relief to the assessee with the following observations: “11. Depreciation on Land cost of Windmill - Rs.38,86,400/-: The issue has been discussed by the Ld. AO in para 7 on page 21 of the order. The Special Auditor pointed out that the appellant has claimed depreciation on Land cost for 7 windmills installed by the appellant during the year under reference/ carried forward from the preceding year. The total claim of depreciation on alleged land cost claimed by the appellant for the year under reference is Rs.38,86,400/-. The Ld. AO called upon the appellant to explain why the depreciation on land should not be disallowed. The appellant, relying on Gujarat High Court decision in the case of Sun Pharmaceuticals Industries Ltd. 227 CTR 206 (Guj), pleaded before the AO that the depreciation is rightly claimed. During the course of hearing before me, the Ld. AR made detailed written submissions and argued the issue at length. When pointed out that the facts of Sun Pharmaceuticals are entirely different and hence the Ld. AO's action appears to be justified, the Ld. AR agreed both on facts and in law. It is seen that the alleged land cost on which depreciation has beer claimed, is in fact, the amount paid/payable to M/s. Suzlon Ltd. for allowing the use of approach road to the windmill installed by the appellant, which is prepared by M/s. Suzlon on land taken on lease by M/s. Suzlon. Thus, neither the asset belongs to the appellant nor does the sum of payment represent the advance payment of lease rent as I.T(SS)A Nos. 165 to 168/Ahd/2016 & CO 192 to 195/Ahd/2016 AY.2009-10 to 2012-13 Page No DCIT vs. Friends Salt Works & Allied Indus & Friends Salt Works & Allied Indus vs. DCIT 27 v/as the case in Sun Pharmaceuticals. The appellant, during the course of hearing, has therefore, submitted a chart and pleaded that the portion of the payment of user charges (rent) relatable road for the period under reference and forming part of the total payment of Rs.84 lacs made during the year and similar charges pertaining to claim of depreciation relatable to preceding periods may be allowed u/s 37(1), and the balance disallowance of depreciation may be upheld. As per the discussion which took place and as per the chart submitted by the Ld. AR for the year under reference, while the disallowance of depreciation would need to be upheld, the claim of user charges for the approach road payable/paid to M/s. Suzlon Ltd. to the extent of Rs.3,55,000/- with regard to 7 windmills would need to be allowed u/s 37(1). After considering the totality of facts and circumstances, the AO is therefore, accordingly directed to allow the user charges now claimed u/s 37(1) to the extent of Rs.3,55,000/- after due verification of the chart submitted by the appellant. However, the disallowance of claim of depreciation to the extent of Rs.38,86,400/- is correspondingly upheld. Related ground 3(iii) thus partly succeeds.” 21. Before us, the counsel for the assessee submitted that during the year under consideration, the assessee had installed 7 windmills. He drew our attention to page 26 of the paper book and submitted that the total cost was 84 lakhs on which depreciation was claimed by the assessee. Thereafter the counsel for the assessee drew our attention to pages 99 to 105 of the paper book which were the debit notes issued by Suzlon, on account of land sublease charges for 12 lakhs each. The counsel for the assessee also invited our attention to pages 72-73 of the paper book in this regard. Thereafter, the counsel for the assessee drew our attention to page 79 of the paper book and submitted that the above expenses towards sublease charges were part of the project cost and hence depreciation was claimed thereon. In response, the Ld. DR relied on the observations made in the assessment order and the order passed by Ld. CIT(Appeals). I.T(SS)A Nos. 165 to 168/Ahd/2016 & CO 192 to 195/Ahd/2016 AY.2009-10 to 2012-13 Page No DCIT vs. Friends Salt Works & Allied Indus & Friends Salt Works & Allied Indus vs. DCIT 28 22. We have heard the rival contentions and perused the material on record. We observe that the above charges are payments made to M/s Suzlon Ltd. on account of allowing the use of approach road to the windmill installed by the assessee. The said road is prepared by M/s Suzlon Ltd. on land taken on lease by M/s Suzlon Ltd. The assessee has claimed depreciation @80% on such payments at the rate applicable to windmills. Ld. CIT(Appeals) gave part relief to the assessee in respect of user charges paid to M/s Suzlon Ltd. u/s section 37 of the Act, but disallowed the portion relatable to depreciation on the basis of Chart submitted by the assessee before him during the course of appellate proceedings. The ITAT Pune in the case of ACIT v. Poonawala Finvest & Agro (P.) Ltd. [2009] 27 SOT 47 (Pune) (URO) held that depreciation can be claimed only in respect of direct expenses for installation of windmill. The brief facts of the case were that during the relevant year, the assessee-company installed windmill. The assessee claimed 100 per cent depreciation on the windmill as also on some other related items like cost of labour work for site development, civil work control room, internal road development and transformer up to DP structure. The Assessing Officer allowed 100 per cent depreciation on the windmill but disallowed it on aforesaid related items. On appeal, the Commissioner (Appeals) upheld the assessment order. In appeal, ITAT held that since there was nothing on record to establish that control room, site development expenditure and internal roads were so designed that they could only be used for power generation as done by windmill, they could not be regarded as integral part of windmill and, therefore, were not entitled to depreciation at rate of 100 per cent. However so far as depreciation in I.T(SS)A Nos. 165 to 168/Ahd/2016 & CO 192 to 195/Ahd/2016 AY.2009-10 to 2012-13 Page No DCIT vs. Friends Salt Works & Allied Indus & Friends Salt Works & Allied Indus vs. DCIT 29 respect of transformer up to DP structure was concerned, since function of said structure was to transmit electricity generated to cable line up to sub- station, where actual units so generated were to be stored and metered, it was an integral part of windmill and, therefore, was eligible for higher rate of depreciation. While passing the order, ITAT made the following observations: The emphasis for granting higher rate of depreciation as far as civil construction work is concerned, the necessity was to examine the functional test of the said structure. A categorical evidence has to be placed that the structure is not a building but it is an integral part of plant and machinery. In the instant appeal nothing was on record to establish that on the touchstone of functional test the control room or site development expenditure or even internal roads, were so designed that they could only be used for power generation as done by the windmill and meant for no other use. There was nothing on record, such as a report from a qualified person to establish that the site construction of control room, internal road, etc., were designed in such a manner to facilitate the power generation and distribution of windmill. Naturally a machinery does not require protection so installed in a building but such a building cannot be said to be a part and parcel of the machinery. Resultantly the claims failed on functional test. ....... On this basis, as well, it could not be held that building of control room, internal roads, etc., being civil construction work in nature were not at par with the 'windmill' as far as the period of diminution was concerned. Moreover, sometimes to promote a particular activity the statute provides certain incentives in the shape of higher depreciation. One has to keep in mind such an intention of the Legislature as well. However, no such intention has ever been expressed in the Legislature to provide higher rate of depreciation in respect of structure surrounding the windmill. Rather the Appendix I.T(SS)A Nos. 165 to 168/Ahd/2016 & CO 192 to 195/Ahd/2016 AY.2009-10 to 2012-13 Page No DCIT vs. Friends Salt Works & Allied Indus & Friends Salt Works & Allied Indus vs. DCIT 30 and the depreciation schedule has categorically worded that 'windmills and any specially designed devices which run on windmills' are qualified for 100 per cent rate of depreciation. Since the civil work of control room, the site development and the internal road development were not specially designed devices, hence, as per the discussion made hereinabove, were not entitled for 100 per cent depreciation. Thus, the claim in this regard was to be disallowed. 23. In our considered view, the above Ruling succinctly defines the scope of depreciation in respect of items of expenditure which have no direct nexus / connection with windmill on which depreciation @80% is being claimed. In the instant case, the assessee has not been able to demonstrate the nexus between leasehold charged paid to M/s Suzlon Ltd. towards access to road to windmill and operation of windmill per se. It would be far-fetched to conclude that the above expenses have a direct bearing on operation of windmill so as to be eligible for higher rate of depreciation. In our view, therefore, we find no infirmity in the order of Ld. CIT(Appeals). 24. In the result, Ground Number 1 of the assessee’s Cross Objection is dismissed. Assessment Year 2010-11: Ground No. 1 of Department Appeal: Deletion of disallowance of Road Construction of Rs. 1,64,42,008/- 25. The brief facts in relation to this ground of appeal are that during the course of assessment, the AO observed that the assessee had incurred an expense of 1, 64,42,008/- under the head repairs and maintenance of road I.T(SS)A Nos. 165 to 168/Ahd/2016 & CO 192 to 195/Ahd/2016 AY.2009-10 to 2012-13 Page No DCIT vs. Friends Salt Works & Allied Indus & Friends Salt Works & Allied Indus vs. DCIT 31 account. The assessee was required to show cause as to why the expenditure should not be considered as capital in nature. The assessee submitted that this expense was primarily revenue in nature and the assessee company had more than 1000 acres of land and this expense was towards upkeep and maintenance of roads within the vicinity throughout the leasehold plot. The roads had to be maintained on a regular basis and no asset of enduring nature was brought into existence by way of this expenditure. However the AO considered the expense to be capital nature and disallowed the expense. In appeal before the Ld. CIT(Appeals), he allowed the assessee’s claim with the following observations: “15.1 Before me the appellant has made detailed written submissions. During the course of hearing, the Ld. AR vehemently pleaded that the appellant has a turnover of roughly Rs.130 crores in salt manufacturing/trading and is maintaining a manufacturing facility in an area of more than 1000 acres. It is not the allegation of the Ld. AO that the expenditure is not genuine. As such all the necessary copies of accounts and vouchers were submitted before the AO and the payments, as can be seen from the relevant copies of accounts on page. no.391 and 392 of the paper book, have been made by account payee cheques after deducting the applicable tax at source. Moreover, further drawing my attention to page no.388 to 390 of the paper book, being Repair 86 Maintenance of Road Account, the Ld. AR pointed out that the expenditure essentially pertain to the transportation of malba (Kapchi), some small quantity of purchase of cement, RCC flooring charges and related labour charges, all these expenses by their very nature pertain to the upkeep of the approach roads in the production/manufacturing facility and small repairs/maintenance of the warehouses. Further, the Ld. AR vehemently argued that no new asset of any durability has been brought into existence or use by incurring these expenses. As such, it was submitted by the AR that the expenses are clearly in the nature of I.T(SS)A Nos. 165 to 168/Ahd/2016 & CO 192 to 195/Ahd/2016 AY.2009-10 to 2012-13 Page No DCIT vs. Friends Salt Works & Allied Indus & Friends Salt Works & Allied Indus vs. DCIT 32 revenue expenses, the genuineness of which has not been doubted by the AO and therefore, the Ld. AO has erred in not allowing the claim. 15.2 I have perused the material on record, the assessment order and the submission made on behalf of the appellant and also heard the Ld. AR at length. After considering the totality of facts and circumstances, I am of the considered opinion that the perusal of the Repairs & Maintenance Account leaves no doubt in the road or warehouse on a 1000 acre manufacturing facility taken on lease from Kandla Port Trust by the appellant. Not only the AO has not doubted the genuineness of the expenses, the AO has brought no material on record to even remotely infer that the expenses might be capital in nature. I have no doubt in my mind, considering the turnover, the cash profit, the net profit and the size of the facility being maintained by the appellant, the nature of expenses comprised in the Repairs & Maintenance Expenses, and the fact that no asset of enduring utility has been even alleged by the AO to have come into existence, that the expenses are purely revenue in nature and the AO has no material with him to hold otherwise. Thus, I find myself in complete agreement with the submissions of the AR that the expenses are revenue in nature and rightly claimed for the year under reference. Thus, the addition of Rs. 1,64,42,008/- has no merit and the same is deleted. Ground no. 3(i) succeeds. 16. In the result, grounds 3(i), 3(ii), 3(iii) and 3(v) having been allowed and ground 3(iv) having been partly allowed, the appeal for A.Y.2010-11 stands partly allowed.” 26. Before us, Ld. D.R. placed reliance on observations made by the Ld. A.O. in assessment order. Ld. DR argued that expenses were incurred for shifting malba within the vicinity, which was used in road construction and therefore, clearly the expenditure is capital in nature. In response, the counsel for the assessee reiterated the submissions put forth before Ld. CIT(Appeals) to the effect that these are the revenue expenditure and no I.T(SS)A Nos. 165 to 168/Ahd/2016 & CO 192 to 195/Ahd/2016 AY.2009-10 to 2012-13 Page No DCIT vs. Friends Salt Works & Allied Indus & Friends Salt Works & Allied Indus vs. DCIT 33 capital asset of enduring nature has been brought into existence by way of this expenditure. This expenditure is incurred towards normal upkeep of roads within the vicinity which is quite vast having an area of 1000 acres. The expenditure was primarily towards leveling of roads so as to enable the trucks to reach the tank terminal within the vast facility of 1000 acres. The counsel for the assessee drew our attention to page 40 of the paper book in support of his contention that this amount was incurred by way of expenses paid to transporters for leveling the road within the vicinity wherever required. 27. We have heard the rival contentions and perused the material on record. We are in agreement with the counsel for the assessee that in the instant set of facts, Ld. CIT(Appeals) has correctly appreciated the factual position and has not erred in law and on facts in allowing the assessee’s appeal in these set of facts. We observe that the AO has not disputed about the genuineness of the expenses incurred. Further, while disallowing the expenses in the hands of assessee by terming the same to be capital nature, no corresponding depreciation was allowed by the AO in respect of these expenses. Further, we observe that the above expenditure as of a recurring nature and no benefit/asset of enduring nature has come into existence by way of this expenditure. In the result, we are of the considered view, that Ld. CIT(Appeals) has not erred in facts and in law in allowing the assessee’s appeal on the set of facts available before him. 28. In the result, Ground Number 2 of the appeal of the Revenue is dismissed. I.T(SS)A Nos. 165 to 168/Ahd/2016 & CO 192 to 195/Ahd/2016 AY.2009-10 to 2012-13 Page No DCIT vs. Friends Salt Works & Allied Indus & Friends Salt Works & Allied Indus vs. DCIT 34 29. The other grounds of appeal of the Revenue are with respect of deleting the disallowance of washing/handling loss of 3,93,23,259/- (ground number 2 of Revenue’s appeal), deleting the disallowance of interest under section 36(1)(iii) of 5,31,21,047/ - (ground number 3 of Revenue’s appeal) and deleting the disallowance of depreciation of rice plant of 3,88,257/- (ground number 4 of the revenue’s appeal). All the above grounds are similar to grounds of appeal for the previous assessment year (AY 2009-10) and the ratio of the decision in respect of the above grounds would apply to assessment year 2010-11 as well, since the facts and the issue for consideration are similar for both the years under consideration. 30. In the result, Ground Numbers 2, 3 and 4 of Revenue’s appeal are dismissed. 31. Grounds Numbers 5 and 6 of Revenue’s appeal are general in nature and do not require any specific adjudication. Cross Objection of the assessee for assessment year 2010-11: 32. Before us the counsel for the assessee has submitted that he shall not be pressing ground Numbers 1, 4 and 5 of the cross objections for assessment year 2010-11. Accordingly, the same are being dismissed as not pressed. I.T(SS)A Nos. 165 to 168/Ahd/2016 & CO 192 to 195/Ahd/2016 AY.2009-10 to 2012-13 Page No DCIT vs. Friends Salt Works & Allied Indus & Friends Salt Works & Allied Indus vs. DCIT 35 33. Ground number 2 of the assessee’s cross objection (disallowance of 6 7,32,280/ - being the depreciation claimed on providing easy and free access in keeping the area vacant surrounding lease land where windmill of the assessee is installed and allowing the same on monthly proportionate basis) is similar to Ground Number 1 of the assessee’s Cross Objection for the immediately preceding assessment year 2009-10. Since on similar facts, the issue has been decided against the assessee, in view of the same, Ground number 2 of the assessee’s cross objections is hereby dismissed. 34. In the result, Ground number 2 of the assessee’s cross objections is dismissed. Assessment year 2011-12 Department’s Appeal: Ground number 1: deletion of disallowance of brokerage and commission expenses of 1,69,39,884/- 35. The brief facts in relation to this ground of appeal are that during the year the assessee made certain payments on account of brokerage and commission on which no TDS was deducted. On being requisitioned by the AO, the assessee submitted that the amount is rightly claimed as an expenditure and the same is payable, as per the terms of agreement, to agents based in Dubai, Indonesia and Pakistan who found buyers for the exports to be done by the assessee. Accordingly, no TDS was required to be deducted on such payments. The AO however rejected the assessee’s arguments and held that in view of the provisions of section 5(2)(b) r.w.s. section 9(1) of I.T(SS)A Nos. 165 to 168/Ahd/2016 & CO 192 to 195/Ahd/2016 AY.2009-10 to 2012-13 Page No DCIT vs. Friends Salt Works & Allied Indus & Friends Salt Works & Allied Indus vs. DCIT 36 the Act, the expenditure involves income accruing arising to the recipient parties in India and hence TDS was deductible on such income. Therefore in view of the AAR decision in the case of SKF boilers and Dryers Private Limited reported in 15 Taxman.com 325, the AO made an addition of 1,69,39,884/-. In appeal, Ld. CIT(Appeals) gave complete relief to the assessee on this ground with the following observations: “18.2 I have perused the assessment order and submissions on behalf of the appellant. There is absolutely no doubt expressed by the AO with regard to the genuineness of the expenses as claimed by the appellant. The AO has relied on AAR decision in SKF Boilers (supra) to hold against the appellant with regard to brokerage and commission paid outside India for services enjoyed out of India. The facts are squarely covered by the decision of ITAT Rajkot Bench in Rimtex Industries, (supra) wherein it is held that AAR decisions cannot be applied as precedent in other cases and also that no tax is deductible from payment/credit for services enjoyed outside India. Moreover, there is no doubt about the genuineness of the claim and expenses. Thus, the addition of Rs.1,69,39,884/- made for non- deduction of tax at source u/s 40(a)(ia) has no basis or merit and hence the same is deleted. The related ground 3(i) succeeds. Appellant gets a relief of Rs.1,69,39,884/-.” 36. Before us, the counsel for the assessee submitted that the issue is squarely covered by the decision of ACIT v. Rimtex Industries in ITA number 315/RJT/2013, wherein the ITAT distinguished the above decision of AAR on which the additions have been made by the Ld. Assessing Officer. The said decision is attached at page 251 of the paper book filed by the assessee. The counsel for the assessee submitted that the decision of the AO is based entirely on the AAR decision in this case of SKF Boilers supra and the AO has never doubted the genuineness of the expenses claimed by I.T(SS)A Nos. 165 to 168/Ahd/2016 & CO 192 to 195/Ahd/2016 AY.2009-10 to 2012-13 Page No DCIT vs. Friends Salt Works & Allied Indus & Friends Salt Works & Allied Indus vs. DCIT 37 the assessee. In response, the Ld. DR relied on the observations made by the assessing officer in the assessment order. 37. We have heard the rival contentions and perused the material on record. We observe that in the instant set of facts, the AO has not doubted the genuineness of the expenses. The only reason for making the disallowance was on the ground that the assessee had not deducted TDS on the above brokerage and commission income. The contention of the counsel for the assessee is that the above brokerage and commission income was in respect of services carried out outside of India and therefore there was no requirement of deduction of TDS on the above amounts. The decision on which the AO placed reliance (SKF boilers supra) has been distinguished by the Rajkot ITAT in the case of ACIT v. Rimtex Industries in ITA number 315/RJT/2013. We are of the considered view that in the instant facts, the Ld. CIT(Appeals) has not erred in facts and in law in holding that no TDS was required in respect of such brokerage and commission payments since no income in respect of the same accrued in India so as to necessitate deduction of TDS. The Rajkot ITAT in the case of DCIT v. DML Exim (P.) Ltd [2020] 118 taxmann.com 491 (Rajkot - Trib.) held that where commission was paid by assessee to foreign parties for rendering services abroad for soliciting customers for its export business activities, assessee was not liable for short deduction of tax at source and, therefore, disallowance under section 40(a)(ia) was not permissible. In the recent case of PCIT v. Puma Sports India (P.) Ltd. [2022] 134 taxmann.com 60 (SC), the Hon'ble supreme Court dismissed Department’s SLP against impugned order of High Court holding that commission paid by assessee- I.T(SS)A Nos. 165 to 168/Ahd/2016 & CO 192 to 195/Ahd/2016 AY.2009-10 to 2012-13 Page No DCIT vs. Friends Salt Works & Allied Indus & Friends Salt Works & Allied Indus vs. DCIT 38 company to its overseas Associated Enterprise (non-resident agent) for purchase orders outside India would not be liable to TDS under section 195 as services were rendered or utilized outside India and commission was also paid outside India. In view of the above, we find no infirmity on the order of Ld. CIT(Appeals) and ground number 1 of the Department’s appeal is hereby dismissed. 38. In the result, ground number 1 of the Department’s appeal is hereby dismissed. 39. The other grounds of appeal of the Revenue are with respect of deleting the disallowance of washing/handling loss of 6,18,83,151/- (ground number 2 of Revenue’s appeal), deleting the disallowance of interest under section 36(1)(iii) of 6,00,63,000/- (ground number 3 of Revenue’s appeal) and deleting the disallowance of depreciation of rice plant of 3,30,018/ - (ground number 4 of the revenue’s appeal). All the above grounds are similar to grounds of appeal for the previous assessment years (AY 2009-10 and AY 2010-11) and the ratio of the decision in respect of the above grounds would apply to assessment year 2011-12 as well, since the facts and the issue for consideration are similar for both the years under consideration. 40. In the result, Ground Numbers 2, 3 and 4 of Revenue’s appeal are dismissed. 41. Ground number 5 and 6 of the Revenue’s appeal are general in nature and are not require a specific adjudication. I.T(SS)A Nos. 165 to 168/Ahd/2016 & CO 192 to 195/Ahd/2016 AY.2009-10 to 2012-13 Page No DCIT vs. Friends Salt Works & Allied Indus & Friends Salt Works & Allied Indus vs. DCIT 39 Assessment year 2011-12: Assessee’s cross objection: 42. Before us the counsel for the assessee has submitted that he shall not be pressing ground Numbers 2 and 3 of the cross objections for assessment year 2011-12. Accordingly, the same are being dismissed as not pressed. 43. Ground number 1 of the assessee’s cross objection (disallowance of 2,09,16,656/ - being the depreciation claimed on providing easy and free access in keeping the area vacant surrounding lease land where windmill of the assessee is installed and allowing the same on monthly proportionate basis) is similar to Ground Number 1 of the assessee’s Cross Objection for the assessment year 2009-10. Since on similar facts, the issue has been decided in against the assessee, in view of the same, Ground number 1 of the assessee’s cross objections is hereby decided against the assessee. 44. In the result, Ground number 1 of the assessee’s cross objections is dismissed. Assessment year 2012-13: Department’s Appeal: 45. The other grounds of appeal of the Revenue are with respect of deleting the disallowance of washing/handling loss of 6,78,22,703/- (ground number 1 of Revenue’s appeal), deleting the disallowance of I.T(SS)A Nos. 165 to 168/Ahd/2016 & CO 192 to 195/Ahd/2016 AY.2009-10 to 2012-13 Page No DCIT vs. Friends Salt Works & Allied Indus & Friends Salt Works & Allied Indus vs. DCIT 40 interest under section 36(1)(iii) of 6,59,62,444/- (ground number 2 of Revenue’s appeal) and deleting the disallowance of depreciation of rice plant of 2,80,515/- (ground number 3 of the revenue’s appeal). All the above grounds are similar to grounds of appeal for the previous assessment years (AY 2009-10, AY 2010-11 and AY 2011-12) and the ratio of the decision in respect of the above grounds would apply to assessment year 2012-13 as well, since the facts and the issue for consideration are similar for all the years under consideration. 46. In the result, Ground Numbers 1, 2 and 3 of Revenue’s appeal are dismissed. 47. Ground number 4 and 5 of the Revenue’s appeal are general in nature and are not require a specific adjudication. Assessment year 2012-13: Assessee’s cross objection: 48. Before us the counsel for the assessee has submitted that he shall not be pressing ground Numbers 2 and 3 of the cross objections for assessment year 2011-12 . Accordingly, the same are being dismissed as not pressed. 49. Ground number 1 of the assessee’s cross objection (disallowance of 94,61,331/- being the depreciation claimed on providing easy and free access in keeping the area vacant surrounding lease land where windmill of the assessee is installed and allowing the same on monthly proportionate basis) is similar to Ground Number 1 of the assessee’s Cross Objection for I.T(SS)A Nos. 165 to 168/Ahd/2016 & CO 192 to 195/Ahd/2016 AY.2009-10 to 2012-13 Page No DCIT vs. Friends Salt Works & Allied Indus & Friends Salt Works & Allied Indus vs. DCIT 41 the assessment year 2009-10. Since on similar facts, the issue has been decided in against the assessee, in view of the same, Ground number 1 of the assessee’s cross objections is hereby decided against the assessee. 50. In the result, Ground number 1 of the assessee’s cross objections is dismissed. 51. In the combined result, all the four appeals of the Revenue are dismissed and all the four Cross Objections of the assessee are also dismissed. Order pronounced in the open court on 12-08-2022 Sd/- Sd/- (WASEEM AHMED) (SIDHHARTHA NAUTIYAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad : Dated 12/08/2022 आदेश क त ल प अ े षत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order, Assistant Registrar, Income Tax Appellate Tribunal, Rajkot