Case Law Details
Air Control India Pvt. Ltd Vs ITO (ITAT Pune)
Held that as the assessee is in windmill’s power generation business, additional depreciation available for windmill u/s 32(1)(iia).
Facts-
The assessee’s sole substantive grievance raised in the instant appeal challenges correctness of both the lower authorities’ action disallowing its additional depreciation claim of Rs.1,05,23,548/- u/s 32(1)(iia) of the Act on windmill.
AO alleged that since the appellant was engaged in the business of design drawing and execution of air conditioning contract in India or abroad and also undertook repair and maintenance of air conditioning system and installation along with purchase and sale of spare parts and air conditioning equipments, the appellant was not eligible for claiming deduction u/s 32(1)(iia) of the I.T. Act, 1961 on account of additional depreciation.
Conclusion-
We make it clear that the assessee has already been granted normal depreciation on the corresponding fixed asset i.e. windmill(s) since the instant appeal is only concerned with additional depreciation issue. A perusal of para 5.2 page 4 in Assessing Officer’s assessment order dated 10.03.2015 reveals that the assessee is in windmill’s power generation business at least since A.Y. 2008-09. We therefore reject the Revenue’s argument that it is not entitled for the impugned additional depreciation claim pertaining to installation of air-conditioning unit since going against the facts on record.
FULL TEXT OF THE ORDER OF ITAT PUNE
This assessee’s appeal for assessment year 2012-13 arises against the CIT(A)- 1, Pune’s order dated 30.03.2017 passed in case no. ITBA/APL/S/250/2016-17/1003769270(1) involving proceedings u/s 143(3) of the Income Tax Act, 1961; in short “the Act”.
Heard both the parties. Case files perused.
2. The assessee’s sole substantive grievance raised in the instant appeal challenges correctness of both the lower authorities’ action disallowing its additional depreciation claim of Rs.1,05,23,548/- u/s 32(1)(iia) of the Act. The CIT(A)’s detailed discussion affirming the Assessing Officer’s action to this effect reads as under :-
“7. In ground No. 2 the appellant is aggrieved on account of action of the AO in not allowing additional depreciation u/s 32(1)(iia) of the I.T. Act, 1961. This issue has been discussed in Para 7 of the assessment order. To put it briefly, the AO during the course of assessment proceedings noticed that the appellant company had commissioned a wind mill GBY-19 at Village Yelmarwadi, Site Agaswadi, Tal. Phaltan, Dist. Satara. As per commission certificate issued by Maharashtra State Electricity Distribution Co. Ltd. dated 12/04/2012, the. windmill was successful commissioned on 31/03/2012. The AO noticed that apart from normal depreciation in respect of wind mill as per applicable rate of 80%, the appellant company had also claimed additional depreciation of Rs.1,05,23,548/- u/s 32(1)(iia) of the I.T. Act, 1961. Accordingly, the AO confronted the appellant on this issue of admissibility of additional depreciation claimed by the appellant. In reply the appellant filed following submissions before the AO:
“1. We have claimed depreciation @80% on written down value basis for six months and we claimed additional depreciation of 20% under section 32(1)(iia) of the Income tax Act, 1961 for machinery of plant acquired in the business of manufacture or production of article or thing or in the generation or generation and distribution of power.
2. We further quote the following case laws for additional depreciation u/s32(l)(iia) as under:
i) Creamline Dairy Products Ltd Vs Dy. CIT [(2012) 139 ITD 517 (Hyderabad) dated 05/10/2012
ii) Industrial Credit and Investment Corporation of India Limited Vs Inspecting Asst. Commissioner [32 ITD 325, ITAT Bombay] Dated 03/03/1989
iii) International Computers Indian Manufactures Limited Vs Dy. CIT 63 ITD 195 (ITAT Mumbai) 18/02/1997
iv) Madhu Industries Ltd. VS ITO, ITA No.4172(AHD) of 2007 dated 23/07/2010.
3. We have claimed depreciation u/s 32(1)(iia) of the I T Act, 1961 at rates prescribed in Appendix I which relates of Tangible Asset under the heading “III Machinery and Plant”, in item 8 in sub-item (xiii), in sub-sub Item (1) to (m). According to the said Appendix I, a windmill ( acquired up to 31/3/2012) is entitled to depreciation @80% on written down value basis amounting to Rs.284,95,451.53/-
In case of one windmill we claimed additional depreciation of 20% u/s 32(1)(iia) of the Income tax Act, 1961 for machinery or plant acquired by a taxpayer who is engaged in the business of manufacture or production of article or thing or in the generation or generation and distribution of power amounting to Rs. 1,05,23,548/-.”
The AO was, however, not convinced with the reply of the appellant. After citing various decisions, the AO concluded that in order to be eligible for deduction u/s 32((1)(iia) of the I.T. Act. 1961. the appellant must be engaged in the business of manufacture of article or thing. The AO noticed that since the appellant was engaged in the business of design drawing and execution of air conditioning contract in India or abroad and also undertook repair and maintenance of air conditioning system and installation along with purchase and sale of spare parts and air conditioning equipments, the appellant was not eligible for claiming deduction u/s 32(1)(iia) of the I.T. Act, 1961 on account of additional depreciation. Accordingly, he disallowed the claim of Rs.1,05,23,548/-and added back to the total income of the appellant.
8. During the course of appellate proceedings, the appellant has filed following submissions:
“Ground No.2
1) We are engaged in the following Activities:-
a) Design, Drawings & Execution of air-conditioning contract in India
b) Design, Drawings & Execution of air-conditioning contract Abroad
c) We purchase spare parts of the air-conditioning equipments, assemble them and export the air-conditioning equipments which make us a manufacturing concern.
d) We also undertake repairs & Maintenance of air-conditioning systems & Installation
e) Sales and Purchase spare part of air-conditioning equipments.
f) We also engaged in generation of power by windmills. We have four windmills Since we are engaged in manufacturing we have claimed additional depreciation U/S 32(1)(iia) of the Income Tax Act at 20%. For the Windmill installed at STARA during the year.
We have claimed normal depreciation of 40% plus 20% additional depreciation total 60% Depreciation is claimed 2,10,71,096/-+ 1,05,35,548 Total Depreciation Amount is Rs. 3,16,06,644=00.
While claiming the deduction we have relied on following cases.
1) Income Tax Appellate Tribunal – Pune Mrs. Sulbha Subhash Lodha, vs Department Of Income Tax on 24 September, 2014.
2) Velayudhaswami Spinning Mills (P) Ltd. 340 ITR 471 ( Mad.)
3) Poonawala Estate & Stud Farms (P) Ltd. ( Pune-B) (2010) 48 DTR 210
4) Serum International Ltd. Vs. Addl.CIT in ITM Nos.290 to 292/ PN/10 vide order dt.28/09/2011.
5) Chordia Food Products Ltd. – Pune Tribunal order dt.26/06/2012
6) Shavive Exports, Mubai – ITA No.321/Mum/2012
7) Malpani Sales Corporation – ITA No.471/PN/2010.
8) rashant Caters, Mumbai – ITA No.4226/Mum/2011 order dt. 06/02/2013.
9) CIT vs. 1 ABDULKARIM STONE CONTRACTOR 2 RAJ FLOORING STONE CO. 3 AGARWAL FLOORING STONE CO.
DB Income tax reference Nos.38, 38A and 38B of 1987, decided on May 22, 1996.
Further submissions were filed vide letter dated 22/3/2017 which reads as under:
“Sir we have claimed additional depreciation on wind mill in year A Y 2012-13 relying on decision of Lacknow Tribunal judgment. In similar case question of additional depreciation was decided in favour of assessee. Case is submitted for kind reference.
Further we also relied on the case CST VMP Electricity Board 1968 (11)TMI 85 Supreme Court of India.
We further submit that we are engaged in manufacture of Air Conditioning Systems and ducting and other periphery of air-conditioning systems. We are submitting write up on our activities, copy of representative invoice order snapshots of our manufacturing machines.”
The appellant also submitted a note regarding description of activities carried out b appellant company. The same is reproduced as under:
“Air Control India Pvt. Ltd. Is having specialized business activities of providing Air Condition & Refrigeration Plant and Machinery for Marine vessels (different types of ships) and Offshore Oil & Gas installations such as oil drilling rigs, Gas & Oil production platforms etc.
Shipbuilding project is composite activity of installing many different types of Machineries Plants required for functioning of Marine Vessel such as main engine, generators, AC & REF plants, pumps, navigation equipments, cranes, life boats and other required instrumentation.
Normally the shipbuilding activity starts from Naval Architect designing the vessel (ship) as p the owner’s requirements and accordingly the capacity of various equipments, machinery at plants are decided. The shipbuilding main and prime activity is to fabricate the ship structure and make the outer steel body of the ship and simultaneously various equipments and machineries are installed inside the ship structure as the ship body fabrication progress.
For our Air conditioning plant also, we need to install our machinery progressively as the shipbuilding activities moves. We first bring basic equipments such as compressor, sea water cooled condenser, AHU, electrical control panel etc. and as and when we get clearances and space allocations for these equipments we installed them in their respective position. For other ancillary items such as ducting, refrigerant piping etc we bring raw material such as galvanized sheets, cooper & steel pipes and manufacture this ducting & piping in the shipyard so that the manufactured small individual duct & pipe pieces can be taken inside the ship structure and install them in very cozy spaces available. The every duct & pipe piece needs to be manufactured in the shipyard using various manufacturing machineries such as ducting, lock forming & bending machine, tube cutter brazing, welding, drilling & cutting machineries. Finally these manufactured ducting pieces are connected & joined with AHU to deliver the Air conditioned air to various cabins and AC spaces and similarly refrigerant piping pieces are connected with various equipments such as compressor, condenser, gauge panel, expansion valve, cooling coil etc.
With above information you will observe that for ship & marine vessel air conditioning we need to manufacture required items and assemblies in situ at shipyard.
For most of the shipbuilding activities there is no custom duty or excise duty applicable and the shipbuilding is carried out in the custom bonded area.
To get the idea of manufacturing equipments we use for site manufacturing, fabrication and assemblies, we are attaching herewith some of the brochure / pictures of these equipments.”
9. I have carefully considered the facts of the case as well as reply of the appellant. From the perusal of activities carried out by the appellant, it is clear that the appellant is basically engaged in the work of AC installation in the ships. Of course this is an specialized job which required technical expertise in respect of installation of equipment and piping/ fabrication work. The ducts and pipes are cut to required sizes and assembled in the ships at the various levels of production of the ship. Therefore, I do not find any reason to differ with the view of the AO in this regard. It is also seen that amendment in section 32(1)(iia) of the I.T. Act, 1961 was made by Finance Act 2012 w.e.f. 1/4/2013 by inserting the words “or in the business of generation or generation and distribution of power”. This being so, in A.Y.2012-13 the appellant will not be entitled for deduction of additional depreciation in respect of wind mill as legislature has brought the same in the ambit of section 32(1)(iia) from A.Y. 2013-14 onwards. The appellant has relied upon the decision of Hon. Lucknow Bench of ITAT in the case of J.K. Cement. In that case the facts were slightly different and the claim was made in respect of two captive power plants installed by the assessee which was used in the manufacturing of cement by the assessee company. In that case the issue under consideration was whether power generated by captive power plant amounts to manufacturing or production of any article or thing or not. In this case, the issue is whether the activity in respect of installation of A.C. in the ship amounts to manufacture or production or any article or thing or not. In any case, in absence of clear provision regarding admissibility of additional depreciation in respect of power generation units prior to A.Y. 2013-14 in the Act, I do not find any infirmity in the order of the AO and disallowance of Rs.1,05,23,548/- under section 32(1)(iia) of the I.T. Act, 1961 is upheld and the ground is dismissed.”
3. Both the learned representatives reiterated their respective stands against and in support the lower authorities’ action under challenge disallowing the assessee’s additional depreciation claim. We make it clear that the assessee has already been granted normal depreciation on the corresponding fixed asset i.e. windmill(s) since the instant appeal is only concerned with additional depreciation issue. A perusal of para 5.2 page 4 in Assessing Officer’s assessment order dated 10.03.2015 reveals that the assessee is in windmill’s power generation business at least since A.Y. 2008-09. We therefore reject the Revenue’s argument that it is not entitled for the impugned additional depreciation claim pertaining to installation of air-conditioning unit since going against the facts on record.
4. Next comes the most significant aspect of entitlement of assessee’s additional depreciation claim which has been rejected by the lower authorities on the ground that the same is applicable only with effect from 1.4.2013 whereas we are in A.Y. 2012-13 only. This tribunal’s co-ordinate bench order for A.Y. 2011-12 in ACIT vs. Shri Atul Shivdas Ganatra (HUF) in ITA No.7250/MUM/2016 dated 30.11.2018 has rejected the Revenue’s identical stand as follows :-
“2. The only common issue in these two appeals of Revenue against the order of CIT(A), allowing additional depreciation for wind mills u/s. 32(1)(iia) of the Income Tax Act, 1961 [herein after referred to as ‘Act’]. For this, Revenue has raised identically worded grounds in both the cases of assessee. The facts and circumstances are also exactly identical and hence, we will take the grounds from ITA No. 7252/Mum/2016. The grounds raised by Revenue are as under:
“1. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) has erred by allowing the additional depreciation for wind mills u/s. 32(1)(iia) for AY. 2011-12, when the same is allowed as per the provision of the Act and Memorandum to the Finance Act, 2012 in relation to AY. 2013-14 and subsequent assessment years only.
2. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) has erred by relying on the decision of CIT Vs. VTM Ltd. (319 ITR 336), wherein the facts of the case were different being the case of textile manufacturer whereas the assessee is a trader and hence the decision relied upon is not applicable being distinguishable on facts”.
3. We have heard rival contentions and gone through the facts and circumstances of the case. Briefly stated facts are that assessee is engaged in the business of trading in cotton bales and generation of power. During the course of assessment proceedings, AO noted that the assessee has claimed deduction u/s. 32(1)(iia) of the Act being additional depreciation on the wind mills, which were installed and commissioned during the year under consideration. According to AO, assessee is not eligible for additional depreciation for the reason that the assessee is not engaged in manufacturing/production of any article and moreover he is engaged in generation of power through wind mill and as per amendment brought into by the Finance Act, 2012 with effect from 01-04-2013 for the relevant AY 2013-14 which is retrospective. Aggrieved, assessee preferred an appeal before the CIT(A).
4. The CIT(A) allowed the claim of assessee by stating that this Plant & Machinery was installed in AY. 2010-11 i.e., wind mill having capacity of 1,800 KV and this was commissioned and put to use on or before 31-03-2011 at S.F. No. 348/P1, Vandhiya, Bhachau, Kutch, Gujarat. Assessee claimed the additional depreciation @ 10% in claimed depreciation in AY. 2011-12. The additional depreciation was claimed u/s. 32(1)(iia) of the Act for the reason that the assessee is engaged in manufacturing/production of any article or thing and this new Plant & Machinery was acquired before and installed before 3103-2010. The CIT(A) followed the order of the ITAT in AY. 2010-11 in ITA No. 4899/Mum/2014, order dated 26-08-2016 in assessee’s own case.
5. We find that this issue is squarely covered by the decision of Co-ordinate Bench of this Tribunal in assessee’s own case, wherein it was held as under:
“2.1 Next issue is with regard to additional depreciation of Rs.2,19,29,891/- on two windmills acquired and installed by assessee during the year, which was confirmed by CIT(A). As stated above, assessee is engaged in the business of generation of power. During the year two windmills were acquired and installed. Assessee claimed additional depreciation of Rs.2,19,29,891/- u/s.32(1)(iia). Assessing Officer disallowed same by relying of the decision of Tamilnadu Chlorates [2006] 98 ITD 1 (Chennai) (Trib.). CIT(A) upheld the disallowance by relying upon the explanatory notes (memorandum) to amendments as inserted by Fiance Act, 2012. The stand of assessee has been that ITAT Chennai Bench in Tamilnadu Chlorates (suupra) has been relied upon by Assessing Officer was not relevant to current scenario as dealt with the provisions of Section 80HHC of the Act and not with the provisions of Section 32(1)(iia) of the Act. Ld. Authorized Representative submitted that ITAT, Delhi Bench in case of N.T.P.C. vs. DCIT [2012] 54 SOT 177 (URO) (Delhi) (Trib.), considered this decision while dealing with the activity of generation of electricity with respect of additional depreciation u/s.32(1)(iia) and ruled in favour of assessee. Hon’ble Madras High Court in case of CIT vs. VTM Ltd. [2009] 319 ITR 336 (Mad.) (HC) examined the same issue and dismissed the revenue appeal seeking to disallow additional depreciation u/s.32(1)(iia) of the Act with respect of setting up a windmill by a manufacturer of textile goods. Thus, following the ratio of VMT Ltd.(supra) issue has been decided in favour of assessee with regard to addition depreciation u/s.32(1)(iia) of the Act. Hon’ble Supreme Court in case of CST vs. M.P. Electricity Board (AIR 1970 SC 732), held that the electricity generated by an assessee is an article or goods. The explanation to amendments (memorandum) as inserted by Finance Act, 2012 as relied upon by CIT(A) cannot be said to overrule and earlier decision of Hon’ble High Court. An amendment that has prospective application cannot be said to retrospectively take away the rights of an assessee qua it’s explanatory notes. Where there is no ambiguity in the Section, there is no warrant for resort to external aids of interpretation namely the notes on clauses and the memorandum explaining its provisions. In the light of decision of VTM Ltd.(supra) with regard to claim of additional depreciation u/s.32(1)(iia) for setting up a windmill, wherein material being sole decision by Hon’ble High Court on the matter, we hold that additional depreciation should be allowed”.
5.1 As the issue is squarely covered by the Tribunal’s decision in assessee’s own case for immediately preceding assessment year, additional depreciation has rightly been allowed by the CIT(A). Similar are the facts in the case of Shri Atul Shivdas Ganatra (HUF) in ITA No. 7250/Mum/2016. Accordingly, we dismiss both the appeals of Revenue.”
5. Learned departmental representative could hardly rebut the foregoing legal proposition. We therefore accept the assessee’s argument herein in principle and direct the Assessing Officer to compute and allow its additional depreciation claim on windmills as per law. Ordered accordingly.
6. This assessee’s appeal is allowed in above terms.
Order pronounced on this 30th day of June, 2022.
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