Case Law Details
ACIT Vs Kansara Popatlal Tribhovandas Metal Pvt. Ltd. (ITAT Ahmedabad)
ITAT Ahmedabad held that as the additional evidence produced clearly indicates that company has put to use the windmill turbine in the year, depreciation on the same is available.
Facts- In the return of income, depreciation of Rs.1,68,42,000/- was claimed by the assessee on windmill stated to be purchased and put to use after 01.10.2011. During the course of assessment proceedings, this claim of the assessee was verified by the AO and after obtaining the required details as well as making necessary inquiries, the AO disallowed the claim of the assessee for depreciation on windmill.
CIT(A) allowed the claim of the assessee for depreciation on windmill. Being aggrieved, revenue has preferred the present appeal.
Conclusion- Co-ordinate Bench of this Tribunal in the case of Kansara Popatlal Tribhuvan Metal Pvt. Ltd. Vs. PCIT has decided the issue in favour of the assessee.
Held that decision of Co-ordinate Bench of this Tribunal in the case of Kansara Popatlal Tribhuvan Metal Pvt. Ltd. is in favour of the assessee and respectfully following the same, we delete the addition made by the Assessing Officer and confirmed by the learned CIT(A) on account of depreciation while computing the book profit under Section 115JB of the Act. The Cross Objection of the assessee is accordingly allowed.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
This appeal is preferred by the Revenue against the order of the learned Commissioner of Income-tax (Appeals)-2, Ahmedabad [“CIT(A) in short]” dated 17.11.2017 and the same is being disposed of along with Cross Objection filed by the assessee being CO No. 17/Ahd/2019.
2. The solitary issue involved in the Revenue’s appeal relates to the deletion by the learned CIT(A) of the addition of Rs.1,68,42,000/- made by the Assessing Officer on account of disallowance of assessee’s claim for depreciation on windmill.
3. The assessee, in the present case, is a company which is engaged in the business of manufacturing of S.S. Coils, Pata, Circle from hot rolled coils and job work & generation of power for own use through windmill turbine. Return of income for the year under consideration was filed by it on 25.09.2012 declaring a total income of Rs.26,72,110/-. The said return was selected for scrutiny and a notice under Section 143(2) of the Income-tax Act, 1961 [“the Act” in short] was issued by the Assessing Officer to the assessee on 06.08.2013. In the return of income, depreciation of Rs.1,68,42,000/- was claimed by the assessee on windmill stated to be purchased and put to use after 01.10.2011. During the course of assessment proceedings, this claim of the assessee was verified by the Assessing Officer and after obtaining the required details as well as making necessary inquiries, the Assessing Officer disallowed the claim of the assessee for depreciation on windmill for the following reasons given in the assessment order:-
“In view of the above discussion and on the basis of reply received from GEDA, perusal of copy of letter GEDA dated 31.03.2012 address to Mis Decolight Ceramics Ltd., copy of letter of LIGVCL dated 03.07.2012, copy of letter of GETCO dated 04.02.2013 showing sharing of power generation only in the name of Mis Decolight Ceramics Ltd for the month of March-2 012. Now, it is well established from letters issued by above regulatory authorities that the windmill purchased by the assessee company during the period under consideration was not put to use during F.Y. 2011-12 and the electricity generation in account of the assessee company has taken place from 01.04.2012 no power generation taken place in F. Y. 2011-12. In the above referred letter of GEDA, at Para-D it was clearly concluded that the power generated by the above referred Wind Mill for the period from 01.04.2011 to 3 1.03.2012 was for the erstwhile owner namely Mis. Decolight Ceramics Ltd, and thus no generation registered in the name of Mis. Kansara Popatlal Tribhovandas Metal Pvt. Ltd. for the said period. The reply of GEDA is very clearly and conclusive that the assessee company did not put the windmill to use for the purpose of generation of electricity during the period from 01.04.2011 to 31.03.2012. The regulatory authorities have also not recognized any power generation in the name of assessee company during F.Y. 2011-12. The power generation from the windmill was credited in the name of erstwhile owner namely Mis. Decolight Ceramics Ltd. when the assets is not put to use for its business purpose the question of depreciation on the said assets is not arise.
f. The assessee company in its reply has stated that GETCO has revised the certificate on 04.02.2013 and the same was internal letter and no copy of this certificate was given to assessee company, this certificate was issued on 04.03.2012 which is after the date of return filed. So, the revised certificate is not in their knowledge at the time of filling return. The reply of the assessee company is not acceptable as any mistake can be rectified by filing revised return of income in due course. As per letter of regulatory authority it is clear that the credit of power generation was withdrawn from the assessee company so the effect of the same would have also came into the knowledge in subsequent period. In spite of that the assessee company has not rectified the mistake, which was to be done by genuine assessee who have bonafide intention to pay tax on its true income.
3.5 The assessee company has purchase a new windmill for Rs. 4,21,05,000/- in month the March 2011. In the show cause notice the disallowance was proposed at Rs. 1,72,19,847/- but the company has actually claimed depredation on new windmill at Rs. 1,68,42,000/-. During the period under consideration the assessee company has claimed depreciation on windmill at Rs. 1,82,02,800/-. Out of it the depreciation on old windmill was of Rs. 13,60,800/- and depreciation of Rs. 1,68,42,000/-was claimed against re-purchase of windmill during the period under consideration. But, in view of the discussion made in para-3.4, it comes out that the windmill purchased during F.Y. 2011-12 was put to use during F.Y. 2011-12 and has started its power generation (electricity) for the Assessee company from 01.04.2012. It can be verified from the wheeling agreement dated 31.03.2012 and also from the letter of LIGVCL dated 03.07.2012. As the credit of electricity generated from the said windmill was given to the assessee company from 01.04.2012, it concluded that the assets (windmill) put to use after 31.03.2012 and was not used in FY 2011-12. Accordingly, the assessee company is not entitled to claim depreciation u/s 32 of the Act. Therefore, the depreciation of Rs. 1,68,42,000/- claimed by the assessee company for F.Y. 2011-12 relevant to A.Y. 2012-13 is disallowed.”
4. The disallowance of Rs.1,68,42,000/- made by the Assessing Officer on account of its claim for depreciation on windmill was challenged by the assessee before the learned CIT(A). During the course of appellate proceedings before the learned CIT(A), additional evidence was filed by the assessee along with an application seeking admission of the same. The said additional evidence was admitted by the learned CIT(A) and the same was forwarded by him to the Assessing Officer for verification along with written submission filed by the assessee. After verification, the Assessing Officer submitted his remand report vide letter dated 24.11.2016 to the learned CIT(A) offering his comments as under:-
“In this case case, the assessment for A. Y. 2 012-13 was completed on 2 0/03/2015 u/s. 143(3) of the I.T. Act and depreciation on windmill turbine of Rs.1,68,42,000/- claimed u/s. 32 of the I. T. Act was disallowed. The facts of the case are as under:-
(a) The assessee company purchased one Suzlon Make 1250 KW wind electric generator bearing WEG No.M-15 with infrastructure and transmission rights from M/s. India Windpower Limited for consideration of Rs.4,2 1,05,000/- on 14/03/2012. The windmill was situated at Survey No. 114, Village Kandoli, Ta – Abdasa, Disi. Kutch. M/s. Decolight Ceramic Lid. has given the said windmill to M/s. India Windpower Ltd. which was later sold out to the assessee company. The company has claimed that the electricity production / generation started in F.Y. 2011-12. In support of its claim the company has submitted an undertaking of M/s. Decolight Ceramics Ltd. (erstwhile owner) issued in favour of the Director Gujarat Energy Development Agency, Gandhi nagar (GEDA) on 28/03/2012, wherein it was staled that the windmill project (M-15, Suzloni MWS, situated at Survey No. 14/P, Village Kabuli, Ta Abdasa, Dist. Kutch) had been sold to the assessee company and request was made to give credit of power to assessee company generation from windmill tor month of March, 2012. It was also undertaken that M/s. Decolight Ceramics Limited would not to claim credit of power generation from the said windmill for the month of March, 2012. The said undertaking was notarized at Rajkot on 28/03/2012. In support of assessee’s claim that it has put to use the asset, company submitted a certificate dated 17/04/2012 issued by GETCO for sharing of electricity, generated by wind farm at Vanku S/S. In part B of the certificate and at sr. no. 24 of the certificate the sharing of electricity was shown in name of the assessee company also. Accordingly the company has claimed depreciation @ 40% of Rs.1,68,42,000/-. Further, in support of its claim of production and put to use of windmill before 3 1/03/2012, the assessee company has also submitted a wheeling agreement dated 2 1/03/2012, which was executed between the Assessee Company and GETCO, Vadodara.
(b) Thereafter, during the assessment proceedings, the Assessing Officer issued notice u/s 133(6) of the Act to the GEDA (Gujarat Energy Development Agency). In response, the Dy. Director of GEDA, Shri S. B. Patil vide letter dated 26/02/2015 informed that (which relied on the Chief Engineer (Op) LIGVCL, Mehsana, letter dated 03/07/2012) for the period of 01/04/2011 to 3 1/03/2012, no power generation is registered in the name of M/s. Kansara Popatial Tribhovandas Metal Pvt. Ltd. Accordingly the Assessing Officer disallowed the depreciation claimed on windmill turbine, as the windmill was not put to use within the period.
3. Thereafter, during the course of appellate proceedings, the assessee company has filed additional evidences to prove that the windmill turbine was put to use on 31/03/2012. Therefore, the assessee company was eligible for depreciation and had rightly claimed the depreciation. The new additional produced by the assessee during the appellate proceedings, indicate that the assessee company has put to use the windmill turbine on 31/03/2012. Particularly, the letter of The Dy. Director of GEDA, Shri S. B. Patil dated 25/10/2016, wherein, he has accepted to assessee’s view point and held that M/s. Kansara Popatlal Tribhovandas Metal Pvt. Ltd. is eligible for credit of units on 31/03/2012, negates his earlier letter dated 26/02/2015 of the Dy. Director of GEDA, Shri S.B. Patil and certificate of Chief Engineer (Op), UGVCL, Mehsana, letter dated 03/07/2012. Now, with these additional evidences, it appears that the company has started wind farm power generation on 31/03/2012.”
4.1 After taking into consideration the submission made by the assessee as well as the material available on record including especially the remand report submitted by the Assessing Officer, the learned CIT(A) allowed the claim of the assessee for depreciation on windmill vide paragraph No. 2.4 of his impugned order which reads as under:-
“2.4 I have carefully considered the details filed by the appellant, the report of the A. 0. and the counter comments filed by the appellant. Certain evidences could not be produced by the appellant before the A. 0. Further, the evidence now being submitted are contemporary in nature. The evidence must have been available with the appellant but he could not produce as he was facing difficulty due to the circumstances. The A.0. has also been given due opportunity. He has examined the evidence and given his comments on the same after verification. Considering these facts and circumstances and the fact that the evidence now being submitted by the appellant is contemporary in nature, the additional evidence is admitted. 9
5. Aggrieved by the order of the learned CIT(A) giving relief to the assessee on this issue, Revenue has preferred this appeal before the Tribunal.
6. We have heard the arguments of both the sides on this issue and also perused the relevant material available on record. As rightly pointed out by the learned Counsel for the assessee from the relevant portion of the remand report submitted by the Assessing Officer to the learned CIT(A), the claim of the assessee of having put to use the windmill turbine on 31.03.2012 was found to be correct by the Assessing Officer on verification of the additional evidence filed by the As categorically stated by the Assessing Officer in the remand report, the additional evidence filed by the assessee including especially the letter dated 25.10.2016 issued by the Deputy Director of GEDA was sufficient to establish that the assessee-company having put to use the windmill turbine on 31.03.2012 was eligible for credit of units on that date. The claim of the assessee of having put to use the windmill turbine on 31.03.2012 and having started the wind farm power generation on 31.03.2012 thus was duly established on the basis of relevant evidence and the same was accepted even by the Assessing Officer on verification of the said evidence as categorically stated by him in the remand report. Based on this finding of fact recorded by the Assessing Officer himself in the remand report, learned CIT(A) allowed the claim of assessee for depreciation on windmill; and, at the time of hearing before us, even the learned DR has not been able to rebut or controvert the finding recorded by the Assessing Officer. We, therefore, find no justifiable reason to interfere with the order of the learned CIT(A) allowing the claim of the assessee for depreciation on windmill and upholding the same on this issue, we dismiss the appeal filed by the Revenue.
7. In the Cross Objection, the assessee has raised the solitary issue relating to the addition of Rs.1,82,82,237/- made by the Assessing Officer and confirmed by the learned CIT(A) on account of depreciation while computing book profit under Section 115JB of the Act by way of following grounds:-
“1. The C.I. T. (Appeals) erred in law and on facts in confirming the enhancement of book profit by the amount of Rs. 1,82,82,237/- being the alleged excessive claim of depreciation without appreciating the facts of the case properly.
2. The C.I. T. (Appeals) erred in law in placing reliance on the order of Hon’ble Supreme Court in case of Dynamic Orthopedics Pvt. Ltd. Vs. CIT reported in 321 ITR 300, wherein Hon’ble Supreme Court has only referred the matter to the larger bench by disagreeing with the earlier judgment of Hon’ble Supreme Court in case of Malayala Manorama Co. Ltd. Vs. CIT, reported in 300 ITR 251.”
8. While computing book profit under Section 115JB of the Act, the assesseecompany had claimed depreciation on windmill at the rate prescribed in the Income-tax Act. According to the Assessing Officer, depreciation as per the Companies Act was required to be claimed by the assessee-company while computing the book profit under Section 115JB of the Act and not the depreciation as per the Income-tax Act. He accordingly disallowed the excess depreciation of 14,40,237/- claimed by the assessee and after adding the amount of Rs.1,68,42,000/- disallowed by him on account of assessee’s claim for depreciation on new windmill on the ground that the same was not put to use in the year under consideration, total addition of Rs.1,82,82,237/- was made by him to the book profit of the assessee-company computed under Section 115JB of the Act.
9. The addition of Rs.1,82,82,237/- made by the Assessing Officer on account of depreciation while computing the book profit under Section 115JB of the Act was challenged by the assessee in an appeal filed before the learned CIT(A); and, after considering the submissions made by the assessee as well as the material available on record, the learned CIT(A) upheld the order of the Assessing Officer on this issue vide paragraph Nos.4.3 and 4.4 of his impugned order which reads as under:-
“4.3. I have carefully considered the facts of the case, assessment order and submission of the appellant. The appellant while computing the book profit for the MAT purpose has claimed depreciation on wind mill as per Income Tax Act instead of Company Act. The appellant has relied upon the decision of Honourable Apex Court in the case of Malayala Manorama Co. Ltd. Vs CIT reported in 300 ITR 251 (SC) in this regard. Appellant’s contention is not acceptable as Honourable Supreme Court in the case of Dynamic Orthopedics P. Ltd. Vs. CIT, Cochin [231 ITR 300] (SC) had occasion to examine the above issue and held as under:-
“5. In our view, with respect, the judgement of this Court in Malayala Manorama Company Limited vs. Commissioner of Income Tax, reported in [2008] 300 I. T.R. 251 needs re-consideration for the following reasons: Chapter XII-B of the Act containing “Special provisions relating to certain Companies” was introduced in the Income Tax Act, 1961, by the Finance Act, 1987, with effect from 1st April, 1988. In fact, Section 1151 replaced Section 80VVA of the Act. Section 1151 [as it stood at the relevant time], inter alia, provided that where the total income of a company, as computed under the Act in respect of any accounting year, was less than thirty per cent of its book profit, as defined in the Explanation, the total income of the company, chargeable to tax, shall be deemed to be an amount equal to thirty per cent of such book profit. The whole purpose of Section 115f of the Act, therefore, was to take care of the phenomenon of prosperous ‘zero tax’ Companies not paying taxes though they continued to earn profits and declare dividends. Therefore, a Minimum Alternate Tax was sought to be imposed on ‘zero tax’ Companies. Section 115f of the Act imposes tax on a deemed income. Section 115f of the Act is a special provision relating only to certain Companies. The said section does not make any distinction between public and private limited companies. In our view, Section 115f of the Act legislatively only incorporates provisions of Parts II and III of Schedule VI to 1956 Act. Such incorporation is by a deeming fiction. Hence, we need to read Section 1 15f(1A) of the Act in the strict sense. If we so read, it is clear that, by legislative incorporation, only Parts II and III of Schedule VI to 1956 Act have been incorporated legislatively into Section 1151 of the Act. Therefore, the question of applicability of Parts II and III of Schedule VI to 1956 Act does not arise. If a Company is a MAT Company, then be it a private limited company or a public limited company, for the purposes of Section 1151 of the Act, the assessee-Company has to prepare its profit and loss account in accordance with Parts II and III of Schedule VI to 1956 Act alone. If, with respect, the judgement of this Court in Malayala Manorama Company Limited [supral is to be accepted, then the very purpose of enacting Section 115f of the Act would stand defeated, particularly when the said section does not make any distinction between public and private limited companies. It needs to be reiterated that, once a Company falls within the ambit of it being a MAT Company, Section 115f of the Act applies and, under that section, such an assessee-Company was required to prepare its profit and loss account only in terms of Parts II and III of Schedule VI to 1956 Act. The reason being that rates of depreciation in Rule 5 of the Income Tax Rules, 1962, are different from the rates specified in Schedule XIV of 1956 Act. In fact, by the Companies (Amendment) Act, 1988, the linkage between the two has been expressly de-linked. Hence, what is incorporated in Section 115f is only Schedule VI and not Section 205 or Section 350 or Section 355. This was the view of the Kerala High Court in the case of Commissioner of Income Tax vs. Malayala Manorama Company Limited, reported in [20021 253 I. T.R. 378 (Kerala), which has been wrongly reversed by this Court in the case of Malayala Manorama Company Limited (supra).”
4.4 In view of the above, AO was justified to compute book profit on the basis of Company Act. The ground of appeal is accordingly dismissed.”
10. Aggrieved by the order of the learned CIT(A) on this issue, the assessee has preferred this cross-objection before the Tribunal.
11. We have heard the arguments of both the sides on this issue and also perused the relevant material available on record. As submitted by the learned Counsel for the assessee, even though the Hon’ble Supreme Court in the case of Dynamic Orthopedics Pvt. Ltd. Vs. CIT, [2010] 321 ITR 300 (SC), did not agree with its earlier judgment in the case of Malayala Manorama Co. Ltd. Vs. CIT, [2008] 300 ITR 251 (SC), wherein the similar issue was decided in favour of the assessee, their Lordships only referred the matter to the larger bench. Relying on the decision of Hon’ble Supreme Court in the case of State of Maharashtra Vs. Sarva Shramik Sangh, [2013] 16 SCC 16, he contended that the decision of Hon’ble Supreme Court in the case of Malayala Manorama Co. Ltd. (supra) is required to be followed until it is overruled since the proposition therein continues to hold good. He has contended that that the learned CIT(A) thus was not justified in deciding the issue under consideration against the assessee by relying on the decision of Hon’ble Supreme Court in the case of Dynamic Orthopedics P. Ltd. (supra) and he ought to have decided the issue in favour of the assessee by following the decision of Hon’ble Supreme Court in the case of Malayala Manorama Co. Ltd. (supra) since the same was not overruled and the proposition therein continued to hold good. He has also cited the decision of a Co-ordinate Bench of this Tribunal in the case of Kansara Popatlal Tribhuvan Metal Pvt. Ltd. Vs. PCIT, rendered by its order dated 22.07.2022 passed in ITA No. 1057/Ahd/2015, wherein a similar issue was decided by the Tribunal in favour of the assessee inter alia by relying on the order of the Hon’ble Supreme Court in the case of Malayala Manorama Co. Ltd. (supra) vide paragraph No.6 of its order which reads as under:-
“6. We have heard the rival contentions and perused the material on record on this ground. In the case of Malayala Manorama Co. Ltd v. CIT [20081 169 Taxman 471 (SC), the facts were that in the profit and loss account for the relevant assessment year, the assessee had debited depreciation at the rates prescribed by the Income-tax Rules, 1962. However, the Assessing Officer was of the view that for purposes of section 115M, depreciation should have been calculated in terms of the Companies Act, 1956 and Schedule XIV thereof. Accordingly, he disallowed the assessee’s claim of depreciation charged at the rates prescribed by the Income-tax Rules. The Commissioner (Appeals) as well as the Tribunal allowed the assessee’ s claim and directed the Assessing Officer to allow the claim of depreciation as per the Income-tax Rules for the purposes of computing the book profit under section 115f. On reference, the High Court reworked the profits of the assessee under section 115f by substituting the rates of depreciation prescribed in Schedule XIV of the Companies act, 1956. In appeal, the Supreme Court held that where assessee was consistently charging depreciation in its books of account at rates prescribed in Income-tax Rules and accounts of assessee had been prepared and certified as per provisions of 1956 Act, Assessing Officer would not have any jurisdiction under section 115f to rework net profits of assessee by substituting rates of depreciation prescribed in Schedule XIV to 1956 Act. We further note that the jurisdictional Gujarat High Court in the case of D CIT v. Vardhman Fabrics (P.) Ltd. [20021 122 Taxman 375 (Gujarat) has also adjudicated on this issue in favour of the assessee. The brieffacts of the case were that assessee calculated depreciation on plant and machinery at
33.33 per cent as permissible under the Income-tax Rules, 1962 as against 30 per cent depreciation required to be calculated under Schedule XIV of the Companies Act. The Commissioner, acting under section 263, held that rate of depreciation claimed was in excess of the rate under the Companies Act and that excess was to be disallowed. The Tribunal held that Circular of Company Law Board lays down minimum rate of depreciation for purpose of distribution of dividend and company may decide to claim higher depreciation on basis of a bona fide technological evaluation and proper disclosure is to be made by way of a note forming part of annual accounts. The Tribunal further held that, in instant case, proper disclosure was made by way of a note to annual statement of accounts and rates claimed on basis of income-tax records were based on bona fide information of Board of Directors as contained in aforesaid minutes of meeting of Board of Directors. In appeal, the High Court held that the Tribunal was right in holding that depreciation worked out by assessee on basis of income- tax records and debited to profit and loss account was not violative of provisions of Companies Act and ITAT has not erred in cancelling order passed by Commissioner under section 263 of the Act. Again, in the case of CIT Ludhiana v. Sona Woollen Mills (P.) Ltd. 20071 160 Taxman 22 (Punjab & Haryana), assessee claimed depreciation as per provisions of income tax Act for computing quantum of income under section 1151. The Assessing Officer rejected claim of assessee on ground that depreciation for purposes of section 1151 was permissible as per Schedule XIV of Companies Act. The Commissioner (Appeals) allowed claim of assessee holding that depreciation provided under Companies Act was minimum but there was no bar to higher depreciation being claimed by assessee and, thus, for purposes of section 1151, depreciation actually debited could be allowed. The High Court held that in view of Supreme Court decision in Apollo Tyres Ltd. v. CIT [20021 122 Taxman 562, Commissioner (Appeals) was justified in holding that the assessee is eligible to claim higher rate of depreciation and Income Tax Act. The Delhi ITAT in the case of HAL Offshore Ltd [20191 108 taxmann.com 390 (Delhi – Trib.) held that where depreciation provided in profit and loss account is at same rate as provided for purpose of profit and loss account being laid before Annual General Meeting (AGM), no addition could be made to assessee’s income on ground that while calculating total income as per section 115JB, assessee had adopted rate of depreciation as per Income-tax Act instead of Companies Act in profit and loss account. The Andhra Pradesh High Court in the case of Deccan Tools Industries (P.) Ltd.[2014] 52 taxmann.com 55 (Andhra Pradesh) held that where for purpose of section 115M, assessee claimed depreciation at rates provided under Income-tax Rules, action of Assessing Officer in redrawing profit and loss account and adopting rates prescribed under Companies Act, was totally unauthorized.”
12. Keeping in view the submissions made by the assessee as well as the facts of the case, we find that the issue raised by the assessee in Cross Objection is squarely covered in favour of the assessee by the decision of Co-ordinate Bench of this Tribunal in the case of Kansara Popatlal Tribhuvan Metal Pvt. Ltd. (supra) and respectfully following the same, we delete the addition made by the Assessing Officer and confirmed by the learned CIT(A) on account of depreciation while computing the book profit under Section 115JB of the Act. The Cross Objection of the assessee is accordingly allowed.
13. In the result, the appeal of the Revenue is dismissed while the Cross Objection of the assessee is allowed.
Order pronounced in the open Court on 31st August, 2022 at Ahmedabad.
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