Case Law Details

Case Name : ACIT Vs Metallizing Equipment Co. (P) Ltd. (ITAT Jodhpur)
Appeal Number : ITA No. 383/Jodh/2016
Date of Judgement/Order : 12/06/2017
Related Assessment Year : 2011-12
Courts : All ITAT (7329) ITAT Jodhpur (32)

ACIT Vs Metallizing Equipment Co. (P) Ltd. (ITAT Jodhpur)

In Hero Cycles Ltd. v. Asstt. CIT (1999) 63 TTJ (Chd) 665. Tribunal, Chandigarh, has held that the expenditure on telephone installed at the residences of directors is not covered by section 38(2) and expenses in case of a company cannot be for non-business purposes and the same cannot be disallowed. In Bhorot Motor Parcel Service v. ITO (1992) 44 TTJ (Hud) 404, Tribunal, Hyderabad, has held that partly disallowing of expenditure on telephone installed at the residence of managing partner on the presumption of personal use is not justified. It was also observed that as the branches of the assessee-firm were spread over different cities and towns, the managing partner was required to contact them for the purpose of business. In (1989) 25 TTJ (Del) 602, Tribunal, Delhi, has held that telephone provision at the residence of managing director of the assessee-company was for business purpose of the company, and that if the managing director used some of the calls for personal purposes, that would not make the expenditure incurred by the company as not for the purposes of business. It has also been held that so far as the assessee-company is concerned, the entire amount will be allowable as business expenditure. The learned Commissioner (Appeals) has, however, sustained the disallowance observing that the element of personal use involved in the claims of telephone expenses and vehicle maintenances is not completely ruled out considering the above-referred judicial decisions, we are of the view that in the case of a company, there cannot be a disallowance on account of personal user of telephone. In the instant case, there is no material on record to support that there was non-­business user of the telephone installed at the residence of the directors.

Similar is the position in respect of vehicles. As such, considering all the facts and circumstances of the case, we find the disallowances on telephone expenses and vehicle maintenance expenses sustained by the learned Commissioner (Appeals) to be not justified which we delete accordingly. Consequential to the above, the disallowance of 1/5th depreciation is also not tenable which we accordingly delete.’

Windmill eligible for Additional depreciation and has nothing to do with the power industry

Conclusion: Setting up of a windmill has nothing to do with the power industry. Also, windmills were considered as eligible for additional depreciation under section 32(1)(iia) even prior to assessment year 2013-14. Therefore, AO was not justified in denying additional depreciation on windmill for assessment year under consideration.

Assessee engaged in manufacturing of spray equipments claimed additional depreciation under section 32(1)(iia) on windmill. AO denied this on the ground that the assessee was not engaged in generation or generation and distribution of power and further, amendment brought to section 32(1) with regard to the additional depreciation on windmill was with effect from 1-4-2013 and applicable from asst. yr. 2013-14 only.

FULL TEXT OF THE ITAT ORDER IS AS FOLLOWS:-

This appeal preferred by the Revenue emanates from the order of the learned Commissioner (Appeals)-I, Jodhpur, dt. 8-9-2016 on the following grounds of appeal :–

“On the facts and circumstances of the case, learned Commissioner (Appeals) has erred in :–

1. Deleting the disallowance of Rs. 35,39,348 made on account of incorrect additional depreciation claimed on windmill, ignoring the fact that the assessee was not engaged in the business of generation or generation and distribution of power.

2. Deleting the disallowance of Rs. 7,86,580 made out of car expenses and depreciation for personal use by the directors.

The appellant craves leave to add, amend or alter any or all the grounds of appeal and or before the appeal is finally heard for disposal.”

2. The brief facts in this case are that the assessee-company is engaged in business of manufacturing of spray equipments. It filed the Return of Income for assessment year 2011-12 on 26-9-2011 admitting the total income at Rs. 3,82,99,630. Subsequently, revised return was filed on 8-12-2011 showing total income at Rs. 3,47,60,280 to claim additional depreciation as per Expln. 5 to section 32(1). Again, a revised return was filed on 4-5-2012 declaring the total income at Rs. 3,47,60,280 to rectify the mistake regarding adjusted book profits under section 115JB of the Act. The return was selected for scrutiny under CASS and notice under section 143(2) of the Act was issued on 12-9-2012. The assessment was completed under section 143(3) of the Act on 29-1-2014 determining the total income at Rs. 3,90,86,210 by making additions/disallowances as mentioned in the assessment order.

3. With regard to the first ground, it was observed by the learned Commissioner (Appeals) as follows :–

“4.2 I have carefully considered the assessment order and submissions of the appellant. The assessing officer disallowed the additional depreciation on windmill by stating that amendment brought in section 32(1) with regard to the additional depreciation on windmill is with effect from 1-4-2013 and is applicable from assessment year 2013-14 only. The appellant has contended that the assessing officer has erred in denying additional depreciation on the basis of amended provisions of section 32(1)(iia) with effect from 1-4-2013 and has cited various judicial decisions where additional depreciation on windmill has been held to be allowable prior to assessment year 2013-14 also. I have gone through the judicial precedents cited by the appellant and 1 find that the issue regarding additional depreciation on windmill was considered by the Hon’ble Madras High Court and it was held that windmills were eligible for additional depreciation as per section 32(1)(iia) of the Act even prior to assessment year 2013-14 also. The Hon’ble Madras High Court in the case of CIT v. VTM Ltd. (2009) 319 ITR 336 (Mad) considered a similar question, the paras 4, 5, and 6 of the order are reproduced hereunder for the sake of clarity :–

4. As far as the contention based on section 32(1)(iia) of the Act is concerned, the assessment year pertains to assessment year 2005-06. The provision, which is relevant for our purpose, reads as under :–

(iia) in the case of any new machinery or plant (other than ships and aircraft), which has been acquired and installed after the 31-3-2002, by an assessee engaged in the business of manufacture or production of any article or thing, a further sum equal to fifteen per cent of the actual cost of such machinery or plant shall be allowed as deduction under clause (ii) :–

Provided that such further deduction of fifteen per cent shall be allowed to–

(A) a new industrial undertaking during any previous year in which such undertaking begins to manufacture or produce any article or thing on or after the 1-4-2002; or

(B) any industrial undertaking existing before the 1-4-2002, during any previous year in which it achieves the substantial expansion by way of increase in installed capacity by not less than ten per cent.”

5. In the case on hand, the assessee is stated to have set up a windmill at a cost of Rs. 5,85,60,000. It is true that the assessee is a company engaged in the business of manufacture of textile goods. As far as application of section 32(1)(iia) of the Act is concerned, what is required to be satisfied in order to claim the additional depreciation is that the setting up of a new machinery or plant should have been acquired and installed after 31-3-2002 by an assessee, who was already engaged in the business of manufacture or production of any article or thing. The said provision does not state that the setting up of a new machinery or plant, which was acquired and installed upto 31-3-2002 should have any operational connectivity to the article or thing that was already being manufactured by the assessee. Therefore, the contention that the setting up of a windmill has nothing to do with the power industry, namely, manufacture of oilseeds, etc. is totally not germane to the specific provision contained in section 32(1)(iia) of the Act.

6. In such circumstances, we are not able to appreciate the contention of the learned standing counsel for the appellant on the ground that the order of the Commissioner (Appeals) as confirmed by the Tribunal should be interfered with. It cannot also be said that setting up of a windmill will not fall within the expression setting up of a new machinery or plant. We do not find any error in the conclusion of the Tribunal in confirming the order of the Commissioner (Appeals). We, therefore, do not find any question of law much less substantial question of law, to entertain this appeal. The appeal fails and the same is dismissed. No costs.’

Moreover, Hon’ble Jodhpur Tribunal in the case of Fashion Suiting (P) Ltd. v. Dy. CIT (ITA No. 142/Jodh/2011, dt. 16-12-2011) discussed and held as below :–

‘2.3 We have heard both the parties. The depreciation under section 32(1)(i) is permissible in case of undertaking engaged in generation and distribution of power and depreciation is to be given as percentage of the actual cost. Depreciation under section 32(1)(ii) is allowed as percentage on written down value. Thus, only difference between the depreciation to be allowed under section 32(1)(i) and 32(1) (ii) is in respect of depreciation as percentage of the actual cost or percentage of the written down value. It is mentioned in the rule 5(1A) that the undertaking cover under section 32(1)(i) may claim depreciation as percentage on the written down value, it is not the case of the Revenue that the assessee has claimed depreciation on the actual cost in the succeeding year so as to say that assessee is covered under section 32(1)(i) of the Act. It is true that total depreciation allowed in section 32(1)(i) cannot exceed the actual cost. Moreover, the Madras High Court in the case of CIT v. Hi Tech Ami Ltd. (2010) 321 ITR 477 (Mad) held that additional depreciation is allowable on windmill installed by the oil manufacturer. The additional depreciation is allowable in case of any new machinery or plant which is acquired or installed by the assessee engaged in the business of manufacturing or production of an article or things. It is nowhere mentioned that machinery or plant acquired by the assessee should be a plant or machinery utilized in the business of manufacturing or production of any article or things. Thus, the requirement of section 32(1)(iia) are satisfied. Moreover, the assessing officer took one of the possible views. Therefore, the order cannot be considered erroneous or prejudicial to the interest of the Revenue. The reliance is placed on the decision of Hon’ble Apex Court in the case of Malabar Industrial Co. Ltd. v. CIT (2000) 243 ITR 83 (SC). In view of the facts and circumstances of the case, the order of the learned Commissioner (Appeals) is cancelled.

3. In the result, the appeal of the assessee is allowed.’

Considering the position of law as explained by various Courts above and respectfully following the decision of Hon’ble jurisdictional Tribunal in the case of Fashion Suiting (P) Ltd. (supra), I hold that the appellant is entitled to claim additional deprecation on windmill installed during the year as per provisions of section 32(1)(iia) of the Act. The disallowance made by the assessing officer at Rs. 35,39,348 on this account is directed to be deleted. This ground is allowed.”

4. We have perused the case records and analyzed the judicial decisions placed before us. We find this issue is covered in favour of the assessee by the decision of Co-ordinate Bench of Tribunal, Jodhpur, in the case of Ercon Composites v. Asstt. CIT in ITA No. 492/Jodh/2015, order dt. 24-4-2017 and the case of Fashion Suiting (P) Ltd. in ITA No. 142/Jodh/2011, dt. 16-12-2011. The Co-ordinate Bench of Tribunal in the case of Ercon Composites (supra) has held as under :–

“7.2 Considering the position of law as explained by the various Courts above and respectfully following the decision of Hon’ble Tribunal in the case of Fashion Suiting (P) Ltd. (supra), the learned Commissioner (Appeals) held that the assessee is entitled to claim additional depreciation on windmill installed during the year as per provisions of section 32(1)(iia) of the Act; accordingly the disallowance made by the assessing officer at Rs. 51,00,000 on this account was directed to be deleted.

8. Further aggrieved the matter came up before us on appeal preferred by the Revenue the learned Departmental Representative vehemently argued relying on the order of the assessing officer whereas the learned Authorized Representative of the assessee placed his reliance on the order of the learned Commissioner (Appeals) on the various judicial precedents as have been cited before the subordinate authorities.

9. We have perused the case records, analyzed the facts and circumstances in this case and considered the various judicial pronouncements placed before us and we arrive at our considered view that the learned Commissioner (Appeals) has adjudicated this issue based on the decision of jurisdictional Tribunal in case of Fashion Suiting (P) Ltd. (supra) and also the decision of Hon’ble Madras High Court in case of CIT v. VTM Ltd. (supra). In this case it was held that the assessee is entitled to claim additional depreciation on windmill installed during the year as per provisions of section 32(1)(iia) of the Act. We find no infirmity with the findings of the learned Commissioner (Appeals) since the order is based on judicial findings, one of the High Court and another of the judicial Tribunal Bench and therefore the relief granted to the assessee on this account is sustained.

10. This ground of appeal preferred by the Revenue is dismissed.”

5. We therefore, allow this ground in favour of the assessee. Hence, this ground of the Revenue is dismissed.

6. With regard to the next ground, again it is covered in assessee’s favour by the decision of Tribunal, Jodhpur, in assessee’s own case reported in Metallizing Equipment Co. (P) Ltd. v. Dy. CIT (2001) 70 TTJ (Jd) 358.

7. With regard to this issue, it was observed by the learned Commissioner (Appeals) as follows :–

“5.2 I have considered the facts of the case and appellant’s submission. I find that this issue is squarely covered in favour of the appellant by the decision of the Hon’ble Tribunal in appellant’s own case reported in Metallizing Equipment Co. (P) Ltd. v. Dy. CIT (2001) 70 TTJ (Jd) 358, in para 10 of the order the Hon’ble Tribunal discussed, as below : ‘10. We have considered the rival contentions, the relevant material on record, as also the cited decisions, the copies of which have been furnished on record. In Hero Cycles Ltd. v. Asstt. CIT (1999) 63 TTJ (Chd) 665. Tribunal, Chandigarh, has held that the expenditure on telephone installed at the residences of directors is not covered by section 38(2) and expenses in case of a company cannot be for non-business purposes and the same cannot be disallowed. In Bhorot Motor Parcel Service v. ITO (1992) 44 TTJ (Hud) 404, Tribunal, Hyderabad, has held that partly disallowing of expenditure on telephone installed at the residence of managing partner on the presumption of personal use is not justified. It was also observed that as the branches of the assessee-firm were spread over different cities and towns, the managing partner was required to contact them for the purpose of business. In (1989) 25 TTJ (Del) 602, Tribunal, Delhi, has held that telephone provision at the residence of managing director of the assessee-company was for business purpose of the company, and that if the managing director used some of the calls for personal purposes, that would not make the expenditure incurred by the company as not for the purposes of business. It has also been held that so far as the assessee-company is concerned, the entire amount will be allowable as business expenditure. The learned Commissioner (Appeals) has, however, sustained the disallowance observing that the element of personal use involved in the claims of telephone expenses and vehicle maintenances is not completely ruled out considering the above-referred judicial decisions, we are of the view that in the case of a company, there cannot be a disallowance on account of personal user of telephone. In the instant case, there is no material on record to support that there was non-­business user of the telephone installed at the residence of the directors.

Similar is the position in respect of vehicles. As such, considering all the facts and circumstances of the case, we find the disallowances on telephone expenses and vehicle maintenance expenses sustained by the learned Commissioner (Appeals) to be not justified which we delete accordingly. Consequential to the above, the disallowance of 1/5th depreciation is also not tenable which we accordingly delete.’

Considering this decision of the Hon’ble Tribunal in the appellant’s case, my predecessor vide his order dt. 19-1-2015 in Appeal Nos. 204 of 2012-13 and 538 of 2013-14 for assessment years 2010-11 and 2011-12 respectively in the case of appellant’s sister concern, namely, M/s. MecShot Blasting Equipment (P) Ltd. deleted the similar disallowance made by the assessing officer by observing as under :–

‘The above additions in Ground Nos. 5(a) and 5(b) are covered issues because of the fact that appellant is a company and no addition can be made on account of personal use of the expenses treating the same for non-business expenses in view of the decision of Hon’ble Tribunal in the case of Metallizing Equipment Co. (supra), and also by the undersigned in assessee’s own case in Appeal No. 53 of 2000-01, dt. 2-11-2001, therefore, the addition of Rs. 4,40,510 (4,01,730 + 38,780) is hereby deleted.’

Respectfully following the decision of Hon’ble jurisdictional Tribunal, 1 hold that the assessing officer is not justified in making a disallowance of Rs. 7,86,580 out of car expenses, this addition is deleted. The ground raised by the appellant regarding this issue is allowed.”

8. We find no infirmity with the findings of the learned Commissioner (Appeals). Since the issue is covered by the decision of Co-ordinate Bench of Tribunal Jodhpur in assessee’s own case reported in Metallizing Equipment Co. (P) Ltd. (supra) and for assessment years 2010-11 and 2011-12 in the case of assessee’s sister concern, namely, MecShot Blasting Equipment (P) Ltd. similar disallowance made by the assessing officer was deleted by the learned Commissioner (Appeals). Considering all these facts, we uphold the relief granted to the assessee on this count. This ground of appeal by the Revenue is dismissed.

9. In the result, the appeal filed by the Revenue is dismissed.

NF

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