TMI Blog2016 (2) TMI 393X X X X Extracts X X X X X X X X Extracts X X X X ..... eas in the present case the electrical installations which are different to electrical fittings as defined in the depreciation schedule in the IT Rules. These include line metering equipment, switch yard, HT motors and auto losses, cable work, lighting equipment etc. are installed as part of the plant & machinery. It cannot be separated from the plant & machinery. Hence, it has to be treated in line with the plant & machinery and the rate of depreciation of plant & machinery alone has to be adopted not of the rate of 'Furnitures and Fittings'. Considering the above discussion, we allow the grounds of the assessee. - Decided in favour of assessee Additional depreciation claimed on Air Pollution Equipment u/s 32(1)(iia) - Held that:- In the present case, the assessee had categorized the Air pollution equipment as special category assets and claimed accordingly. Since, it is categorized as special category and claimed 100% rate of depreciation, the assessee applied the special provision of claiming depreciation, as per the section 32(1)(iia)(D), it cannot again claim the additional depreciation. Even though it has not claimed 100% of the quantum of the value of assets due to the fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... leted u/s 143(3) of the Act on 30/11/2011 on the ground that it was erroneous and prejudicial to the interests of revenue. The CIT raised the following issues to revise the assessment order: i) On going through the assessment record, it is noticed from the Annual report, schedule 'M' to P L account under 'Administrative and Selling Expenses' that you had debited an amount of ₹ 5,32,98,365/- towards Director 's remuneration. The Annexure-VI to Form 3CD reveals that a sum of ₹ 5,15,92,000/- was paid as fee or commission to Shri P. Pratap Reddy, Managing Director. This sum of ₹ 5.15 crores comprises of salary of ₹ 6,72,000 and Commission of ₹ 5,09,20,000/-. It is noticed from the assessment record for AY 2007-08 of Sri P. Pratap Reddy that he had offered a sum of ₹ 1,10,65,184/- as salary from Penna Cement Industries Ltd. Thus, the claim made by the company by way of remuneration to Managing Director in the P L account is more than the sum offered for tax rates by Sri P. Pratap Reddy. The AO ought to have restricted the Managing Director's remuneration to ₹ 1,10,65,184/-. Failure to do so has resulted in an erroneou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ests of revenue. 4. The CIT erred in coming to a conclusion that the assessee has wrongly claimed depreciation @ 15% was therefore is erroneous and prejudicial to the interests of revenue. 5. The CIT erred in coming to a conclusion that no TDS was deducted on consulting charges and hence was to be disallowed and to that extent the order was erroneous and prejudicial to the interest of revenue. 6. The CIT erred in setting aside the whole assessment when in law a substantial portion of assessment had merged with the order of the appellate commissioner. 4. Let us analyse the issues raised by the ld. CIT in his order. The first issue relating to payment of commission and salary to the Managing Director (M.D.). Ld. CIT noticed in Annual Reports of the company that assessee paid ₹ 5,09,20,000/- as commission to MD Mr. Pratap Reddy based on the resolution passed on 21/08/2003 for a period of five years (30/01/2003 to 29/01/2008). The issue is only relating to commission, will confine only to this payment. The commission authorized by this special resolution was 1% of the net profit. Subsequently on 27th September, 2007, a resolution was passed to appoint Mr. Prat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nize the expense in the year of accrual whereas the MD will offer the same on cash basis in the next AY. Ld. AR submitted that expenses has to be recognized based on accrual and matching principles. He relied on the following case laws: a) CIT Vs. Dinesh Kumar (Del) b) J.K. Industries, 297 ITR 176 (SC) c) CIT Vs. Nagari, 33 ITR 681 (SC) d) Amar Raja Batteries Vs. ACIT, 272 ITR (AT) 17 (ITAT) 6. Ld. DR relied on the order of CIT. 7. Considering the submissions of both the counsels and perusing the material facts on record, we observe that the ld. AR submitted that the commission has to be recognized on the basis of accrual and the MD had already rendered the service, consequent to the resolution passed by the shareholders in the AGM, the new commission of 3% to be adopted for the FY 2006-07 irrespective of the fact that the resolution was passed in September'07 since the accounts are considered as finalized only when the same was adopted by the shareholders in the AGM. Till that time, the profits are not considered as final until it is adopted by the shareholders. Since the accounts were adopted in AGM which was held in the month of Sept'07, the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n schedule from AY 2006-07 onwards. It is clear that the electrical fittings will come under 'Furnitures and Fittings' and it will attract 10% only instead of 15%. 9. Ld. AR submitted that the assessee claimed depreciation on electrical installation @ 15% as per the provisions of section 32 of the Act as these electrical installation are part and parcel of plant machinery. The details of the electrical fittings are i) Line metering equipment, ii) switch yard, iii) HT motors auto losses, iv) instrumentation material, v) service line equipment, vi) cable work and vii) lighting equipment. These are electrical installation and part and parcel of plant machinery. 10. Ld. DR submitted that he relies on the order of CIT. 11. Considering the submissions of both the counsels and perusing the material facts on record, we are of the view that the definition of electrical fittings given are electrical wiring, switches, sockets, fans etc. These are electrical fittings which are independent in nature and it does not form part of any assets. Whereas in the present case the electrical installations which are different to electrical fittings as defined in the depreciation sch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iation of 20% of actual cost of machinery provided that the deduction of additional depreciation shall not be allowed u/s 32 (1)(iia)(d), when whole of the actual cost is already allowed as deduction in computing the income chargeable under the head 'profits and gains of business or profession' - In this case, the A.O. has allowed depreciation i.e. 100%. As the asset had been put to use for less than 180 days, the AO has restricted the depreciation. This does not mean that the A.O. has not allowed whole of the actual cost of depreciation. Hence, it is clear that the A.O. has made the mind to allow the depreciation @1 00% and restricted the same to 50% on account of 'usage period criteria' of the 'plant and machinery' Hence, the additional depreciation claimed on the air pollution equipment amounting to ₹ 5,73,54,115/- ought not to have been allowed by the Assessing Officer in the impugned assessment order dated 29.12.2010 and on this count, the order has become erroneous and prejudicial to the interests of the revenue. B. Further, it is seen that the assessee admitted the outstanding liability as on 31.3.2008 for payment of leave encashment for &# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the said plant and machinery does not fall under the provision (D) of Section 32(1)(iia) i.e. any machinery or plant, the whole of the actual cost of which is allowed as a deduction (whether by way of depreciation or otherwise) in computing the income chargeable under the head Profit and gains of business or profession of anyone previous year as the company has not fully depreciated the said plant and machinery in one previous year. 18.1 Without prejudice to what have been stated above, the ld. AR submitted that the pollution control equipments are entitled for special rate of depreciation of 100% having special identity. In this context it is relevant to mention the principle of interpretation contained in the legal maxim generalia specialibus non derogant . A special provision normally excludes the operation of general provision. This principle can be resorted for deciding the competing averments of two provisions in the same enactment, a general and a special provision with some overlapping between the two. Even though pollution control equipment is classified under plant and machinery as a general item, is still qualified as a different class under the heading ai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the business of manufacture or production of any article or thing or in the business of generation or generation and distribution of power, a further sum equal to twenty per cent of the actual cost of such machinery or plant shall be allowed as deduction under clause (ii) Provided [further] that no deduction shall be allowed in respect of- (A) any machinery or plant which, before its installation by the assessee, was used either within or outside India by any other person; or (B) any machinery or plant installed in any office premises or any residential accommodation, including accommodation in the nature of a guest-house; or (C) any office appliances or road transport vehicles; or (D) any machinery or plant, the whole of the actual cost of which is allowed as a deduction (whether by way of depreciation or otherwise) in computing the income chargeable under the head Profits and gains of business or profession of any one previous year; From the above definition, it is clear that the assets, on which the whole of the actual cost of which is allowed as a deduction denotes to those assets which was allowed as depreciation @ 100%. These rates are categori ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order of the Tribunal in ITA No. 1530/Hyd/2012 is reproduced below: 5. We have gone through above judgment and it was observed in this judgement that the original section 43B in IT Act 1961, the intention of which was to curb unreasonable deduction on the basis of mercantile system of account without discharging statutory liability. It was observed by the legislature, that such enactment was necessary as there had been trend to evade statutory liability on one hand and claim appropriate benefit under the Act on the other. Under clause (f) of 43B, any sum payable by the employer to his employees as leave encashment shall be deductible only in computing the income referred to in s. 28 of that previous year in which sum is actually paid by the employer to its employees. While inserting clause (f) no special reasons were disclosed. Although such disclosure was not mandatory yet the subject amendment widen the scope of the original section. Leave encashment is neither a statutory liability nor a contingent liability. It is provision to be made for the entitlement of an employee achieved in a particular financial year. An employee earns certain amount by not taking leave which he o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... partly found to be correct, the CIT cannot hold that the whole assessment made u/s 143(3) is erroneous and prejudicial to the interests of revenue. Hence, we direct the AO to carry out the findings of this Tribunal. 26. In the result, appeal of the assessee is partly allowed. ITA No. 267/Hyd/13 for AY 2009-10 27. In this year, AO found that the assessee claimed depreciation of ₹ 480,49,493/- on electrical installation @ 15% instead of 10% as per the depreciation chart in Appendix '1A' of IT Rules, which is applicable to 'Furnitures Fittings' since, the electrical fittings are categorized under 'Furnitures Fittings'. 28. Aggrieved with the above order, assessee preferred appeal before the CIT(A) and the CIT(A) allowed the assessee's ground of claim of depreciation in favour of assessee. 29. Aggrieved with the above order, revenue filed this appeal before us. The department raised the same in ground no. 2 of the appeal. 30. Since we have already adjudicated the said issue of depreciation in paras 11 and 23 above, we dismiss this ground of revenue. 31. In the result, assessee's appeals in AY 2007-08 and AY 2008- 09 are par ..... X X X X Extracts X X X X X X X X Extracts X X X X
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