TMI Blog2010 (9) TMI 1122X X X X Extracts X X X X X X X X Extracts X X X X ..... T(Appeals) to the A.O. to allow 100% depreciation on what was claimed by the assessee as pollution control equipments. According to Revenue, assessee never filed any certificate from the suppliers that what was supplied by them were pollution control equipment. Further, according to it, the bills from suppliers produced by the assessee as evidence for purchase of pollution equipments, came to ₹ 49,00,658/- only and the balance items were not all in the category of pollution control equipment. Further grievance is that the CIT(Appeals) considered a certificate dated 31.1.2007 given by a former employee of the assessee, namely, Shri P. Krishnamurthi for coming to a conclusion that the entire claim of the assessee on account of depreciation on pollution control equipments was correct. Revenue is also aggrieved that the CIT(Appeals) had not appreciated that all these machinery were acquired prior to 1.4.2002 and the claim of the assessee included civil construction expenses of ₹ 8,53,49,491/- incurred for installation of pollution control equipment, which assessee itself had classified under the general head of Plant and Machinery . 3. Short facts apropos the above issu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cipitation system and dust collector equipment. Nevertheless, the AO also noted that Shri P. Krishnamurthi was a former employee of the assesseecompany and assessee could not produce any certificate from a competent Government agency. Assessee in his reply submitted before the CIT(Appeals) that the report of Shri P. Krishnamurthi was clear regarding the nature of equipment installed by the assessee. Further submission of the assessee was that it was necessary to install pollution control equipment without which a cement plant could not operate. Assessee mentioned that Reverse air fan bag house, which constituted a major part of the expenses on civil construction, was essential for de-dusting the exhaust gases from kiln and raw mill and bag filters were essential for coal mill and cement mill. CIT(Appeals) after considering the submissions of the assessee and also considering the remand report of the A.O., came to a conclusion that assessee was able to explain with the help of the report of the Technical Consultant Shri P. Krishnamurthi that nature of the equipment and the expenses claimed by the assessee would fall within the ambit of air pollution control equipment. According to l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he point of each of such transfer, proper civil structure was required for housing the filters, without which dust particles could not be trapped. According to him, neither the A.O. nor the learned D.R. could point out any lacuna in the report of the expert Shri P. Krishnamurthi, who was examined on summons under section 131 of the Act. 7. We have perused the orders and heard the rival contentions. Claim of the assessee was for 100% depreciation on a sum of ₹ 15,98,11,599/- which according to assessee, represented cost of pollution control equipment. Out of this a sum of ₹ 7,44,62,108/- represented items of plant and machinery purchased from three companies and on this there is no dispute. The dispute is whether such plant and machinery of ₹ 7,44,62,108/- was indeed air pollution control equipment. Second dispute is whether the balance of expenditure of ₹ 8,53,49,491/- which was for civil works could be considered as falling within the realms of pollution control equipment. Case of the A.O. is that the equipment and machinery obtained from M/s Larson and Tubro were for pyro processing and cement mill systems and therefore, not for any air pollution contro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cement factory. We are thus of the opinion that, in so far as purchase of equipment from three companies were concerned, the report of Shri P. Krishnamurthi placed at assessee s paper-book Vol.II page 2 to 15 would be sufficient to justify the claim for depreciation as air pollution control equipment. In fact, he was examined by the A.O. on 5.5.2008. In answer to question No.7 (assesee s paper book Vol.II page 17), it was specifically mentioned that the equipment shown by the assessee in its depreciation table as per Income-tax Rules, 1962, had to be classified as electrostatic precipitator and dust collector systems which are all nothing but pollution equipment. Learned D.R. had doubted the report of Shri P. Krishnamurthi. No doubt, Shri P. Krishnamurthi worked as Production Manager during the period 1977- 1982 with the assessee. The Revenue never questioned his technical qualifications as such but only his impartiality. Just because Shri P. Krishnamurthi worked about 20 years back in the assesseecompany, we cannot say that his report would be biased. Revenue never made any effort to engage its own expert, which it could have done if it doubted the veracity of the report of Shri P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t . It would include every item needed for satisfying the particular purpose for which a system is designed and which would result in control of air pollution. Hence, just because assessee had incurred a sum of ₹ 8,53,49,491/- for construction work necessary for housing its air pollution equipment, we cannot say that assessee would not be eligible for depreciation of higher rate available for air pollution control equipment. Nevertheless, there is nothing on record to show that the sum of ₹ 8,53,49,491/- was incurred by the assessee for construction of civil works like air bag houses. No doubt, bills for civil construction will be essentially for materials and labour and this by itself will not show that the constructions made out of such materials were for housing any air pollution equipment and systems. We find that neither the A.O. nor the CIT(Appeals) have gone into the aspect whether the sum of ₹ 8,53,49,491/- was incurred by the assessee for civil works relatable to housing of air pollution control systems. In our opinion, if the assessee is able to produce a report from technical expert on air pollution in this regard, it would be very well eligible for suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were specialized in nature. It was specifically mentioned by the assessee that such constructions were not used for any administrative purposes but were only tools for producing electricity. However, A.O. noted from schedules to the balance sheet that assessee had already made addition to plant and machinery of ₹ 31,37,30,027/- in the relevant assessment year and the above claim on building was in addition thereto. Therefore, according to him, assessee s claim could not be allowed. He disallowed the excess depreciation of ₹ 26,94,594/- claimed by the assessee. 13. In its appeal before CIT(Appeals), claim of the assessee was that treatment given in books of accounts was not decisive. According to the assessee functional test had to be applied. The Civil construction in a thermal power plant was specially designed for a specific function of withstanding abnormally high temperature that would arise in such power plant. Reliance was also placed on the decision of Hon'ble Apex Court in the case of CIT vs. Karnataka Power Corporation (247 ITR 268) for supporting its contention that power generating building constructed with special technical criteria would qualify as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in relation to that question that the Court considered a host of authorities of this country and England and came to the conclusion that a building which was used as a hotel or a cinema theatre could not be given depreciation on the basis that it was a plant. We must add that the Court said, To differentiate a building for grant of additional depreciation by holding it to be a plant in one case where a building is specially designed and constructed with some special features to attract the customers and the building not so constructed but used for the same purpose, namely, as a hotel or theatre would be unreasonable. This observation is, in our view, limited to buildings that are used for the purposes of hotels or cinema theatres and will not always apply otherwise. The question, basically, is a question of fact, and where it is found as a fact that a building has been so planned and constructed as to serve an assessee's special technical requirements, it will qualify to be treated as a plant for the purposes of investment allowance. 17. We are, therefore, of the opinion that CIT(Appeals) was justified in following the decision of Hon'ble Apex Court in the case of K ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee. 22. Now before us, the learned D.R. assailing the order of the CIT(Appeals) submitted that Finance (No.2) Act 2009 had inserted clause (i) to Explanation 1 to sub-section (2) of section 115JB, with retrospective effect from first April 2001, whereby amounts set aside as provision for diminution in value of any asset had to be added back. 23. Per contra, the learned A.R. submitted that the question is provision but only on bad debts. 24. We have perused the orders and heard the rival contentions. As mentioned by the learned D.R., on account of insertion of clause (i) to Explanation (1) to sub-section (2) of section 115JB of the Act by Finance (No.2) Act 2009 with retrospective effect from 01.04.2001, provision made for bad and doubtful debts has to be added back while computing book profits for the purpose of calculating the MAT liability. This is in view of the decision of Hon'ble Apex Court in the case of Apollo Tyres Ltd. v. CIT (255 ITR 273), wherein it was held that provision for bad debts was a provision for diminution in value of assets. Now provision for diminution of value of assets is covered by retrospective amendment mentioned above. No dou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee. Reliance was placed on the decisions of Hon'ble jurisdictional High Court in the case of CIT v. Hi Tech Arai Ltd. (321 ITR 477) and in the case of CIT v. VTM Limited (319 ITR 336). 30. Per contra, the learned D.R. supported the order of the CIT(Appeals). 31. We have perused the orders and heard the rival contentions. In our opinion, the decisions of Hon'ble jurisdictional High Court in the case of Hi Tech Arai Ltd. and VTM Limited (supra) relied on by the learned A.R. are squarely applicable to the facts of the case. Here assessee had erected a new thermal power plant. In the case of Hi Tech Arai Ltd. (supra), it was a windmill that was generating electricity. But, here it was on thermal power plant. In both the cases, assesses concerned were already in the line of manufacturing though of a different article. However, Hon'ble jurisdictional High Court held that even in such case, additional depreciation should be allowed on the new installation under section 32(1)(iia) of the Act. Hence, we are of the opinion that ld. CIT(Appeals) fell in error in confirming the disallowance of additional depreciation. We set aside the orders of the lower authorities an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 3,06,264/-. 36. In its appeal before the CIT(Appeals), submission of the assessee was that these were all items which were installed in its captive power plant and depreciation would be available to it as a part of the plant and machinery. However, CIT(Appeals) was of the opinion that the entire area of the thermal power plant could not be treated as a single plant and electrical wiring and street light fittings could not be considered as part of the plant. He, therefore, confirmed the disallowance. 37. Now before us, learned A.R. assailing the orders of A.O. and CIT(Appeals) submitted that description of the items clearly proved that, these were part of plant and machinery and A.O. and CIT(Appeals) fell in error in treating it as electrical fittings. 38. Per contra, the learned D.R. supported the orders of the authorities below. 39. We have perused the orders and heard the rival contentions. The items on which assessee had claimed depreciation under the head plant and machinery include street light fittings, junction box, steel rod, media converter, cable-Dfash silo elec, etc. There are two ways of viewing these items. It can be considered as electrical fitti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7. Only effective ground taken by the Revenue assails the order of the CIT(Appeals) allowing the assessee higher rate of depreciation in respect of additions made to machinery claimed by the assessee as pollution control equipment. 48. Assessee had claimed 100% depreciation on plant and machinery costing ₹ 54,82,27,082/- for the impugned assessment year classifying it as pollution control equipments. 49. This ground taken by the Revenue is similar to its ground No.2 for assessment year 2003-04 in I.T.A. No. 1633/Mds/2008. Ld. CIT(Appeals) had followed his own order for assessment year 2003- 04 while deleting the disallowance made by the A.O. While disposing of Revenue s appeal for assessment year 2003-04, in I.T.A. No. 1633/Mds/2008, we have held at para 7 above that in so far as equipment purchase was concerned, depreciation at 100% had to be allowed. For the portion relating to civil construction for housing the air pollution control equipments, we have remitted the issue back to the A.O. for a fresh consideration after obtaining a certificate from the technical expert in this regard. Similar directions as mentioned in para seven above, are given here also. Thus, grou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Hon'ble Apex Court in the case of CIT v. Woodward Governor India P. Ltd. (312 ITR 254). 55. Per contra, the learned D.R. supported the order of the CIT(Appeals). 56. We have perused the orders and heard the rival contentions. Relevant facts are not in dispute. Assessee had sold a ship and calculated short term capital gains and included in its cost a sum of ₹ 25,29,540/- being foreign exchange fluctuation loss. Claim of the assessee is that the foreign currency fluctuation loss of ₹ 25,29,540/- was on account of a loan raised for acquiring the ship and it was repaid by it to M/s Industrial Finance Corporation of India for clearing the loan. Assessee had also filed a copy of account with IFCI. Therefore, according to assessee, such foreign exchange fluctuation loss was also a part of the cost and needed to be deducted while computing short term capital gains arising out of the sale of the ship. However, we find that section 43A which is captioned as Special provisions consequential to changes in rate of exchange of currency may not support the case of the assessee. Section 43A reads as under:- Special provisions consequential to changes in rate of exchan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 50 of the Act. If we look at section 50 of the Act, it deals with computation of capital gains of depreciable assets. There is no case for the assessee that the ship was not a depreciable asset. Hence, in our opinion, by application of section 43A of the Act, assessee is disabled from making any adjustment on the cost of the asset, on account of exchange rate fluctuation, while working out capital gains. Ld. CIT(Appeals) was justified in confirming the addition. No interference is called for. Ground Nos.2 to 7 of the assessee s Cross Objection are dismissed. 58. Vide its ground No.8, assessee is aggrieved that a sum of ₹ 1,33,998/- paid by it to Sales Tax Department was disallowed. 59. Assessing Officer had disallowed this amount since it was mentioned as penal payment, in the tax audit report filed by the assessee. Ledger account of the assessee clearly brought out that these were penal payments made on 21.8.2001 and 31.3.2002. Nothing was brought before the Ld. CIT(A) or before us by the learned A.R. to show that payments were not penalty but only compensatory in nature. We are of the opinion that disallowance was rightly made and confirmed by the CIT(Appeals). No i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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