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The Commissioner of Income Tax, Trichy Versus M/s. Sangu Chakra Hotels (P) Ltd.

2016 (9) TMI 598 - MADRAS HIGH COURT

Depreciation of depreciation on windmill - Held that:- Tribunal was right in holding that the assessee is entitled to depreciation, as the assessee had taken over the possession of the wind mill, and that the same was put to use and started generating electricity, before 31.03.2008, during the financial year, relevant to the assessment year 2008-09. Hence, the first substantial question of law raised, is answered against the revenue. - T.C.A. No. 591 of 2016 - Dated:- 23-8-2016 - S. Manikumar .....

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e assessee is a private limited company, engaged in the business of running a Tourist Hotel. The assessee filed its return of income on 21.09.2008, admitting total income as ₹ 70,10,580/-. Return was taken for scrutiny and assessment under Section 143(3) of the Income Tax Act (Hereinafter referred to as, "the Act") was completed on 30.12.2010, wherein the Assessing Officer disallowed the claim of depreciation of ₹ 3,78,00,000/-, on the cost of Wind Mill of ₹ 9,45,00,0 .....

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Date of Payment Amount (Rs.) 1 06.05.2008 59,00,000/- 2 30.06.2008 7,00,00,000/- Total 7,59,00,000/- (d) The agreement with TNEB for sale of power was dated 29.03.2008 and the approval of the same was communicated by the S.E Tirunelveli/TNEB on 22.04.2008. (e) The office of S.E. TNEB has not responded to the query raised by the Ld. Assessing Officer to clarify as to how sale agreement of power could be entered with the assessee by the TNEB on 29.03.2008 when the assessee has purchased the windmi .....

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f Income-Tax (Appeals). Before the appellate authority, the respondent-assessee filed supporting evidence. Going through the evidence and after hearing both sides, vide order in I.T.A.No.188/2010-11/CIT(A)/TRY, dated 29.01.2014, the appellate authority has allowed the appeal of the respondent-assessee and directed the assessing officer to delete the addition made on account of disallowance of depreciation of ₹ 3,78,00,000/-. 4. Not satisfied with the order, the Deputy Commissioner of Incom .....

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entitled for depreciation on the wind mill generator purchased from M/s.Simran Wing Project (P) Ltd., eventhough no evidence was produced before the assessing officer to show that the asset was transferred to the assessee as on 31.03.2008? (ii) Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that there was no violation of Rule 46A, even though the CIT(A) had admitted the evidences that were not produced before the assessing officer?" 5. Supportin .....

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the instalments in the months of May' 2008 and June' 2008, after the end of the financial year and therefore, the asset was not transferred to the assessee. 6. Learned counsel for the appellant further submitted that the Tribunal ought to have appreciated the fact that the purchase invoice was dated 31.03.2008 and approval of the Superintending Engineer, Tamil Nadu Electricity Board, was communicated only on 22.04.2008. It is also his submission that the documents relied on by the respon .....

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nal and thus, prayed for an answer in favour of the revenue, on the first substantial question of law. 8. As regards the second substantial question of law, learned counsel for the appellant further submitted that the Tribunal in holding that no opportunity was given to the appellant to revert the documents, filed at the appellate stage. According to him, the Commissioner of Income-Tax (Appeals), has considered the said documents and there is no violation of principles of natural justice. Accord .....

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assets acquired during the previous year ended 31.03.2008, consists of a wind mill of capacity 1500 KW, from M/s.Simran Wind Project (P) Ltd., at a cost of ₹ 9,45,00,000/- and the facts, in regard to the said acquisition was narrated in detail by the appellant are summarized in the following format: Date Sequence of Events 02.02.2008 Booking Advance of ₹ 20.00 Lakhs paid by the Company to M/s.Simran Wind Project (P) Ltd., 08.02.2008 Passing of resolution by the appellant Company for .....

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s by State Bank of India for acquisition of Wind Mill 24.03.2008 Term Loan disbursed by SBI 25.03.2008 Payment of balance amount of ₹ 59.00 Lakhs by the Appellant Company to the supplier. 28.03.2008 Payment of fees to TNEB for the transfer of the Wind Mill in the name of the appellant Company 29.03.2008 Letter by TNEB for the Approval of transfer of the Wind Mill assigned to M/s.Simran Wind Project (P) Ltd., to the appellant Company 29.03.2008 Energy Purchase Agreement entered into with TN .....

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appellant has established the fact that the order for the acquisition of the Wind Mill started as early as on 02.02.2008. The appellant has also established the passing of consideration by its own resources to the extent of ₹ 186.00 Lakhs before 31.03.2008. The same is verifiable from the copy of the Bank account of the appellant with SBI. It is also seen from the Term Loan Account copy furnished by the appellant that the said bank has debited the appellant a sum of ₹ 700.00 Lakhs on .....

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nt. 2) The payment of name transfer fee by the appellant vide the receipt issued by TNEB No- 137846 dt. 28.03.2008. 3) The entering of the Energy Purchase Agreement with TNEB on 29.03.2008. 4) The generation of Electricity from such Wind Mill w.e.f. 29.03.2008 and adjustment of such generation in the Bill issued by TNEB for the month of April 2008. The fact that the Wind Mill was installed and commissioned at the site is also established by these evidences produced and as argued by the appellant .....

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ee was entitled to depreciation on the assets which form part of block of assets at the end of the year as shown in depreciation schedule in the balance sheet as well as in his books of accounts this view was held in the case of Mysore Minerals Ltd Vs CIT as mentioned supra. Similarly the Honorable Madras Jurisdictional High Court also held a view which is in favor of the Assessee that the Assessee having taken over possession of the wind mill and the income from the wind mill having been assess .....

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aken by the sister company was also discharged by the Assessee. Therefore the Assessee is the owner for the purpose of the IT Act and the Assessee is entitled to claim depreciation. This was rejected by the Assessing Officer on the ground that the windmills are still under hypothecation with the bank and the Application to the Tamil Nadu Electricity Board was made only by the sister company and the loan taken from the bank continue to appear as liability in the books of the sister company. There .....

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he Assessee for the purpose of windmills. The windmills had been used for the business of the Appellant and the income generated on such business was admitted for assessment by the Assessee. The Appellate Authority also found that the Assessee is a legal owner of the windmills and the possession of the property was also handed over to the Assessee and the fact that the windmills are still hypothecated with the bank in the name of the transferor company, or the fact that the agreement with the TN .....

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ll related expenses and depreciation thereon have to be allowed. The Honorable Madras High Court has also upheld the contention of the Assessee for the claim of the Appellant for depreciation on the ground that the possession of windmill is with the Assessee, the loan has been discharged by the Assessee and the income from the property is assessed in the hands of the Assessee. The jurisdictional High Court on ascertaining the sister company has not claimed the depreciation on the assets transfer .....

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revious year claimed depreciation on a wind mill. Assessee produced a letter issued by the Executive Engineer, Tamil nadu Electricity Board (TNEB), which stated that the wind mill was commissioned on 05.03.05. As per the assessee, the trial production was started and it was not necessary to produce electricity for the whole of the year for claiming depreciation. However, the Assessing Officer was of the opinion that as per the agreement entered into by the assessee with the Member (generation) T .....

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entioned that it was tied up with the TNEB grid. As per the assessee, the said certificate also mentioned initial reading as on 05.03.05. Assessee argued that use of machine for trial production was as much use of a machine that would entitle it to claim depreciation. According to it there was no requirement that wind Mill should keep on producing power every day of the year and even if it had producing power only for a moment, it would be eligible for claim of depreciation. The AR of the appell .....

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on feeder and the feeder was commissioned before 31.03.2005." Admittedly the Executive Engineer Operation and Maintenance for TNEB vide its letter dt. 08.03.05 had given the commissioning certificate to the assessee and the said commissioning certificate also reflected there in the initial reading on 05.03.05. There is no case for the Revenue such initial reading was Zero, it cannot be presumed that certificate issued by the Executive Engineer stating that the wind mill was tied up with TNE .....

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potential difference, just for a reason that the electricity charged there in, was from the trial production of a generator unit and not for commercial production. Electricity as a commodity remains the same whether in trial production or commercial production. Rules relating to necessity of establishing commencement of commercial production cannot be transported to a case where the commodity produced is electricity. Assessee was clearly eligible for depreciation and it was unjustly denied by th .....

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llowed. 1. Tamil Nadu Cholride Vs.DCIT (2006) 98 lTD 1 (Chennai) 2. Chettinadu Cement Corporation Ltd., in ITA I029/Mds/2005 3. Atlost Expoit Enterprises Vs. DCIT Trichy 4. M/s.Velathal Spinning Mills Private Ltd., Vs. ACIT, Salem ITA No.202 & 203/Mds/2010. 5. Standard Textiles, Kaur Vs. DCIT, Trichy 6. P.Meenakshisundaram Vs. DCIT1n ITA No.26/Mds/2009 Several courts have held that as per the judicial precedents as mentioned above wherein the depreciation claimed by the assessee has been all .....

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e in favor of the claim for depreciation, it is amply made clear that the Appellant had paid an advance of ₹ 20,00,000/- for purchase of windmill of 1500 KV capacity from MIs Simran Wind project P Ltd. at a cost of ₹ 9,45,00,000/- were on 02.02.2008, subsequently on 14.02.2008 a further amount of ₹ 1,66,00,000/- has been paid by the company to the supplier of windmill. Further there was a sanction of term loan of ₹ 7,00,00,000/- by State Bank of India for acquisition of w .....

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t to the AY 2008-09 has been commenced and therefore the Appellant is eligible to claim the depreciation on the windmill at ₹ 3,78,00,000/-. Thus, the Assessing Officer is not justified in denying the depreciation without analyzing various materials brought on record. Thus, the appellant has not only established the acquisition of the asset but also the putting the windmill into use for generation of electricity from the asset acquired before 31.03.2008. The fact that Section 32 of the Act .....

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ppellant at ₹ 3,78,00,000/-. 11. The Deputy Commissioner of Income-Tax (Appeals), Trichy, filed an appeal before the Income-Tax Appellate Tribunal, Chennai, contending inter alia, that the Commissioner of Income Tax (Appeals) has failed to appreciate that the sale invoice was issued on 31.03.2008, whereas, agreement for sale of power with TNEB, was dated 29.03.2008 and the approval of the same was communicated by the Superintending Engineer, ECD, Tamil Nadu Electricity Board, Tirunelveli, .....

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n 25.03.2008, without giving opportunity to the assessing officer, under Rule 46A of the Income Tax Rules, 1962 and therefore, the assessment deserved to be remitted back to the assessing officer for fresh consideration. 13. On the other hand, facts, such as, (a) placement of order, as early as in February' 2008, (b) payment of ₹ 1.86 Crores, by 14.02.2008, (c) payment by State Bank of India of ₹ 700 Lakhs by 24.03.2008, (d) payment of balance consideration of ₹ 0.59 Crores .....

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nt/assessee has also submitted that the sale deed, dated 07.03.2008, confirmed the physical possession. When evidence adduced at the appellate stage, was within the knowledge of the revenue, no contra material was produced to controvert the above. 15. Going through the documentary evidence, the appellate authority, has arrived at the conclusion that the wind mill has been installed and commissioned at the site and was operational before 31.03.2008. It started generating electricity during the fi .....

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sset. Added further, the Commissioner has considered the following decisions, (i) Mysore Minerals Ltd v. CIT reported in 239 ITR 775 (ii) CIT v. Kences Construction (P) Ltd., reported in 236 ITR 503 (iii) Tamil Nadu Cholride v. DCIT reported in (2006) 98 ITD 1 (Chennai) (iv) Chettinadu Cement Corporation Ltd., [ITA I029/Mds/2005] (v) Atlost Expoit Enterprises v. DCIT, Trichy (vi) M/s.Velathal Spinning Mills Private Ltd., v. ACIT, Salem [ITA No.202 & 203/Mds/2010] (vii) Standard Textiles, Kau .....

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"D" Bench, Chennai, going through the evidence considered by the appellate authority, the Tribunal, has recorded as hereunder: "9. On perusing the paper book field by the assessee, we find that sufficient evidence were before the Revenue based on which the Ld. CIT (A) had come to a conclusion that the windmill has been purchased before 31.03.2008 and commissioned. Paper book page No.2 Receipt for ₹ 20/- lakhs dated 14.02.2008 mentioning that the amount was received on 02.02. .....

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Wind project P Ltd., for ₹ 1,66,00,000/- dated 17.03.2008, paper book page Nos.13 to 26 sale deed for the purchase of the land dated 07.03.2008 on which windmill is erected, paper book page Nos.32 to 41 sanction letter and proof for disbursement of loan from State Bank of India dated 19.03.2008 amounting to ₹ 7/- crores, page Nos.44 to page 53 - documents issued by Tamil Nadu Electricity Board for purchase of power generated by the windmill from the assessee and proof for having purc .....

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D.R by producing the assessment records. Further it is apparent from the order of the Ld.A.O that he had placed more reliance on the theory of preponderance of probabilities because many of the material events had occurred during the fag end of the previous year which arise some suspicion. In these circumstances, we do not find it necessary to interfere with the order of the Ld. CIT (A) who had arrived at his decision based on the above mentioned documents and certain Judgments of the higher jud .....

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finding is either without any evidence or material or, if the finding is contrary to the evidence, or is perverse or there is no direct nexus between the conclusion of fact and the primary fact upon which that conclusion is based. But it is not possible to turn a mere question of fact into a question of law by asking whether as a matter of law the authority came to the correct conclusion on a matter of fact. 19. In M.Janardhana Rao v. Joint CIT reported in (2005) 273 ITR 50 (SC), the Hon'ble .....

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y a pronouncement of the Supreme Court or Privy Council or by the Federal Court, or (d) the issue is not free from difficulty, or (e) it calls for a discussion for alternative view. 20. Though Mr.J.Narayanasamy, learned Standing Counsel for the Income-Tax Department reiterated the very same grounds, before us, going through the material on record, we are of the considered view that the whole issue revolves only on the finding of fact recorded by the Commissioner of Income-Tax (Appeals), Trichy a .....

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e same was put to use and started generating electricity, before 31.03.2008, during the financial year, relevant to the assessment year 2008-09. Hence, the first substantial question of law raised, is answered against the revenue. 22. On the 2nd substantial question of law, this Court deems it fit to extract Rule 46A of the Income Tax Rules, 1962, which deals with production of additional evidence before the Deputy Commissioner (Appeals) and Commissioner (Appeals), as follows: "(1) The appe .....

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the evidence which he was called upon to produce by the Assessing Officer ; or (c) where the appellant was prevented by sufficient cause from producing before the Assessing Officer any evidence which is relevant to any ground of appeal ; or (d) where the Assessing Officer has made the order appealed against without giving sufficient opportunity to the appellant to adduce evidence relevant to any ground of appeal. (2) No evidence shall be admitted under sub-rule (1) unless the Deputy Commissione .....

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in rebuttal of the additional evidence produced by the appellant. (4) Nothing contained in this rule shall affect the power of the Deputy Commissioner (Appeals) or, as the case may be, the Commissioner (Appeals) to direct the production of any document, or the examination of any witness, to enable him to dispose of the appeal, or for any other substantial cause including the enhancement of the assessment or penalty (whether on his own motion or on the request of the Assessing Officer) under cla .....

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s.32 to 41, produced before the Tribunal are sanction letter and proof for disbursement of loan from State Bank of India, dated 19.03.2008, amounting to ₹ 7/- crores. Among the other documents produced by the respondent/assessee, Paper Book Page Nos.44 to 53 are stated to be documents issued by the Tamil Nadu Electricity Board for purchase of power generated by the windmill from the assessee and proof for having purchased power from the assessee before 31.03.2008. 25. Going through the doc .....

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of the documents. 26. What is contemplated under the rules is examination of evidence or to cross examine the witness produced by the appellant. Revenue is also entitled to produce any evidence or witness, rebutting the additional evidence produced by the appellant. When all the above was open to the revenue, it is the categorical finding of both the appellate authority and the Tribunal that the revenue has not confronted the evidence adduced by the assessee, in which event, it would not be cor .....

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uthority to pass orders, for substantial cause, while entertaining additional evidence, the appellate authority is empowered to allow additional evidence to do substantial justice, between the parties. The appellate authority may admit the evidence and decide the appeal. The appellate authority may keep the appeal pending and direct the assessing officer to ascertain the facts, essential for the purpose of deciding the appeal and then, on the basis of the remand report, decide the appeal. Where .....

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