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M/s. Ramniklal S. Gosalia and Co. Versus The Jt. Commissioner of Income Tax, Range-17 (3) , Mumbai and Vica-Versa

2016 (11) TMI 1122 - ITAT MUMBAI

Contribution for common infrastructure facility in power evacuation - nature of expenditure - revenue or capital expenditure - Held that:- We have gone through the assessment order and noticed that at page 2 of the assessment order in Para 4.1 the assessee has made a claim regarding payment in respect to infrastructure facility of common power evacuation of ₹ 37.50 lacs to Suzlon Energy Ltd. We find that these facts are very much available on record of the AO as well as the CIT (A). The on .....

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re of the considered opinion that the civil work foundation, erection of HT Lines and Switchgear etc. are integral part of Windmill and it cannot be viewed separately from Plant & Machinery. Accordingly, we are in agreement with the arguments of the learned Counsel for the assessee that the civil work for foundation is integral part of the Plant & Machinery and it cannot be viewed separately from Plant & Machinery for which foundation is laid. Similarly, HT Lines and Switchgear etc. are also int .....

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5 Crores has been used for purchase of Windmill for expansion of business and hence, allowable as business expenditure u/s 36(1) (iii) of the Act. We are also of the view that the assessee has made payment to partners as per the Partnership Deed and within the limit prescribed u/s 40(b) of the Act. Hence, we delete the addition and allow this issue of the assessee’s appeal. - ITA No.6463/Mum/2012, ITA No.7063/Mum/2012 - Dated:- 22-9-2016 - SRI MAHAVIR SINGH, JM AND SRI RAJESH KUMAR, AM For The .....

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dated 29th December, 2009. 2. The first issue in the assessee s appeal in ITA No.6463/Mum/2012 is as regards to whether the contribution for common infrastructure facility in power evacuation is revenue expenditure or alternatively, the expenditure is to be treated as capital expenditure under intangible assets as part of Windmill. For this, the assessee has raised the following grounds No.1 and 2:- The learned CIT (Appeals) -19 erred in, 1. Confirming addition to total income of ₹ 37,50,0 .....

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on infrastructure facility for power evaculation as revenue expenditure. • Alternatively, claiming the expenditure of ₹ 37,50,000/- towards contribution for common infrastructure facility as part of windmill cost. • Claiming additional depreciation u/s 32(1) (iia) on the cost of windmill. 3. At the outset, the learned Counsel for the assessee first of all taken us through Para 7 of the CIT (A) s order wherein it was explained that the above grounds were raised before the CIT (A) .....

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f Windmill has been claimed u/s 32(1) (iii) of the Act since electricity generation amounts to manufacturing of articles or things and all these facts are available in the records of the AO and it does not require any fresh investigation into the facts. According to the learned Counsel, the CIT (A) has not admitted the additional grounds raised by giving following findings in Para 9.1 to 9.4 as under:- 9.1 From the judgment of Supreme Court it is evident that an additional ground that has arisen .....

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f appeals and it was not available to the appellant at the time appeal was filed, such additional ground should not be admitted. 9.2 The appellant has not shown any reason or material on the basis of which the assessee was of the bonafide belief that the payment of ₹ 37,50,000/- brought into existence and intangible asset eligible for depreciation and subsequent to filing of appeal what circumstances or law have changed that led the assessee to believe that said payment of ₹ 37,50,00 .....

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of Wind Mill, requires fresh investigation into facts. Otherwise also it has already been held that no cost of power evacuation facility is to be borne by the appellant. 9.3 On the facts of the case it is evident that all these grounds were available to the assessee at the time of filing of t he return itself. There is no development neither by way of any amendment to statute nor by way of a judicial pronouncement after filing of the return and more significantly after filing of the appeal. 9.4 .....

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subsequent to filing of appeal has been shown. Therefore, it cannot be said that the additional grounds so raised are bonafide and that the same could not have been raised earlier for good reasons. In fact, no cogent or good reason has been shown why all these grounds could not be raised earlier. Hence the condition for admission of additional grounds as laid down by Supreme Court in Jute Corporation (supra), NTPC (supra) and Bombay High Court in case of Ahmedabad Electricity (supra) are not ful .....

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ility of common power evacuation of ₹ 37.50 lacs to Suzlon Energy Ltd. We find that these facts are very much available on record of the AO as well as the CIT (A). The only issue which is to be considered is as to whether these facts need verification and the issue is to be set aside to the file of the AO. Hence, we admit the additional grounds of appeal and set aside the issue to the file of the AO for deciding the issue after allowing reasonable opportunity of being heard to the assessee .....

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M and not allowing the depreciation on the same @80% i.e. the rate applicable to windmill (renewed energy devices) . For this, the Revenue has raised the following grounds No.1 and 2:- 1. On the facts and circumstances of the case and in law, the learned CIT (A) erred in allowing higher rate of depreciation on civil work for foundation without appreciating the fact that the functional test for allowability of depreciation is durability of a particular asset with respect to wear and tear and ther .....

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der held that foundation of the windmill is part and parcel of the windmill and eligible for depreciation at higher rate, where as in other part is also held that civil work is not an integral part of windmill and is not eligible for higher depreciation . 6. Brief facts leading to this issue are that the assessee has claimed the cost of wind mills as under:- Cost of Windmill 4,99,13,080/- Civil Work for foundation 33,64,627/- Erection of HT Line 31,41,435/- Erection assembly 12,10,000/- The asse .....

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oundation or Switchgear which is used for generation at evacuation of power etc. Accordingly, he disallowed higher disallowance and restricted the depreciation to normal rates. Aggrieved, the assessee preferred appeal before the CIT (A) who allowed depreciation at higher rate of Civil Work whereas he restricted the depreciation at normal rate of HT Lines and Switchgear etc. by observing in Para 4.4, 4.5 and 4.6 as under:- 4.4 In Para 13 of the order Hon ble ITAT has held that foundation of the W .....

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plant and machinery and accordingly, the assessee is eligible for higher rate of depreciation which was claimed. As far as civil work is concerned, we find that I t is not an integral part of the Wind Mill and he is not eligible for higher depreciation. In view of the above observations, we set aside the order passed by the Ld. CIT (A) and remit the issue matter back to the file of the Assessing Officer and direct the AO to allow the higher depreciation clam of the assessee in respect of the fo .....

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d separately from the Windmill and used for transfer of power generated by the Windmill to the grid. (ii) The Windmill gets worn out fast due to rotary components and can be replaced independently of the Switchgear and HT Lines. (iii) The same Switchgear and HT Lines can be used for new Windmill or different Windmill. 4.6 Hence, the above order of the ITAT regarding the other civil work, or allied works, wherein it has been held to be not an integral part of the Windmill and not eligible for dep .....

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depreciation on civil works. 7. We have heard the rival contentions and gone through the facts of the case. Before us, the learned Counsel for the assessee filed copy of the judgment of the Hon ble Punjab & Haryana High Court in the case of CIT-I, Ludhiana Vs M/s. Eastman Impex ITA No.350 of 2013 Order dated 18-12-2014 wherein exactly identical issue of higher depreciation on installation of electrical lines for transmission and metering of Windmill is treated as allowed by observing as unde .....

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s are involved but a wind mill, which obviously cannot supply electricity without power evacuation infrastructure as integral to its very functioning and user. Consequently, we answer question of law against the revenue and dismiss the appeals accordingly . Similar view was taken by the Hon ble Rajasthan High Court in the case of CIT, Udaipur Vs K. K. Enterprises [2014] 227 Taxman 181 (Rajasthan) (MAG.) wherein the issue was decided in favour of the assessee by observing as under:- 6. The issue .....

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ated. Such civil structure and electric fittings, therefore, it can be well imagined, highly specialized. Thus, such civil construction and electric fittings would have no use other than for the purpose of functioning of the windmill. On the other hand, it can be easily imagined that windmill cannot function without appropriate installation and electrification. In other words, the installation of windmill and the civil structure and the electric fittings are so closely interconnected and linked .....

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reasonings given by the Hon ble Gujarat High Court. We accept the same and for the same reasons these appeals are dismissed . In view of the above precedence of the Hon ble Punjab and Haryana High Court and the Hon ble Rajasthan High Court and the facts of the present case, we are of the considered opinion that the civil work foundation, erection of HT Lines and Switchgear etc. are integral part of Windmill and it cannot be viewed separately from Plant & Machinery. Accordingly, we are in ag .....

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decided in favour of the assessee. This issue of Revenue s appeal stands dismissed and that of the assessee stands allowed. 8. The next issue in the appeal of the assessee is against the order of the CIT (A) in not adjusting the opening WDV of Windmill block of assets for granting of correct depreciation for assessment year 2007-08. 9. At the outset, the learned Counsel for the assessee stated that he has instruction from the assessee not to press this issue. Hence, this issue is dismissed as n .....

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According to the AO, payment of ₹ 5 Crores for Windmill was made from the loan taken from Shri V. R. Venkatachalam. This fact has not been disputed by the assessee that payment for Windmill has been made from the loan taken from Shri V. R. Venkatachalam of ₹ 5 Crores. The AO also noted that the payment for Windmill has been made by way of borrowed funds from bank which is also interest bearing. According to the AO, the assessee has used borrowed funds for new business and hence, int .....

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