TMI Blog2014 (12) TMI 1310X X X X Extracts X X X X X X X X Extracts X X X X ..... s this steam that is converted into electricity power with the use of a turbine. Thus, the boiler has a dual utility i.e. as standalone item and also a part of cogeneration system. High efficiency boilers are required for generation of power. Therefore, RCC Chimney and Bagasse drier forming part of boiler system are eligible for higher depreciation. Coming to DC Drier which are energy saving devices, we are of the view that this cannot be used independently in a cogeneration system. These are energy saving device and are eligible even on standalone basis for higher rate of depreciation. They fell within one of the specific category in energy saving device. Hence, higher rate of depreciation should be allowed on this equipment also. Steam Piping is part of the boiler. We do not appreciate the findings of the revenue authorities that steam piping cannot be considered as part of cogeneration system. Even applying the test laid down by various courts, we have to necessarily hold that steam piping cannot be used independently or standalone basis. It is an integral part of cogeneration system, hence, eligible for higher depreciation. Coming to the coal & gas feeding system and c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P) J.Sudhakar Reddy (AM) Appellant by : Shri G.V.N. Hari Respondent by : Shri K.V.N. Charya O R D E R Per J.Sudhakar Reddy, AM This is an appeal filed by the assessee directed against the order dated 25.3.2013 of the Commissioner of Income-tax (Appeals)-11, Mumbai for the assessment year 2009-2010. 2. The facts in brief are that the assessee is a public limited company engaged in the manufacture of sugar, generation of power and beverages. It filed its E return of income on 29.9.2009 declaring total income of ₹ 15,64,79,560/-. Later, it filed the revised return of total income of ₹ 15,92,30,380/-. The same was processed under section 143(1) of the Act. Later, regular assessment was completed u/s.143(3) of the Act, wherein, the AO determined the total income of the assessee at ₹ 21,48,78,516/-. While determining the total income, the AO made the following additions/ disallowances: a) Interest paid on purchase tax : ₹ 9,51,160/- b) Contribution to District Collector, etc ; ₹ 55,000/- c) Lease rental paid to agriculturists : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the addition made by the Assessing Officer of the amount of ₹ 5,27,63,534 towards alleged excess depreciation holding that the turbine and generator set alone constitute co-generation unit and that consequently other integral pans of the same Unit like RCC Chimney, Bagasse Drier, D.C Drier, Steam Piping, Coal Gas feeding system, Coal Handling system and Sub-station tower line, are not part of co-generation unit. Without prejudice to the above, appellant submits that: Ground No.4 (ii): The Commissioner of Income Tax (Appeals) is not justified in denying the claim for depreciation at the rate of 80% in respect of RCC Chimney costing ₹ 28,12,912. Ground No.4 (iii): The Commissioner of Income Tax (Appeals) is not justified in denying the claim for depreciation at the rate of 80% in respect of Bagasse Drier costing ₹ 1,25,3 5,483. Ground No.4 (iv): The Commissioner of Income Tax (Appeals) is not justified in denying the claim for depreciation at the rate of 80% in respect of D.C.Drier costing ₹ 1,09,02,253. Ground No.4 (v): The Commissioner of Income Tax (Appeals) is not justified in denying the claim for depreciation at the rate of 80% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction cum condensing turbines for cogeneration along with pressure boilers . b) These rules signify two things: (i) benefit of higher depreciation is intended for energy saving . (ii) Co-generation is considered an important contributory to energy saving and therefore, the entire cogeneration system, as an energy saving device, is eligible for higher depreciation. Energy saving device is mentioned as turbine for cogeneration along with pressure boilers . c) He submits that all the equipment like RCC Chimney, Bagasse drier, D.C. Drier, Steam piping, 12.65 KVA turbine, Coal gas feeding system, coal handling system and sub-station tower line which are connected to the turbine for cogeneration have to be invariably considered as part of the cogeneration system. d) Reliance is placed on the speech of the Hon ble Finance Minister while introducing the bill to grant higher depreciation for devices as well as systems for energy saving. He submits that both independent stand alone devices as well as integrated systems are included for the benefit of higher depreciation. e) Reference is made to guidelines of IREDA (which is a government company under the administrative ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld by the Hon ble Rajasthan High Court reported in 221 CTR (Raj) 637 for the proposition that such expenditure is to be considered as revenue expenditure. 7. The next alternative claim of the assessee was that the following equipments are an integral part of the boiler and are eligible for higher depreciation as in the case of the boiler: i) Steam Piping; ii) Coal gas feeding system; iii) Coal handling system; iv) RCC Chimney and v) Bagasse Drier. 8. Reliance was placed on the decision of Hon ble M.P. High Court in the case of Vippy Solvex Products Limited (supra). Similar arguments were advanced on each one of the items. 9. With respect to Ground No.5, the ld counsel for the assessee submitted that the payment in question was made for sanction of HT power line and the AO has wrongly disallowed the same as capital expenditure and thereafter allowed the depreciation on the same. He argued that the ld CIT(A) was factually in error in stating that the relevant documents were not submitted. He submitted that all the documents are on record and copy of the same was placed at page 117 of PB. On the findings of the ld CIT(A) that the claim is not admissible, as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d only to the turbine and higher rate of deprecation should be granted only on the cost of turbine. He further submitted that Bagasse drier cannot by any stretch of imagination be considered as part of the cogeneration system and it is ridiculous to argue in that manner for the reason that the drier of bagasse is required even for sugar mills. 10.4 He referred to the findings of the AO as well as the ld CIT(A) and submitted that the sugar mills require bagasse drier and cannot be treated as part of cogeneration system. 10.5 He again reiterated that the very fact that the boiler was installed during the earlier financial year and higher depreciation was claimed demonstrates that it is not an integral part of cogeneration system. 10.6 Ld CIT (DR) relied on the judgment of Hon ble Kerala High Court in the case of Cochin Refineries Limited (supra) and submitted that the coal handling system cannot be regarded as part of cogeneration system. He submitted that the coal handling system cannot be considered as required as an integral part of boiler and also submitted that the Hon ble M.P. High Court in the case of Vippy Solvex Products Limited (supra) did not correctly appreciate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ufacturing processes and hence, it is a part of overall cogeneration system. 11.2 With regard to the boiler, it was argued that it has dual utility, one as stand-alone item and another as part of cogeneration system. He argued that the grant of depreciation of boiler under Item No.-A (higher rate for high efficiency boilers) cannot come in the way of examining the claim of higher depreciation for the overall cogeneration system under item E. 11.3 With regard to coal handling system, he submitted that the ld CIT(A) has no power to question the correctness of the decision rendered by the Hon ble M.P. High Court. He submitted that the Hon ble M.P. High Court has held that once boiler is specified as eligible for higher depreciation, all the peripheral systems which form integral part of the boiler shall also be eligible for higher depreciation. He submitted that this line of reasoning was accepted by the Hon ble Delhi High Court in the case of BSES Yamuna Powers Limited (supra) dealing with peripherals of a computer. 11.4 On issue of higher rate of depreciation in the case of steam piping, coal gas feeding system, coal handling system, RCC chimney and bagassee Drier, ld co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acturing activity of the assessee in addition to the boilers that the company was already having, while awaiting the cogeneration system to get in stalled. Meanwhile, the assessee claimed higher depreciation on the higher efficiency boilers for the assessment year 2007-08 on the ground that this is an energy saving device and falls in (III) (8)(ix)(A). The Assessing Officer allowed the higher depreciation during that year though the cogeneration plant had not been commissioned. During the previous year relevant to the impugned assessment year, the cogeneration plant has been commissioned. The assessee has claimed higher depreciation in respect of following items on the ground that they form part of cogeneration system: i) RCC Chimney ii) Bagasse Drier iii) DC Drier iv) Steam Piping; v) 12.65 KVA Turbine vi) Coal gas feeding system; vii) Coal handling system; viii) Sub-station tower line 17. There is no dispute on the allowability of 12.65 KVA turbine for higher rate of depreciation. The dispute relates to other items only. 18. Before we consider each item separately, we extract following New Appendix-I of IT Rules, 1962 effective from assessment year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oiler and higher depreciation on the turbine which was allowed by the revenue. 21. In the case of Cochin Refineries Ltd (supra), the Hon ble Kerala High Court at para 6 held as follows: The assessee had claimed depreciation and development rebate at the higher rate on certain assets such as waste ponds, fresh water tank, pipe racks, alloy piping, jetty facilities, cherry picker cranes, etc. The assessee claimed depreciation and development rebate on these items at the higher rate applicable to the refinery plant. The ITO, however, allowed depreciation and development rebate only at the lower rate applicable to each of the assets, depending upon whether it represented building, machinery, etc. The AAC, on appeal, allowed depreciation and development rebate at the higher rate in respect of certain items, but allowed only lower rates in respect of other items. On further appeal by the assessee, the Tribunal allowed the higher rate of depreciation and development rebate for all the items. In our view, the Tribunal was right in doing so, for by the very nature of the assets in question, we have no doubt that they form part of the refinery plant and are as such entitled to these a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nergy saving devices , hence eligible for 100% depreciation. 25. Ld D.R. relied on the decision of Hon ble Madras High Court in the case of CIT VS TTG Industries Ltd., 363 ITR 44 (Mad), wherein, the issue of 100% depreciation of a generator set was considered. In this case, the machineries in question were generator set, drilling, boring machines, boring machine for foundation work and lathe machine, etc. These were apparently used by the assessee, for various engineering works including, the activity of manufacture of wind mills, electric generators and pumps. In the depreciation table, the word exclusively used has not been mentioned. The Tribunal relied on the decision of Hon ble Karnataka High Court in the case of Amco Batteries Ltd., 91993) 203 ITR 614 (Karn) and held that the term exclusively was perhaps implied in the order. The fact of the case at hand is different from the case of TTG Industries ltd (supra), wherein, the case of cogeneration system was not considered. Thus, the propositions laid down in this case law do not apply to the facts of the case. 26. Reliance was placed on the decision of Hon ble Delhi High Court in the case of CIT vs. H.B. Leasing Fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r forming part of boiler system are eligible for higher depreciation. 30. Coming to DC Drier which are energy saving devices, we are of the view that this cannot be used independently in a cogeneration system. These are energy saving device and are eligible even on standalone basis for higher rate of depreciation. They fell within one of the specific category in energy saving device. Hence, higher rate of depreciation should be allowed on this equipment also. 31. Steam Piping is part of the boiler. We do not appreciate the findings of the revenue authorities that steam piping cannot be considered as part of cogeneration system. Even applying the test laid down by various courts, we have to necessarily hold that steam piping cannot be used independently or standalone basis. It is an integral part of cogeneration system, hence, eligible for higher depreciation. 32. Coming to the coal gas feeding system and coal handling system, we apply the decision of Hon ble M.P. High Court in the case of Vippy Solvex Products Ltd (supra) and come to our conclusion that this is an integral part of high efficiency boiler. The very description of nature of the equipment demonstrates that i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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