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TMI Blog2021 (4) TMI 680X X X X Extracts X X X X X X X X Extracts X X X X ..... es at the outset that this tribunal's co-ordinate bench's decision involving AY.2013-14 ITA No.475/Hyd/2017, dt.15-12-2017 holds that since no interest was charged in AEs and non-AEs, the impugned interest on receivables leading to ALP adjusted under Chapter-X of the Act is not sustainable. Coupled with this, learned CIT-DR fails to dispute that the authorities herein have adopted SBI's short term deposit rates for computing the impugned adjustment which are not based on any comparable in the very segment. We thus find no reason to sustain the impugned adjustment both on principles of judicial consistency as well as on merits. The same is directed to be deleted. The assessee succeeds in the first and foremost substantive ground. 3. Next comes the second issue of depreciation disallowance of Rs. 18,63,27,778/- relating to assessee's Chilveru Solar Plant in Mahabubnagar District. The DRP's detailed discussion to this effect reads as under: "2.3 Ground of objection NO.3: Relating to the Disallowance of Depreciation of Plant and Machinery of Solar Power Plant at Chilveru Unit for Rs. 18,63,27,778/- :- Objection No:3.1: The AO erred in making disallowance of Depreciation on Plant a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laim of depreciation over solar plant of Rs. 34,53,67,922/- and to prove that the Power Plant was put to use as on 31.03.2014. In response, the assessee submitted that during the year- it installed Solar Power Plant in Chilveru Village and ill support of the claim that it was put to use, furnished copy of a certificate of M/s.Schneider Electric India Private Limited dated 31.03.2014. As per the said letter dated 31.03.2014, the plant was ready in all aspects for Power generation and all the machinery at site are run a trial production and put to use on 31.03.2014; and that 'the plant has generated 65Kwh on 31.03.2014 which has been consumed by the local office set up in the Plant premises at Chilveru village'. The AO noted that the said letter also referred to inspection by the Chief Electrical Inspector of Government of Andhra Pradesh on 29.03.2014, who had accorded his approval for energizing vide his letter CEIG/TS/HV/MBNR-149/DNo.J.350, and the AO called upon the assessee to produce the said letter of approval of Chief Electrical Inspector in letter No. CEIG/TS/HV/MBNR-149/DNo.1350 and also to produce evidence for production and consumption" of electricity generated of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts were put to use on 29.03.2014 when the inspection was carried out by Electrical Inspectorate c) that there was actual generation of power of 65Klwv and consumed as on 31.03.2014 2.3.4 In support of these contentions the assessee primarily relied on the following documents before the AO:- 1. Letter dated 31.03.2014 issued by M/s. Schneider Electric Company Limited 2. Approval letter dated 11.04.2014 issued by the Electrical Inspectorate 2.3.5 During the DRP proceedings, the assessee was asked to submit the complete correspondence relating to the obtaining of statutory approval from the Electrical Inspectorate; and in response to the assessee vide letter dated 13.C13.201B.enclosed copies of assessee's letter dated 29.03.2014 to Chief Electrical Inspector notice from Chief Electoral Inspector dated 29.03.2014 and 11.04.2014, letter dated 18.03.2014 to Chief Electoral Inspector and notice from Chief Electoral Inspector-dated 18.03.2014. On perusal of these letters, it is seen that the assessee vide letter dated 18.03.2014 submitted drawings for approval which was provisionally approved for erection by the Chief Electrical Inspector vide letter in CEIG/TS/HT/MBNR-149/J. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on and synchronizing 12. 33KVOH Line Metal clamps has been earthed with 25x3mm G I flat and connected to 1" inch dia electrode 13. Provided metal clamp support for- V cross arms of Transmission Line 14. Provided first Aid box 15. Provided fire extinguishers at all the conspicuous places. Thereafter, statutory approval was granted vide Letter No. CEIG/TS/HT/MBNR-149/D.No/1350/14 dated 11.04.2014. 2.3.6 In the light of above correspondence, we are unable to accept the assessee's contentions that the assets were ready to use on 26.03.2014 and were put to use on 7.9.03.2014. The letter dated 29.03.2014 of the Electrical Inspectorate requiring the assessee to comply with certain statutory requirements clearly show that the plant was not ready to use. The items of compliance referred in the assessee's letter elated 11.04.2014 clearly show that some of the machineries / equipments were not installed / erected as per the requirements specified in the Central Electricity Authority (Measures relating to Safety and Electric Supply) Regulation 2010, and that the plant was not safe for operation and that the assessee could rectify those deficiencies and complied with tile statut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the Bombay High Court in Dinesh Kurmar Gulabchancd Aggarwal vs. ACIT (267 ITR 768). 2.3.8 The AR vehemently argued that at the time of inspection on 29.03.2014 the assets have been put to use, and that without putting the assets to use, the inspection could not have been carried on. In support, the AR relied on the decision of the Gujarat High Court in the case of Ashima Syntex Limited and the decision of ITAT Hyderabad in the case of SPR publications Private Limited. It was submitted that the Hon'ble Gujarat High Court in the case of ACIT vs. Ashima Syntex held that even trial production of a machinery would fall within the ambit of 'used for the purpose of business'; and placing reliance on the same, it was argued that it has to be implied that the plant was put to use on 29.03.2014 as without putting to use inspection could not have been done. Without prejudice, it was argued that even if the asset was ready to use, depreciation could be allowed and in this regard reliance was placed on the decision of Hon'ble ITAT Hyderabad in the case of SPR Publications Pvt Ltd vs. ACIT. 2.3.9 Having considered the submissions, we are unable to accept the argument that a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tification of defects. Besides, there was not even a claim that there was trial production on 29.03.2014; and there was no documentation to take such a view. We are of the considered view that the Inspection carried out by a Regulatory Authority cannot for any reason be equated to test run or trial production; and therefore it cannot be implied that the plant was already put to use because it was inspected. Hence, the pleas raised in this regard are rejected. 2.3.10 The assessee had also raised a plea that there was generation of electricity on 31.03.2014. No supporting evidence was produced before the AO or before us to substantiate such plea, expect the letter of M/s Schneider Electric Company Ltd. As already discussed the said letter cannot be relied on as evidence as its veracity is in doubt, besides it is also self-serving document, as the said company was the assessee's contractor. There is no other material on record to suggest generation of electricity as on 31.03.2014. Hence we regard this plea also. 2.3.11 Thus we find that the claim of tile assessee that the assets were 'Ready to use' on 26.03.2014 and 'put to use' on 29.03.2014 were not justified ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it clear that the Revenue's stand otherwise also would not result in any deviation of facts as to when the assessee had installed the power plant and commenced its trial production. We notice the same in light of the Regulation 43(3) of the Central Electricity Authority (measures relating to safety and electrical supply) Regulations, 2010 makes it mandatory that the owner of any power installation shall itself test check every circuit of voltage followed by recording of the corresponding results to be forwarded to the inspecting authority. It is this regulation's prior test results condition that the assessee had ensured compliance in March, 2014 itself which ultimately culminated in its approval. We thus quote the case law discussed at assessee's behest before the DRP (supra) and accept the assessee's depreciation claim on the ground that it had very well installed and put to use the solar plant in issue which further underwent all the mandatory inspections in the month of March, 2014 only. The impugned depreciation disallowance of Rs. 18,63,27,778/- is deleted. This second substantive ground also succeeds. 6. Next comes the third issue of forward contracts loss disallowance of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hey arise. But it is evident that the income / gain has not been offered to tax. Thus it is also not following tile ratio laid clown in CIT vs. Woodward Governor India Private Limited. (312 ITR 223 SC) which the assessee relied upon. It is also noted from the written submission that the losses arose on account of conversion of rupee term loan into foreign currency loan at the contracted forward exchange rate. Thus it is clear that these transactions are on capital account and any loss arising on the capital account is not allowable as revenue expenditure, thus the disallowance is justified on this count alone. 2.5.4 It is evident to note that the CBDT Instruction No. 3/2010 dated 23.03.2010, deals with allowability of loss under forward contract, which is extracted as under:- 2. "Marked to Market" is in substance a methodology of assigning value to a position held in a financial instrument based on its market price on the closing day of the accounting or reporting record. Essentially, 'Marked to Market' is a concept under which financial instruments are valued at market rate so as to report their actual value on the reporting date. This is required from the point of v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7/2016 deals with allowability of deduction under chapter VI A on enhanced profits, and the circular would not be applicable where exemption was claimed u/s 10A. Accordingly this plea is dismissed". 7. The assessee is admittedly engaged in software development services carrying out international transactions in foreign currency (predominantly in US dollars). Pages 453 to 460 reveal that it had entered into foreign exchange contracts followed by the regular system of accounting wherein it transfers the losses from these contracts by debiting in the P&L A/c under the account head 'foreign currency transactions' on account of difference in currency rate on the last date of the year and contracted date. The said loss recognised is then transferred to provision for loss on forward contracts. 8. Continuing with the assessee's regular system of accounting, its corresponding figures of the amount is reversed and offered to income or adjusted against forward contract loss as it has done in AY.2013-14. Case file suggests that the impugned loss of Rs. 27,70,201/- pertains to four vouchers for the years 2012-13 and 2013-14 which had been duly accepted by the Assessing Officer in revenue. 9. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting of plant & machinery and manufacture of briquettes have taken place in same financial year and therefore the cultivation and lease expenditure are revenue in nature and allowable u/s 37 of the IT Act. Break up details of expenses given at paqe 403-408 of paper book was relied in support. 2.6.4 In regard to claim of depreciation on Biomass equipment, it was stated that the assessee installed the equipment during the financial year; and that the biomass plant. was put to use during the year and was used for generation of electricity, which was used by the assessee and as well for the production of sample briquettes and therefore the claim of depreciation should be allowed. Without prejudice. it was contended that the machinery and equipment for Biomass Plant was completely set up and ready for use and that depreciation is allowable even when the asset is ready to use. Accordingly it was pleaded to allow the depreciation claim of Rs. 1,14,77,247/-. 2.6.5 From the perusal of the information filed at page 402 to 407, it is noticed that there was no information as to when the plant & machinery was set up and at which location, as to when the plant & machinery were purchased, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment. Perusal of all these information clearly show that the approval for the plant from the Pollution Department, Fire Department, Gram Panchayat were given only after May 2014. It is also seen that consent for operation order is required even for trial production, and that the assessee failed to produce the consent for operation order suggesting that CFO order was not granted at all. Further, it is seen that the inspection of the site took place only on 24.05.2014, and thus, no approval could have been given prior to 24.05.2014. Therefore the claim of the assessee that the biomass plant was set up and ready to use as on 31.03.2014 is not factually correct. We also note that the assessee had not furnished any information or documentation before the AO or before us to substantiate its contention that the biomass plant was installed and put into use as on 31.03.2014. Though it was contended that the assessee put to use the biomass plant and manufactured sample briquettes during the subject year, no evidence was filed to support such contention. We also find such a claim to be illogical, as the approvals from regulatory authorities were granted only after May 2014. 2.6.7 The on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,000/- on 31.03.2014), and the lease was stated to be for a period of one year. Therefore they would not take the characteristic of revenue expenses for this year. For these reasons also, these expenditure are not allowable. As a result these objections are rejected. 11. We have heard rival submissions. It is noticed that all the three instant claims are interconnected. The assessee's case is that since it had set up a biomass plant, it got the land(s) on lease and grew Nepiar gross thereupon to be consumed in the briquettes produced therefore in biomass power production. Paper book pages 402 to 480 inter alia contain the necessary documents i.e., breakup of the impugned cultivation expenses (cow dung, gross testing, labour charges, Napier gross bricks and ploughing charges ledger accounts, ledger of lease expenses of Rs. 1,05,84,500/- note(s) on biomass that it had commenced activity from 28-01- 2013 after setting up the plant and machinery, unit's approval(s) from Commissionerate of Industries, Telangana Government dt.02-07-2014, Panchayat Raj Department NOC, State Pollution Control Board consent, State Disaster Response and Fire Services NOCs, State Government's Ground Water De ..... X X X X Extracts X X X X X X X X Extracts X X X X
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