TMI Blog2021 (4) TMI 680X X X X Extracts X X X X X X X X Extracts X X X X ..... s stand all along has claimed to have commenced its solar power plant on test check production well before the last day of the relevant accounting period i.e., 31-03-2014 and therefore entitled for the impugned depreciation. It has further stated that the energisations of the circuit was a condition precedent which never took place after 31st of March, 2014. Doubts on assessee s trial production claim - M/s.Schneider Electric India Private Limited had merely clarified the letter number as 1350 which was ultimately issued on 11-04-2014. It therefore appears an instance wherein the said number was allotted to the latter followed by Schneider s Certificate and the ultimate sanction coming on 11-04-2015. We make 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee s depreciation claim on plant and machinery of ₹ 1,08,49,065/- and ₹ 6,28,182/- on vehicles; respectively totalling to ₹ 1,14,77,247/- in issue. Remaining twin components of lease amount and cultivation charges and the reasoning that no income had been generated from all this activity thereby raising serious doubts on assessee s claim, we are unable to lose sight of the fact that learned lower authorities even took pains to summon the revenue records of the concerned estate to ascertain the actual fact it is very much evident not only from the list of payees but also forming part of the entire project details. Coupled with this, we find that assessee s travelling/conveyance, repairs/maintenance claims qua the same stand accepted by the Assessing Officer himself. - I.T.A. No. 1922/HYD/2018 - - - Dated:- 9-4-2021 - Shri S.S.Godara, Judicial Member And Shri Laxmi Prasad Sahu, Accountant Member For the Assessee : Shri P.Murali Mohana Rao, AR For the Revenue : Shri Sibendu Moharana, DR ORDER PER S.S.GODARA, J.M. : This assessee s appeal for AY.2014-15 arise against the ACIT, Circle-8(1), Hyderabad, assessment order dated 31-08- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3: The AO ought to have appreciated the fact that CPDCL of AP limited has tested and issued the work completion certificate on 26.04.2014. Objection No. 3.1.4: The AO ought to have appreciated the fact that admittedly the Electrical Inspectorate carried out the inspection (under Regulation 32 of the Central Electricity Authority (Measures relating to Safety and Electric Supply) Regulations, 2010) of the solar plant on 29.03.2014 for which putting the equipment to use' was sine qua non i.e. the inspection and subsequent approval of the solar power plant could not have been clone without the actual generation of electricity by the solar power plant. Objection No. 3.1.5: The AO ought to have appreciated the fact that the final approval of the Electrical Inspectorate under Central Electricity Authority (Measures relating to Safety and Electric Supply) Regulations, 2010 was required to supply the electricity generated commercially and not for 'putting to Lise' for the inspection and trial run itself. Objection No. 3.1.6: The AO erred in not appreciating the fact that the assessee has complied with all the conditions laid down u/s. 32 of the Act and is entitled ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Company is false and not reliable, and concluded that the asset was put to use only after the statutory approval accorded vide letter elated 11.04.2014, and was not put to use during the F.Y 2013-14 and hence disallowed the depreciation claimed for the subject year, and proposed an addition of ₹ 18,63,27,778/- . 2.3.2 During the DRP proceedings, it was contended that the asset was 'Ready to use' from 26.03.2014 and the same was 'put to use' as on 29.03.2014; and that the Power generated 65Kwh as on 31.03.2014 was consumed by the local office and that would imply that me-plant was put to use from 31.03.2014. It was contended that tile Electrical Inspectorate carried out the inspection on 29.03.2014 for which putting the equipment to use was sine qua non and that the subsequent approval could not have been granted without the actual generation of electricity. It was further contended that the final approval of the Electrical Inspectorate was required to supply electricity generated commercially and not for putting to use [01- inspection and trial run. Thus it was argued that as the asset was 'Ready to use' on 26.03.2014 and actually 'put to use ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r approved drawings were completed and requested to conduct inspection at the plant at the earliest. From the perusal of letter No. CEIG/TS/HV/MBNR-149/DNo-/ Camp 14 dated 29.03.2014, (page 427 of paper book) it appears that inspection was conducted on 29.03.2014 and a tentative approval. which is valid upto 15.04.2014 was granted requiring the assessee to submit compliance report item wise and get it regularized. Subsequently, the assessee vide letter dated 11.04.2014 (page 432 of paper book) has submitted compliance report and requested to issue necessary approval at the earliest. The item wise compliance referred in the said letter was as under:- Designated person (electrical Engineer) who is having 33KV permit holder will be appointed shortly in Mean time. A Grade electrical contractors (Schneider Infrastructure) persons for operation and maintained of our H T installation to free from Danger. 2. Mr. M.Siva Ram Kumar, who appointed as a safety officer 3. AJB box has been earthed with 50 Sq. mm Copper cable and connected to separate earth electrode 4. Inverter Panel body earthed multi stand insulated cable replaced with 50 x 10mm G 1 flat 5. Provide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fety io human life and to prevent danger. The objective of these Regulations are to ensure that the. prescribed safety measures are followed so as to prevent danger to life. The assessee could comply with these measures only as on 11.04.2014. Therefore, it can be inferred that the assets were 'Ready to use' only as on 11.04.2014. Further, without complying with the safety requirements prescribed in a statutory regulation, these electrical equipments cannot be said to have attained the 'Ready to use' condition. Taking such a view would not only be illogical but also against public policy; as these safety measures are prescribed for public safety unci to prevent danger to life. Without complying with the safety measures prescribed in a statutory regulation, the assessee could not be allowed to claim benefits under another statute; which would amount to defeating the purpose of the Electricity Regulation 2010. 2.3.7 The assessee also placed reliance on the certificate of M/s Schneider' Electric Company vide letter dated 31.03.2014 stating that all the required machinery infrastructure were installed and tested at site by 26th march 2014, in support of its pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting year, though commercial production commenced much later. Some fabrics produced during the trial production was shown as closing stock. As there was clear evidence of production, the Court held that depreciation cannot be denied merely for the reason that the machinery was used for a short duration for trial run: and that even trial production would fail within the ambit of 'used for the purpose of business'. The facts in the instant case are totally different. There was only an inspection on 29.03.2014, by the Electrical Inspectorate, whose purpose was to verify whether the machinery electrical equipments have been installed/erected as per the approved drawings of the Electricity Department and to verify whether the safety measures stipulated in the Central Electricity Authority (Measures relating to Safety Electric Supply) Regulations 2010 have been complied with to prevent danger. The purpose of inspection was not to see whether the plant is fit for commercial production or could generate the electricity as per its capacity. The Inspection carried out on 29.03.2014 revealed deficiencies in the Safety Measures unci therefore the assessee was required to comply wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowed assessee s depreciation claim regarding the very fixed asset in next financial year. The assessee s case on the other hand, is that it is very much entitled for the impugned depreciation in this financial year since it had duly set up and put to use the solar power plant in issue. We therefore proceed to the assessee s case on the basis of the evidence/supportive material available in the case file. 4.1. It emerges from a perusal of the above records that the assessee s power plant had witnessed the state government s authorities on site inspection visit on 29-03-2014 as it is clear from a perusal of pg.427 in the paper book wherein it was directed to energise the corresponding equipment on purely temporary basis. This followed the taxpayer s compliance report of the very date. The last correspondence between the assessee and the electricity inspectorate is letter No.1350/2014 dt.11-04-2014. The assessee s stand all along has claimed to have commenced its solar power plant on test check production well before the last day of the relevant accounting period i.e., 31-03-2014 and therefore entitled for the impugned depreciation. It has further stated that the energisations ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k, the assessee has given some basic information in the form of MTM and PFE report relating to loss claimed on forward contract provision The assessee has not furnished the contract notes relating to the alleged forward contract transactions. From the perusal of the forward MTM and PFE report for the year ended 31.032013 and 31.03.2.014, it is reported as follows:- Positive MTM exposure Negative MTM exposure 31.03.2013 2,05,13,857 21,54,223 31.03.2014 5,54,72,903 49,24,424 2.5.2 The assessee was asked to clarify whether the positive MTM exposure in the form of gain has been admitted and offered to tax in the subject year and earlier year. The assessee was also asked to clarify that as the negative exposure amounted to ₹ 70,78,647/- (₹ 21,54,223 + ₹ 49,24,424/-), where is the question of double disallowance as contended during the year. In response the assessee filed submission vide letter dated 20th June 2018, and wherein it was contended that the assessee had negative ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt through their Trading or Profit/Loss Account, they book a corresponding loss (i.e the difference between the purchase price and the value as on the valuation date) in their accounts. This loss is a notional loss as no sale/conclusion/settlement of contract has taken place and the asset continues to be owned by the company. A Marked to Market loss may be given different accounting treatment by different assessee. Some may reflect such loss as a balance sheet item without making any corresponding adjustment in the Profit and Loss Account. Other may book the loss in the Profit and Loss Account which may result in the reduction of book profit. In cases where no sale or settlement has actually taken place and the loss on Marked to Market basis has resulted in reduction of book profits, such a notional loss would be contingent in nature and cannot be allowed to be set off against the taxable income. The same should therefore be added back for the purpose of computing the taxable income of an assessee. 2.5.5. Thus, from the perusal of details it is evident that the 1) loss claimed is admittedly notional in nature and was before the settlement of the forward contract 2) that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee s part in recognising the same. So far as its stand is that these transactions relating to capital account, the assessee s treatment of these forward contracts in revenue account in the said earlier assessment years has admittedly gone un-rebutted. The fact also remains that the assessee s treatment given to these forward contracts in earlier and latter assessment years have been duly accepted by the Assessing Officer which has also not been rebutted in the lower proceedings. We therefore allow the assessee s claim in principle and leave it open for the Assessing Officer to finalize factual verification as per law. The third substantive grievance is taken as allowed for statistical purposes. 10. The assessee s fourth substantive grievance seeks to reverse the learned lower authorities action disallowing cultivation, lease and depreciation towards biomass plant of ₹ 3,58,99,242/-; comprising of ₹ 1,44,45,495/-, ₹ 1,05,84,500/- and ₹ 1,14,77,247/-; respectively. The DRP s detailed discussion to this effect reads as under: 2.6.3 From the perusal of the written submissions it is seen that the assessee claims that it held incurred cultivation expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s afforded an opportunity to furnish complete details as to when the biomass plant was installed when it was ready to use, what was its capacity and details of approval obtained from regulating authorities, etc. In response, the assessee filed certain information vide letter dated 20.06.2018 in pages 28 to 47. All these information are considered in answering the objections raised. 2.6.6. As per the Note furnished at p.28 (letter dated 20.6.2018) the assessee commenced Biomass unit from 28 Jan 2013, after taking necessary approvals the activity commenced at Sl.No s 564/A1, 563/AAz, 564/AAz, 548/1, 562/2, 563/1, 564/1A Gondhari (V M) Nizamabad district. It was stated that approval was taken from local authorities, water, fire and pollution department to commence production. It was further stated that the assessee taken land on lease to set up plant install necessary equipment for production of briquettes which are used for generating electricity. It is seen that page 31 of the information filed was letter dated 30.07.2014 of the Gram Panchayat office Gondhari giving NOC to construct factory for Biomass plant. Page 29 is letter dated 02.07.2014 from the Commissioner of Indus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of power through biomass plant or manufacture of briquette was set up and that the expenditure incurred by way of lease and cultivation expenses were incurred for the purpose of such business and were incurred after the setting of such business for allowance u/s 37 of the IT Act. The expression 'setting up' means, 'to place on foot or to establish'. A business is said to be established when it is ready to commence. In the instant case, no evidence was furnished to prove that the business was set up or commenced or ready to commence as on 31.03.2014. No nexus was shown for the lease expenses with the biomass plant. As the biomass plant was set up as on 31.03.2014, and the business not commenced by that time, the expenditure claimed towards lease and cultivation are not allowable as business expenditure for the subject year. We do not find any infirmity in the AO's action in disallowing the claim of deduction towards lease and cultivation expenses and the depreciation allowance. Accordingly, the proposed disallowances on these three counts are upheld. 2.6.8 A perusal of the lease expenses show that lease expenses were claimed for lease of land at Gouraram, G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s ledger accounts, ledger of lease expenses of ₹ 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 Department s permission to draw the specified under ground water capacity by pumping, depreciation ledger of biomass plant and machinery and vehicles and all particulars of lease money(ies), paid to landowners; respectively. All this overwhelming evidence duly proves the assessee s case that it had very much established its biomass plant by investing its capital. All these approvals and permissions also prove the stand adopted through out in support of the impugned expenses. Case law SPR Publications Pvt. Ltd. [63 taxmann.com 161] and Chemplast Sanmar Ltd. [97 taxmann.com 347] (Madras) holds that such a plant and machinery which is ready to use is very much entitled for depreciation. We thus allow assessee s depreciation claim on plant and machinery of ₹ 1,08,49,065 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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