Income Tax Appellate Tribunal - Hyderabad
M/S Lanco Infratech Limited,, ... vs Department Of Income Tax on 7 January, 2014
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCH 'B', HYDERABAD
BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER
AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER
ITA Nos. 252, 253, 254, 255, 256 & 257/Hyd/2013
Assessment Years: 2002-03, 2003-04, 2004-05, 2005-06, 2006-07 & 2007-08
Dy. Commissioner of vs. M/s Lanco Infratech Ltd.,
Income-tax, Circle - 16(1), Hyderabad.
Hyderabad. PAN - AAACL3449H
Appellant Respondent
Revenue by Sri D. Sudhakar Rao
Assessee by: Sri P. Murali Mohan Rao
Date of hearing: 07/01/2014
Date of pronouncement: 07/01/2014
O RDE R
PER CHANDRA POOJARI, AM:
These appeals pertaining to one assessee are preferred by the Revenue directed against a common order of CIT(A)-V, Hyderabad dated 22/11/2012 for the assessment years 2002-03 to 2007-08. Since common issues are involved in these appeals, the same were clubbed and heard together, therefore, a common order is passed for the sake of convenience.
ITA NOS. 252 & 253/HYD/2013 for the AYs 2002-03 & 2003-04.
2. The Revenue has raised the following grounds in both these appeals:
"1. The CIT(A) erred both on facts and in the circumstances of the case without going into the merits of the order of the Assessing Officer.
2. The CIT(A) erred in allowing the claim of the assessee when the Electric Generators from part of block of assets under the category of 'electrical equipments' and are eligible for depreciation at the rate of 25% only;2 I.T.A. No.252 to 257/Hyd/2013
M/s Lanco Infratech Ltd.
3. The CIT(A) ought to have considered that the electric generators are ancillary to run the Wind Mills and cannot be considered as Wind Mill which block of asset is covered by depreciation at the rate of 100%."
3. The Assessing Officer had made the additions towards excess claim of depreciation on electrical equipments for the AY 2002-03 at Rs. 5,52,63,750/- and for AY 2003-04 at Rs. 5,59,87,820/-.
4. The CIT(Central) Hyderabad in its order u/s 263 of the Act had pointed out that the depreciation at 25% only was allowable on electrical equipment which worked out to Rs. 3,76,14,006/- (for AY 2002-03 at Rs. 1,89,38,019/- and for AY 2003-04 at Rs. 1,86,75,987/-) whereas the assessee claimed depreciation of Rs. 14,81,41,506/- which was allowed by the Assessing Officer in order under section 143(3) r.w.s. 153A of the Act.
5. Consequently, the Assessing Officer during the course of assessment proceedings found that the assessee had claimed 100% depreciation on wind electric generators. The Assessing Officer was of the view that the wind electric generators are in nature of electrical equipments and depreciation is allowable at 25% only but not at 100% as claimed by the assessee. Accordingly, the Assessing Officer calculated the depreciation at 25% and added back the balance as excess depreciation claimed by the assessee.
6. Before the CIT(A), the assessee stated that the assessee company is having wind mill power project situated at Chitradurga, Karnataka which was conceived by M/s Encon Services Ltd., Chennai at a cost of Rs. 14,73,71,680/-. Further, it was stated that later, Encon Services Ltd., Chennai was amalgamated with the assessee company i.e. Lanco Infratech Ltd., Hyderabad, with effect from 01/04/2001 and the amalgamation was approved by the Hon'ble High Court of Andhra Pradesh, vide its order dated 3 I.T.A. No.252 to 257/Hyd/2013 M/s Lanco Infratech Ltd.
08/10/2002. It was submitted that the wind mill power project is eligible for higher ate of depreciation at 100% as per the provisions of the IT Act and that the aforesaid power project at Chitradurga, Karnataka, was commissioned on 30 th March, 2002 and used for less than 180 days during the FY 2001-02. He, therefore, submitted that the assessee accordingly calculated and claimed depreciation on wind electric generators at 50%.
6.1 The assessee further stated that the view taken by the Assessing Officer is not tenable in law as well as on facts. The assessee company, during the course of assessment proceedings, had submitted the invoice copies of the wind mill in which it is clearly mentioned specification of assets as 'wind electric generators' and that considering them, the Assessing Officer ought to have allowed the depreciation at 100%. In support of its arguments, the assessee company had relied on the decisions of Hon'ble High Court of Rajasthan, in the cases of CIT Vs. Agarwal Transformers (P) Ltd. [2003] 127 Taxman 538 (Raj.) and CIT Vs. Abressive India [2003] 133 Taxman 389 (Raj.). Further, assessee relied on the decision of ITAT Mumbai, in the case of Hindustan Platinum Pvt. Ltd. Vs. ACIT in ITA No. 3352/Mum/2010.
7. The CIT(A) after considering the submissions of the assessee, directed the Assessing Officer to allow 100% depreciation on the electric wind generators as the same are eligible for higher rate of depreciation by observing as under:
"4.6.......................It is not a disputed fact that the appellant is having windmill power project and was commissioned on 30-03-2002. The only point of contention is rate of depreciation on wind electrical generators. In this regard, the Rajasthan High Court in the case of CIT Vs. Agarwal Transformers have construed the word wind electric generators based on the principle of ejusdem generis and held that wind electric generators are eligible for the higher rate of depreciation. Also, in the case of Hindustan Platinum (P) Ltd. Vs. ACIT, ITAT Mumbai, depreciation has been allowed on wind electric generators at a higher rate.4 I.T.A. No.252 to 257/Hyd/2013
M/s Lanco Infratech Ltd.
4.7 I am of the view that the wind electric generators are the part of the wind power projects. The wind power projects cannot be operational without the wind electric generators. The higher rate of depreciation is given to encourage more wind power projects. Therefore, after considering the aforesaid facts of the case and case laws, I hold that the electric wind generators are eligible for higher ate of depreciation. Further, it is held that, the depreciation for the year 2003-04 should also be allowed at 100%. Accordingly, I direct the Assessing Officer to allow the same. Thus this ground of appeal is allowed."
8. Aggrieved by the order of the CIT(A), the revenue is in appeal before us.
9. We have heard the arguments of both the parties, perused the record and have gone through the orders of the authorities below. The Assessing Officer was of the view that the wind electric generators are in the nature of electrical equipments and depreciation is allowable at 25% only but not at 100% as claimed by the assessee. On the other hand, the CIT(A) held that electric wind generators are eligible for higher rate of depreciation as the same are part of the wind power projects and the wind power projects cannot be operational without the wind electric generators.
10. It is observed that the emphasis for granting higher rate of depreciation as far as wind electric generators are concerned, the necessity is to examine the functional test of the said equipment. A categorical evidence has to be placed that the equipment is whether an integral part of wind mill power project. Such an evidence or finding is absent in this appeal. Even in the case of CIT vs. Abad Hotels India (P) Ltd. (2001) 170 CTR (SC) 185 : (2001) 251 ITR 204 (SC), the Hon'ble Supreme Court has held that the hotel building was not a plant so the assessee was held as not entitled to extra-shift depreciation allowance. In the present appeal nothing is on record to establish that on the touchstone of functional test the wind electric generators are so designed that 5 I.T.A. No.252 to 257/Hyd/2013 M/s Lanco Infratech Ltd.
they can only be used for power generation as done by the wind mill and meant for no other use. There is nothing on record, such as a report from a qualified person to establish that the wind electric generators are designed in such a manner to facilitate the power generation and distribution from windmill. Naturally a machinery does not require protection so installed in a wind mill power project but such a generator cannot be said to be a part and parcel of the project. Resultantly the claims fail on functional test.
11. It is an accepted principle of interpretation that it is not always a safe way to construe the statute by dividing it by a process of etymological dissection and after separating words from the context to give each word some particular definition given by lexicographers and then to reconstruct the instrument upon the basis of those interpretation. The correct method is that when particular meaning is attached to a word as is given in an instrument is to be gathered from the context, the nature of the subject-matter, the purpose or the intention of the author and the effect of giving to them one or more other permissible meaning on the object to be achieved. Applying this test, we have to gather the meaning of the words such as 'plant and machinery'. For interpreting the scheme of depreciation as prescribed under s. 32 it is not necessary that we should adopt a judge-sense meaning, which is sometimes artificial and imprecise in application by giving a meaning altogether different from the statutory provisions. The scheme of s. 32 unequivocally leads to the conclusion that on one hand "plant" and on the other hand "machinery" are to be treated as separate for the purpose of allowance of depreciation. Moreover, how one can ignore the block of assets as prescribed in the table of rates for the purpose of allowance of depreciation in Appendix I of IT Rules. As per this Appendix Part 'A' contains building in a separate head, furniture and fittings in another head and machinery and plant in a different head and electrical fittings in a different head by prescribing different rates of depreciations. The scientific 6 I.T.A. No.252 to 257/Hyd/2013 M/s Lanco Infratech Ltd.
reason is often discussed as the period of diminution for tangible assets. If the period of diminution or wear-tear is very fast than higher rate of depreciation is granted. Naturally the speed with which wind mills get discarded due to wear and tear, the generator do not get wear and tear so fast. On this basis, as well, we cannot hold that generators are not at par with the "windmill" as far as the period of diminution is concerned. Moreover sometimes to promote a particular activity the statute provides certain incentives in the shape of higher depreciation. We have to keep in mind such an intention of the legislature as well. However no such intention has ever been expressed in the legislature to provide higher rate of depreciation in respect of generator surrounding the windmill. Rather the Appendix and the depreciation schedule has categorically worded that "windmills and any specially designed devices which run on wind mills" are qualified for 100 per cent rate of depreciation. Since the generators are not specially designed devices hence in our considered opinion, as per the discussion made herein above, are not entitled for higher depreciation as claimed by the assessee. In view of the above discussion, we reverse the order of the CIT(A) and restore that of the Assessing Officer's order. Accordingly, the ground raised by the revenue on this issue in both the appeals are allowed.
12. In the result, both the appeals in ITA Nos. 252 & 253/Hyd/2013 for AY 2002-03 and 2003-04 are allowed.
ITA NOS. 254, 255, 256 & 257/HYD/2013 for AYs 2004-05 to 2007-08
13. The revenue has raised the following grounds, which are common, in all the years under consideration:
"1. The CIT(A) erred both on facts and in the circumstances of the case without going into the merits of the order of the Assessing Officer.7 I.T.A. No.252 to 257/Hyd/2013
M/s Lanco Infratech Ltd.
2. The CIT(A) erred in directing the Assessing Officer to allow deduction u/s 80IA as claimed by the assessee without considering explanation - 5 to section 32(1)(iii) of the IT Act, 1961.
3. The CIT(A) ought to have considered the fact that the assessee failed to follow Rule 18BBB of IT Rules, 1960 as per which Assessee's claiming deduction u/s 80IA have to maintain a separate report which should be accompanied by P&L Account, Balance sheet, as if it is a separate and distinct entity."
14. Briefly the facts of the case are that the Assessing Officer had made the following disallowance with regard to the exemption claimed by the assessee company u/s 80IA from the profits derived from wind mill pertaining to the assessment years 2004-05 to 2007- 08:
AY Amount (Rs.)
2004-05 38,21,764/-
2005-06 1,75,24,861/-
2006-07 1,54,29,336/-
2007-08 1,41,27,947/-
14.1 The Assessing Officer was of the opinion that while
calculating the profits for deduction u/s 80IA of the Act, the assessee company had not reduced the profits by depreciation on wind mill and hence had claimed higher deduction. Further, the Assessing Officer was of the opinion that assessee had not maintained proper accounts in respect of enterprises claiming deduction u/s 80IA and hence, the balance sheet and profit and loss account as enclosed to form 10CCB were not acceptable.
15. Before the CIT(A), it was contended that the depreciation on the wind mill project had already been fully claimed in the assessment years 2002-03 and 2003-04 and there is no block of asset remaining to claim any deduction from 2004-05 onwards. It was submitted that the assessee company had claimed deduction u/s 80IA of the IT Act in respect of the income derived from power 8 I.T.A. No.252 to 257/Hyd/2013 M/s Lanco Infratech Ltd.
generation from wind mill and the wind power unit is a separate unit held by the assessee and a separate balance sheet and profit and loss account was prepared for the purpose of arriving at the profit for the wind power unit held by the assessee. The assessee filed audit report required u/s 80IA(7) of the Act in Form No. 10CCB. He submitted that the wind power unit is a separate unit held by the assessee and a balance sheet is drawn up for the purpose.
16. After considering the submissions of the assessee the CIT(A) held as follows:
"5.6 I have carefully gone through the assessment orders and submissions made by the appellant. In my view, as discussed in the aforesaid paras, the appellant is eligible for higher rate of depreciation for the AYs 2002-03 and 2003-04 on wind mill project and accordingly, no depreciation remains to be claimed from the AY 2004-05. Hence, the profits from wind power projects as calculated by the appellant company for the purpose of deduction u/s 80IA of the Act are correct.
5.7 Further, it is an established fact that a consequential order passed after order u/s 263 should be made only on the specific issues for which 263 order was issued. The Assessing Officer cannot go beyond the directions given in order u/s 263 while passing the consequential order u/s 143(3) r.w.s. 263. A harmonious reading of the order u/s 263 passed on 11/03/2011 states that the claim of deduction u/s 80IA should be verified only with reduction of depreciation in accordance with provisions of explanation 5 to section 32(i)(iii). Therefore, the Assessing Officer cannot reassess the claim of deduction u/s 80IA with regard to maintenance of books of account.
Aggrieved, the revenue is in appeal before us for the assessment years 2004-05 to 2007-08.
17. We have heard both the parties and perused the record. As held by the CIT(A) the Assessing Officer cannot reassess the claim of deduction u/s 80IA with regard to maintenance of books of account, as the assessee has already claimed the same in AYs 2002-03 and 2003-04. Moreover, we find that the coordinate bench 9 I.T.A. No.252 to 257/Hyd/2013 M/s Lanco Infratech Ltd.
in assessee's own case in AY 2004-05 in ITA No. 88/Hyd/2010 dated 09/07/2012 on similar ground held as follows:
"18.............The assessee had computed profits of the undertaking and has also filed certificate of the auditor in respect of the eligible undertaking. In these circumstances, we deem it fit to set aside this issue to the file of the Assessing Officer for reconsidering the profitability of the eligible undertaking on the basis of the working furnished by the assessee, after giving reasonable opportunity to the assessee to put forward its case."
18. As submitted by the assessee company that the depreciation on the wind mill project has already been fully claimed in the assessment years 2002-03 and 2003-04 and there is no block of asset remaining to claim any deduction from 2004-05 onwards. Therefore, we do not find any infirmity in the order of the CIT(A) in holding that no depreciations remains to be claimed from the AY 2004-05 and the profits from wind power projects as calculated by the assessee company for the purpose of deduction u/s 80IA of the Act are correct and, accordingly, the order of the CIT(A) is hereby upheld in all the assessment years under consideration. The grounds raised by the revenue on this issue are dismissed in assessment years 2
19. In the result, appeals in ITA Nos. 254, 255, 256 & 257/Hyd/2013 are dismissed.
20. To sum up, appeals in ITA Nos. 252 & 253/Hyd/2013 are allowed and appeals in ITA Nos. 254, 255, 256 & 257/Hyd/2013 are dismissed.
Pronounced in the open court on 07/01/2014.
Sd/- Sd/-
(ASHA VIJAYARAGHAVAN) (CHANDRA POOJARI)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Hyderabad, dated 7 th January, 2014.
10 I.T.A. No.252 to 257/Hyd/2013
M/s Lanco Infratech Ltd.
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Copy forwarded to:
1. DCIT, Circle - 16(1), Room No. 612, 6 th Floor, Aayakar Bhavan, Basheerbagh, Hyderabad
2. M/s Lanco Infratech Ltd., Lanco House, Plot No. 4, Softwarre Units Layout, Hitech City, Madhapur, Hyderabad.
3. CIT(A)-V, Hyderabad
4. CIT-IV, Hyderabad.
5. The DR, ITAT, Hyderabad