Income Tax Appellate Tribunal - Ahmedabad
Dholu Construction & Projects Ltd.,, ... vs Dcit, (Osd), Range-1,, Ahmedabad on 20 March, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD "C" BENCH AHMEDABAD
BEFORE, SHRI S. S. GODARA, JUDICIAL MEMBER
AND SHRI MANISH BORAD, ACCOUNTANT MEMBER
ITA No.551 & 552/Ahd/2014
(Assessment Years: 2009-10 & 2010-11)
Dholu Construction & Projects Ltd.
401, Gala ARGOS, B/h. Harikrupa
Tower, Gujarat College, Ellisbridge,
Ahmedabad 380006 Appellant
Vs.
ACIT, Range-1, Ahmedabad Respondent
PAN: AABCD5760E
आवेदक क ओर से/By Assessee : Shri S. N. Soparkar, A.R.
राज व क ओर से/By Revenue : Shri Prasoon Kabra, Sr. D.R.
सन
ु वाई क तार ख/Date of Hearing : 15.03.2017
घोषणा क तार ख/Date of
Pronouncement : 20.03.2017
ORDER
PER S. S. GODARA, JUDICIAL MEMBER
These two assessee's appeals for assessment years 2009-10 & 2010-11 arise against the CIT(A)-VI, Ahmadabad's separate orders dated 05.12.2013 and 06.12.2013, in appeal nos. CIT(A)-VI/Addl.CIT/R.1/227/11-12 & ITA Nos. 551 & 552/Ahd/2014 (Dholu Construction & Projects Ltd. vs. ACIT) A.Ys. 2009-10 & 2010-11 -2- CIT(A)-VI/DC(OSD)/R.1/195/12-13; respectively, in proceedings u/s.143(3) of the Income Tax Act, 1961; in short "the Act".
2. We come to assessee's pleadings in both appeals. It raises two substantive grounds in first assessment year inter alia challenging additional depreciation disallowance of Rs.67,20,175/- claimed u/s. 32(1)(iia) of the Act and allocation of expenses to windmill and mining businesses resulting in corresponding disallowance/addition of Rs.47,17,803/-; made by the Assessing Officer in assessment order dated 21.12.2011 and affirmed in the lower appellate proceedings. The assessee's latter appeal raises a sole substantive ground arising from similar allocation of expenditure resulting in disallowance of Rs.60,05,017/- made by both the lower authorities in assessment year 2010-11.
3. We come to assessee's first substantive ground raising the issue of additional depreciation. This assessee is a excavation work contractor. It claimed additional depreciation amount in question of Rs.67,20,175/- on new plant and machinery added during the relevant previous year as deployed at the Gujarat Mineral Development Corporation (GMDC) and Rajasthan's State Mines and Minerals (RSMM), Lignite Mines at Tadkeshwar and Barmer ; respectively. The assessee's case was that it was manufacturing /producing an article or thing as contemplated under the above deduction provision. The Assessing Officer observed in assessment order dated 21.12.2011 that the assesse's role in mining is basically that of a contractor executing contract work of removal of over burden and extraction of lignite from the above two corporations' mines. He appears to have further rejected assessee's contention based on hon'ble apex court's decision in CIT vs. Sesa Goa Ltd. [2005] 271 ITR 331 that similar mineral or processing / excavation amounts to production for the purpose of investment allowance u/s. 32A of ITA Nos. 551 & 552/Ahd/2014 (Dholu Construction & Projects Ltd. vs. ACIT) A.Ys. 2009-10 & 2010-11 -3- the Act by observing that the said appellant was a first of all a mining company which was producing the ore from the mine in question. He then referred to Section 2(29BA) in the Act defining "manufacture" as resulting in transformation of an object to a new and distinct one. The assessing authority was accordingly of the view that the assessee neither was a manufacturer nor producer of the lignite in question so as to be held eligible for impugned additional depreciation in question since it was mainly participating in deploying excavators and dumpers to deliver lignite ore to the above two corporations. All this resulted in the impugned disallowance of Rs.67,20,175/-.
4. We now advert to the lower appellate order under challenge to notice that the CIT(A) has also affirmed Assessing Officer's action in the order under challenge. His findings are reproduced as follows:
"3.3. In the assessment order A.O. observed that the appellant had claimed additional depreciation of Rs.67,20,175/- on the new plant and machinery added during the year; appellant was a contractor engaged in the extraction and delivery of the lignite from the mines owned by Gujart Mineral Development Corporation (GMDC) and Rajasthan State Mines & Metals (RSMM); appellant was not owner of the mines; it was not owning or sailing Ore extracted out of the mines; it was earning income from the job work of extraction; therefore appellant could not be said to be engaged in the business of manufacture or production of an article or thing; in the case of CIT Vs. Sesa Goa Ltd. (27 ITR 331) (2005) (relied on by the ld.AR), the assessee was owning the mines and it was also processing Ore and therefore the said case law is not applicable to the facts of the case; appellant deployed only excavators and dumpers to excavate the ore and deliver it to the mining companies; appellant was merely contractor for job work and therefore it could not be said to have been engaged in manufacture or production. Accordingly he disallowed the claim of additional depreciation.
3.4. The contention of the ld.AR is that in the light of the Gujarat High Court decision in the case of CIT Vs. General Contract Co. (287 ITR 416) the activity of mining and excavation was one of production and therefore entitled to additional depreciation.
3.5. I have considered the facts of the matter. It is seen that the decision of the Gujarat High Court relied on by the ld. A.R. was reversed by the Hon'ble Supreme Court. The Supreme Court in the, case of CIT vs. M/s.General Contract Co. in its order dtd. 11.09.2012 in Civil Appeal No.3207 of 2007 held as under:-
ITA Nos. 551 & 552/Ahd/2014 (Dholu Construction & Projects Ltd. vs. ACIT) A.Ys. 2009-10 & 2010-11 -4-
"A short question 'which arises for determination in this civil appeal is, whether the assessee was entitled to investment allowance under Section 32A (2) (b) of the Income Tax Act, 1961 ?
Section 32A(2)(b) of Income Tax Act, 1961, as it stood at the relevant time, has been extensively quoted in the Order of the Assessing Officer (see Page 37 of the paper Book). The Assessing Officer came to the conclusion that the assessee claimed to be in the business of mining; the only activity undertaken by it was removal of overburden/earth excavation work carried out for facilitating mining at lignite project site at Rajpardi and Pandhro; and that the assessee was merely a labour contractor. These findings of fact have been up held by the Income Tax Appellate Tribunal and they have not even been discussed in the impugned judgment of the High Court. For the afore-said reasons, the civil appeal filed by the Department is allowed with no order as to costs. "
Keeping in view the observations of the A.O. in the assessment order and the Supreme Court decision referred to above, I hold that appellant's activity is not one of manufacture or production and accordingly it is not entitled to additional depreciation. Impugned disallowance of additional depreciation of Rs.67,20,175/- is upheld. This ground of appeal is dismissed."
5. Heard both sides strongly reiterating their respective stands against and in support of the impugned disallowance. We first come to the statutory provision itself. Section 32(1)(iia) admittedly is a deduction provision in the nature of additional depreciation admissible to an assessee engaged in the business of manufacture or production of any article or a thing. The assessee undisputedly does not seek to treat itself as a manufacturer of the lignite ore. Its case is that it is a producer of the said mineral ore. We further find that hon'ble apex court's decision in Sesa Goa case (supra) held that such an activity of mining of a mineral ore amounts to production for the purpose of investment allowance u/s.32(A) of the Act. Both the learned representatives are fair enough in agreeing that the said investment allowance provision is para materia to that of the instant additional depreciation provision. The dispute however between the learned representatives is that the assessee cannot be held to be a producer since it is not owner of the lignite mines as it is performing a contractor's job in labour and excavation. We wish to observe first of all that we are dealing with a deduction provision; and that too in the nature of ITA Nos. 551 & 552/Ahd/2014 (Dholu Construction & Projects Ltd. vs. ACIT) A.Ys. 2009-10 & 2010-11 -5- additional deduction relief over and above the normal one which is to be liberally construed. A perusal of Section 32(1)(iia) makes it clear that there is no concept of ownership postulated therein as a pre-condition so as to claim the impugned additional depreciation as the thrust of the sovereign is to grant the impugned relief to an assessee manufacturing or producing an article or thing therein. We further repeat that mining activity in itself stands held as production (supra). The question therefore that arises for our apt adjudication is as to whether the assessee is engaged in mining itself or not.
6. We proceed further to adjudicate the above framed question and notice first of all that the assessee has undisputedly employed various heavy duty machineries of motor grading, dozing, excavation etc. in the relevant previous years. Pages 1 to 32 of the paper book contain assessee's agreements entered with the above two mining corporations. First one is assessee's agreement with the Gujarat Mineral Development Corporation. Page 2 specifically states that assessee's scope of work includes mining of lignite and loading of consumer trucks there with after employing hydrolic excavator and other equipments. It is further supposed to remove over burden arising from the said activity. The assessee admittedly is reimbursed on tonnage basis. The fact however remains that this payment structure is not relevant s we are dealing with nature of assessee's activity. This former agreement makes it clear that the assessee itself is engaged in mining activity so as to be called a producer of the ore in question. It is further revealed from assessee's latter agreement with the Rajasthan Mines & Minerals that the situation is no different since the assessee has to excavate lignite ore after deploying all of its machinery. We therefore take into account all these contractual terms to observe that the assessee is itself engaged in mining activity rather than to be a labour contractor or a mere machines provider. ITA Nos. 551 & 552/Ahd/2014 (Dholu Construction & Projects Ltd. vs. ACIT) A.Ys. 2009-10 & 2010-11 -6-
7. Learned Departmental Representative files before us hon'ble apex court's decision in General Contracts Company (supra) disallowing investment allowance to the said assessee removing over burden / earth excavation work carried out for facilitating mining by way of undertaking labour contract activity. The same however does not apply to facts of the instant case wherein the instant assessee is itself engaged in mining activity. We thus accept assessee's former substantive ground to delete the impugned disallowance of additional depreciation claim of Rs.67,20,175/- in question.
8. We now advert to assessee's latter substantive ground challenging adhoc allocation of expenses between windmill and mining business resulting in disallowance of Rs.47,17,803/-. There is no dispute that this assessee has installed a windmill units in Tirunalveli (Tamilnadu) for generating wind power. Its income derived therefrom is admittedly entitled for Section 80IA deduction. The relevant figure pertaining to this deduction in the impugned assessment year reads a figure of Rs.59.76lacs. The Assessing Officer sought to allocate its expenses between the two businesses. These expenses are in the nature of audit fee, bank commission, books, internet, stationary and printing, travelling, professional fee, telephone expenses, Director's remuneration, depreciation and interest etc. The Assessing Officer went by prorate figures of the two businesses turnover to allocate its above direct/indirect expenditure resulting in addition of Rs.47.70lacs in question to be pertaining to the wind power business hereiabove.
9. The CIT(A) upholds Assessing Officer's findings as under:
4.2. In the assessment order A.O. observed that appellant had claimed deduction u/s.80IA on the income from the wind mill. As seen from the profit & loss account the profit from the activity was only Rs.24,04,044/-; whereas as per Form 10CCB the deduction claimed was Rs,59,76,775/-; as per Section 80IA the profits and gains derived were to be computed as if the eligible business was only source of income of the assessee during the year; therefore the, depreciation and ITA Nos. 551 & 552/Ahd/2014 (Dholu Construction & Projects Ltd. vs. ACIT) A.Ys. 2009-10 & 2010-11 -7-
proportionate interest and common administration expenses were to be reduced from the income; appellant had reduced only AMC charges of Rs.12,30,966/- while computing the deduction; however, the depreciation as per I.T. Act, interest and common expenses were not deducted; the expenses narrated at para-4.4 of the assessment order were common expenses not attributable fully to any particular activity of the assessee; the turnover of the appellant from mining contracts was Rs.4283.10 lacs and the turnover of the wind mill was Rs.72.08 lacs accordingly 1.655% of the common expenses of Rs.78,28,687/- which worked out to Rs. 1,29,565/- was being allocated to the wind mill; similarly appellant had paid interest of Rs.1,07,53,349/- on the amounts borrowed for the wind mills and for other business activities; since the appellant failed to give necessary particulars, the loan taken for the wind mill was taken at Rs.5 crores (out of the total secured loans of Rs.15,31,33,038/- as on 31.03.2009); accordingly, 32.6% of the interest paid which worked out to Rs.35,05,591/- was being allocated to the wind mill activity and A the sum of Rs.47,17,803/- being depreciation (Rs.10,82,646/-), common expenses (Rs.1,29,565/-) and interest expenditure (Rs.35,05,591/-) was being reduced from the deduction claimed u/s.80IA.
4.3. The contentions of the ld. A.R. are that the secured loans were availed towards purchase of plant and machinery not pertaining to the activity of the wind mills and therefore no proportionate allocation of the interest expenses was called for; as regards the common expenses the bank commission, books and travelling could not be treated as common since they had no nexus with the wind mill project and therefore reduction of proportionate interest and common expenses was not warranted.
4.4. I have considered the facts of the matter. As seen from the written submission reproduced above, appellant had not contested the reduction of depreciation of Rs. 10,82,646/- while computing the deduction claimed u/s.80IA. Further as seen from appellant's reply reproduced at para-4.3 of the assessment order, appellant stated that the depreciation as per the I.T. Act may be reduced. Therefore, disallowance of the said sum is upheld. Out of the reduction of common expenditure, in the written submission proportionate reduction of only the bank commission (Rs.1,81,210/-), books (Rs. 12,630/-) and travelling (Rs.7,63,676/-) out of the total common expenditure enumerated by the A.O. at para.4.4 of the assessment order of Rs.78,28,687/- was contested. Even these items were summarily stated not to have had any nexus with the wind mill projects. No evidence in support of this contention was furnished. Therefore, the reduction of proportionate common expenditure of Rs. 1,29,565/- while computing the deduction u/s.80IA is upheld. Coming to the proportionate allocation of the interest expenses, it is seen that the A.O. had assumed the loan taken for wind mill to be at Rs.5 crores (by observing at para 4.6 of the assessment order that 'The loan relating to WEG as on 31.03.2011 is taken at Rs.5.00 crore as the assessee has not given any details, then the percentage of WEG loan works out to 32.6%). The contention of the ld. A.R. is that as may be seen from the invoices, bank advice etc. furnished to the A.O. none of the secured loans was utilized for purchase of plant and machinery pertaining to the wind mills. A.O. is directed to verify the contention and modify the disallowance of proportionate interest expenditure accordingly. ITA Nos. 551 & 552/Ahd/2014 (Dholu Construction & Projects Ltd. vs. ACIT) A.Ys. 2009-10 & 2010-11 -8- 4.5. To sum-up, disallowance of Rs.10,82,646/- and Rs.1,29,565/- are upheld. Disallowance of Rs.35,05,591/- is directed to be re-worked after verification. These grounds of appeal are treated as; partly allowed.
10. We have heard rival submissions. Shri Soparkar states at the outset that the assessee in any case is not raising the issues of interest and depreciation (supra). We proceed in this backdrop to notice that the assessee has been maintaining separate books of its two businesses throughout as duly audited as per this statutory provisions. It has further entered into annual maintenance contract with the windmill installment companies so far as its former business is concerned. There is no evidence in the case file indicating that the assessee has either way diverted expenditure of one business towards the other one i.e. from windmill to mining and vice versa. The Assessing Officer rather appears to have adopted prorate turnover figures to arrive at the impugned allocation. We notice that such a course of action already stands reversed by various tribunal's decisions. For instance, [2012] 23 taxmann.com 301 (Jodhpur-tribunal) ACIT vs. P I Industries deleting similar allocation / apportionment of expenses made by the Assessing Officer in case of an entity having two businesses and one of them eligible for Section 80IA deduction. We adopt the same reasoning herein as well to reverse the impugned allocation in absence of any specific material. The impugned disallowance/addition of Rs.47,70,803/- is partly deleted. It is made clear that we have not dealt with the two issues of depreciation and interest expenditure (supra). Assessee's former appeal ITA No.551/Ahd/2014 is partly accepted.
11. This leaves us with assessee's latter appeal ITA No.552/Ahd/2014 seeking to raise a similar sole substantive ground challenging correctness of allocation of expenses resulting in disallowance/addition of Rs.60,05,017/-. Both the learned representatives state very fairly that our findings in ITA Nos. 551 & 552/Ahd/2014 (Dholu Construction & Projects Ltd. vs. ACIT) A.Ys. 2009-10 & 2010-11 -9- preceding paragraph dealing with the very issue in former assessment year apply mutatis muntandis herein as well. We accept this substantive ground in same terms. This appeal partly succeeds.
12. These two assessee's appeals are partly allowed .
[Pronounced in the open Court on this the 20th day of March, 2017.] Sd/- Sd/-
(MANISH BORAD) (S. S. GODARA)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Ahmedabad: Dated 20/03/2017
True Copy
S.K.SINHA
आदे श क त ल
प अ े
षत / Copy of Order Forwarded to:-
1. राज व / Revenue
2. आवेदक / Assessee
3. संबं धत आयकर आयु!त / Concerned CIT
4. आयकर आयु!त- अपील / CIT (A)
5. )वभागीय ,-त-न ध, आयकर अपील य अ धकरण, अहमदाबाद /
DR, ITAT, Ahmedabad
6. गाड3 फाइल / Guard file.
By order/आदे श से,
उप/सहायक पंजीकार
आयकर अपील य अ धकरण, अहमदाबाद ।