Income Tax Appellate Tribunal - Chennai
Asian Handlooms, Karur vs Assessee on 29 May, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
'C' BENCH, CHENNAI
BEFORE SHRI N.S.SAINI, ACCOUNTANT MEMBER AND
SHRI VIKAS AWASTHY, JUDICIAL MEMBER
ITA No.176/Mds/2010
(Assessment Year: 2006-07)
M/s. Asian Handlooms Vs. Deputy Commissioner of Income Tax
C/o. S.Sridhar, Advocate, Circle-II, Trichy.
New No.14, Old No.82, Flat No.5
1st Avenue, Indira Nagar, Adyar,
Chennai-600 020.
PAN:AABFA0568Q
(Appellant) (Respondent)
Appellant by : Mr. S.Sridhar, Advocate
Respondent by : Dr. Yogesh Kamat, JCIT
Date of Hearing : 29th May, 2012
Date of Pronouncement : 6th July, 2012
ORDER
PER VIKAS AWASTHY, JUDICIAL MEMBER:
The present appeal has been filed by the assessee impugning the order of the CIT(A), Tiruchirapalli dated 25.01.2010.
2. The assessee is a partnership firm. For the assessment year 2006-07, the assessee filed its return of income on 30.04.2007 admitting total income of `2,80,140/-. The case of the assessee was selected for scrutiny and notice under section 143(2) of the Income Tax Act, 1961 was issued to the 2 ITA No.176/Mds/2010 assessee. The Assessing Officer vide assessment order dated 30.12.2008 made certain additions/disallowances in the income of the assessee. Aggrieved against the assessment order, the assessee filed an appeal before the CIT(A), Tiruchirapalli. The CIT(A) partly allowed the appeal of the assessee vide order dated 25.01.2010. While partly allowing the appeal, the CIT(A) upheld the findings of the Assessing Officer with respect to the depreciation on windmills as well as disallowance of expenses relating to dyeing, tailoring wages, stitching charges, weaving and packaging charges etc. The CIT(A) further confirmed the order of the Assessing Officer with regard to disallowance of mending and checking charges by applying the provisions of section 40(a)(ia) of the Act. Aggrieved against the order of the CIT(A), the assessee has come in second appeal before the Tribunal.
3. The counsel for the assessee submitted that the case of the assessee is squarely covered by the order of the co- ordinate Bench of the Tribunal in the assessee's own case passed in ITA No.2291/Mds/2008 dated 29th November, 2009 relevant to the assessment year 2005-06. He submitted that 3 ITA No.176/Mds/2010 grounds of appeal no.2 to 6 relating to depreciation on windmill as well as grounds no.11 to 13 with regard to claim of depreciation and disallowance of expenses has already been adjudicated by the Tribunal in the case of the assessee in the aforementioned appeal relevant to the assessment year 2005-06. He further submitted that issues no.7 & 8 with regard to disallowance of expenses claimed relating to dyeing, tailoring wages, stitching charges etc. has also been decided by the Tribunal in the aforementioned appeal. He placed on record a photostat copy of the order of Tribunal in ITA No.2291/Mds/2008 dated 20th November, 2009 relevant to the assessment year 2005-06. He further contended that as regards disallowance under the provisions of section 40(a)(ia) is concerned, the Assessing Officer and CIT(A) has not passed speaking order, so the same may be remitted back to the Assessing Officer to decide this issue afresh.
4. The D.R. fairly conceded that grounds no.2 to 13 except grounds no.9 & 10 are squarely covered by the order of the co-ordinate Bench of the Tribunal in ITA No.2291/Mds/2008. Therefore, the appeal of the assessee can be disposed of 4 ITA No.176/Mds/2010 accordingly. However, with regard to ground no.9 & 10 relating to the disallowance under section 40(a)(ia), the DR submitted that the Assessing Officer has passed speaking order thereon and the same may be sustained.
5. We have heard the submissions made by the parties and have gone through the orders of the authorities below as well as the order dated 20th November, 2009 passed by the co-ordinate Bench of the Tribunal in the case of the assessee in ITA No.2291/Mds/2008 relevant to the assessment year 2005-06. Grounds no.2 to 6 and 11 to 13 in the present appeal relates to depreciation. In para no.12 of the order in ITA No.2291/Mds/2008, the Tribunal has held as under:- "12. We have heard the rival contentions and perused the order. There can be no dispute that a wind mill is an apparatus that harnesses wind power, for a variety of uses like pumping water, driving of saw mill, grinding cone and/or driving electrical turbines. A typical wind mill, as installed by the assessee, which is of Suzlon Corporation, would consist of a specialized foundation, on which the wind blades are attached through a post. The Blades connected in the top is a revolving apparatus to which different numbers of arms are attached. When it is used for producing electricity, these are called wind 5 ITA No.176/Mds/2010 turbines and serves as a significant source of electrical energy. Being a non-conventional source of energy with renewable inputs and which is nature friendly, world over, windmills have been given special status, importance and encouragement. There is no doubt that for a windmill to be sustainable it has to be erected in a place where sustainable wind flow is available with a land suitable to a foundation on which, a structure strong enough to withstand a powerful thrust of air at any point of time. Specialized foundation and specialized area specifically ear- marked to facilitate a flow of wind without hindrance, and specialized electrical fittings and high tension lines are all basic requirements for a wind mill plant. None of these requirements including the premises can be seen detached from what is called a 'wind mill' since a wind mill to work these are essential. All these are necessary inputs going into ultimate cost of such wind mill. The foundation structure or the specially demarcated appurtenant thereto cannot be considered as equivalent to a hotel or a cinema building which is adjunct to carrying on a hotel business or theatre business. On the other hand these can be deemed only a part of a windmill for harnessing wind energy. In coming to this conclusion we are fortified by decision of Hon'ble Karnataka High Court in the case of CIT v.
Karnataka Power Corporation (247 ITR 268) where it was held that whether a the building can be treated as a plant was a question of fact and when it is found as a fact that the building has been so planned and constructed as to serve the assessee's 6 ITA No.176/Mds/2010 special technical requirement, it would qualify to be treated as a plant. In our opinion, the expenses relating to the land and foundation specially incurred with a view to serve the technical requirements would also become a part of the plant in a case that of a wind mill. If we look at Appendix I to the Income-tax Rules, prescribing the rates of depreciation, it can be seen that Legislature has given higher depreciation rate of 80% on anti-pollution devices, energy saving and renewable energy devices. Apparently, these higher rate have been given not solely for off- setting the impairment in value of such assets on account of use but also to encourage such entrepreneual ventures which results in energy savings or utilization of renewable energy sources, or prevention of pollution. If a very limited meaning is given to these terms used in Appendix I of the I.T. Rules, it would defeat the very purpose for which such enhanced depreciation was provided for. Therefore, in our opinion, assessee's claim for depreciation should not be restricted in the manner made by the Assessing Officer. Therefore, disallowance of Rs. 1,17,00,000/-, 13 lakhs, 23,51,576/- and Rs. 5,73,824/- on account of depreciation claim stands cancelled. Ground Nos. 5 to 19 of the assessee stand allowed. Respectfully following the above decision of the co-ordinate Bench of the Tribunal, we allow these grounds of the appeal. The assessee is entitled to entire amount claimed as 7 ITA No.176/Mds/2010 depreciation on windmill. The order of the CIT(A) on the issue is set aside.
6. The issue relating to claim of the assessee claiming tailoring charges, stitching charges etc., the same has also been adjudicated by the co-ordinate Bench of the Tribunal in the aforementioned appeal, wherein the Tribunal relying on its earlier order in another case i.e. ITA No.1818 to 1821/Mds/2008 dated 21.4.2009 held that "1% disallowance would be fair in the interest of justice, hence we direct the Assessing Officer to restrict the disallowance to 1%." The relevant extract of the aforesaid order is reproduced herein below:-
"5. In para 10 of its order dated 21.04.2009, in ITA Nos. 1818 to 1821/Mds/2008, it was held as under:
We have heard the rival submissions. The assessee is engaged in manufacture and export of cotton fabrics in Karur. The process of manufacturing of cotton fabrics involves procuring and processing of yarn and giving them to weavers. During the relevant Assessment Year the assessee debited certain expenses like weaving charges, tailoring, winding, dyeing, processing, packing charges, coolie, sample and manufacturing expenses in the profit and loss account. These 8 ITA No.176/Mds/2010 expenses were vouched. However, some defects were pointed out in the vouchers. The Assessing Officer disallowed 2% of such expenses claimed on the vouchers directly without supported by any bill. The assessee claimed weaving, tailoring, samples and packing charges to the tune of Rs. 3.36 crores in its profit and loss account. The Assessing Officer disallowed 2% of such expenditure amounting to Rs. 6,72,089/-. The ld.
CIT(A) confirmed the addition. It was submitted before us that for the Assessment Year 2005-06 on identical facts the Assessing Officer disallowed 1% fo such expenses on estimate basis on a turnover of Rs. 4.04 crores. It was claimed that having regard to the nature of business it is not possible to maintain all the bills and vouchers. However, the assessee maintained meticulously all the records and the expenses were duly recorded in the internal debit vouchers. We have considered the arguments and examined the records. In our opinion disallowance of 1% of such expenses would meet the ends of justice. We direct the Assessing Officer to restrict the addition to 1%."
We are of the considered opinion that the ground of appeal relating to disallowance of expenses relating to dyeing & tailoring wages, packing charges etc. is squarely covered by the above order of the Tribunal. More so, when the DR has not been able to controvert the same. Respectfully following the above decision of the co-ordinate Bench of the Tribunal, 9 ITA No.176/Mds/2010 we allow this ground of appeal of the assessee and direct the Assessing Officer to restrict the addition to 1% of such expenses.
7. As regards the issue relating to disallowance under the provisions of section 40(a)(ia) is concerned, we observe that Assessing Officer as well as CIT(A) has not passed speaking order. We therefore remit this issue back to the Assessing Officer to decide the same afresh after affording sufficient opportunity of hearing to the assessee in accordance with law.
8. In the result, the appeal of the assessee is partly allowed in the above said terms.
Order pronounced in the open court on Friday, the 6th day of July, 2012 at Chennai.
Sd/- Sd/-
( N.S. Saini ) ( Vikas Awasthy )
Accountant Member Judicial Member
Chennai,
Dated the 6th July , 2012.
somu
Copy to: (1) Appellant (2) Respondent (3) CIT
(4) CIT(A) (5) D.R. (6) G.F.