2009 (10) TMI 612 - AT - Income Tax

Tribunal decision: Revenue appeals dismissed for lack of COD approval, assessee's depreciation partially allowed, and issues remanded to AO.

Assistant Commissioner Of Income-Tax. Versus Chennai Petroleum Corporation Limited.

The Tribunal dismissed the Revenue's appeals due to lack of COD approval, partially allowed the assessee's appeal on depreciation, and remanded various ... Depreciation - unused plant - Since the plant could not be used due to non-availability of raw material in this year, depreciation has been denied mainly on the basis that the plant and machinery were not put to use in this relevant year - Held that: - Once the assets are part of block of assets, it looses its individual cost or WDV. In a way it looses its identity. Thereafter, the depreciation is allowable on the entire block of assets. - since the gas sweetening plant was kept ready for use, but could not be actually used due to lack of raw material, was eligible for depreciation as claimed by the assessee. - Decided in favor of the assesseeDeduction u/s 80HHC - computation - Held that: - (i) the receipts from such sale of power cannot be included in the business profits. (ii) sale of scrap cannot be included in the business profits. (iii) matter restored to the file of AO to examine the issue in respect of Unclaimed/unspent liabilities since by mere book entry no profit is generated. (iv)Crane hire charges: This expenditure has got nothing to do with the export activities. (v) Recoveries from house rent: cannot be excluded from business profits. (vi) Recoveries from employees furniture, Liquidated damages and other recoveries, Participation fees for training programme, Reimbursement from PII and others for deputation of employees: - matter restored to the file of AO. Interest received from Customers - Business income or income from other sources - Held that: - Interest from customers has to be assessed only as business income Issues Involved:1. Approval of COD for prosecuting the matter.2. Reopening of assessment.3. Confirmation of disallowance of depreciation.4. Denial of deduction under section 80HHC.5. Assessment of interest income as income from other sources.Detailed Analysis:1. Approval of COD for Prosecuting the Matter:The Revenue's appeals (ITA Nos. 1976/Mad/2006 & 1643/Mad/2007) were dismissed due to the lack of approval from the Committee on Disputes (COD) as mandated by the Supreme Court in the case of Oil & Natural Gas Commission vs. CCE. The Tribunal mentioned that the Revenue could move for recalling the case upon obtaining COD's permission.2. Reopening of Assessment:The assessee's appeal (ITA No. 1822/Mad/2006) included a dispute on the reopening of the assessment. The learned Departmental Representative pointed out that no permission was granted by COD to contest this issue. The Tribunal decided the issue on merits, rendering the reopening issue academic.3. Confirmation of Disallowance of Depreciation:The primary dispute was whether the assessee was entitled to depreciation on a gas sweetening plant that was ready for use but not actually used due to the non-availability of raw material. The assessee argued that the plant was ready for use, citing various High Court decisions supporting depreciation for assets kept ready for use. The Department contended that the term 'used' in Section 32 implies actual use, supported by decisions from the Bombay and Karnataka High Courts.The Tribunal, considering the concept of 'block of assets' and various case laws, including the jurisdictional High Court's decision in CIT vs. Heera Financial Services Ltd., concluded that the plant, although not used, was entitled to depreciation as it was ready for use and suffered wear and tear. The Tribunal set aside the CIT(A)'s order and directed the AO to allow depreciation.4. Denial of Deduction Under Section 80HHC:The assessee's appeal (ITA No. 1823/Mad/2006) involved the exclusion of certain receipts from business profits for deduction under Section 80HHC. The Tribunal referred to the Supreme Court's decision in CIT vs. K. Ravindranathan Nair, which clarified that receipts not related to export activities should not be included in business profits.The Tribunal examined individual items:- Sale of Power and Scrap: Excluded as they were unrelated to export activities.- Unclaimed/Unspent Liabilities: The AO was directed to re-examine and include only revenue items in business profits.- Crane Hire Charges: Excluded as unrelated to export activities.- Recoveries from Employees' Furniture and House Rent: The AO was directed to re-examine and set off against related expenditures.- Liquidated Damages and Other Recoveries, Participation Fees for Training, and Reimbursement from PII: The AO was directed to re-examine these items based on the Tribunal's observations.5. Assessment of Interest Income as Income from Other Sources:The assessee argued that interest from customers and special bonds should be assessed as business income. The Tribunal noted the lack of details and set aside the CIT(A)'s order, directing the AO to re-examine the issue considering relevant judgments, including CIT vs. V. Chinnapandi and Dollar Apparels vs. ITO.Separate Judgments by Judges:The learned Judicial Member (JM) disagreed with the learned Accountant Member (AM) on the issues of reopening of assessment and disallowance of depreciation. The JM emphasized the necessity of COD approval and actual use of assets for depreciation. The matter was referred to a Third Member, who upheld the AM's view on depreciation but agreed with the JM on the necessity of COD approval for reopening the assessment. The final decision, in line with the majority opinion, allowed the assessee's appeal on depreciation but dismissed the issue of reopening the assessment.Conclusion:The Tribunal's detailed analysis led to the dismissal of the Revenue's appeals due to the lack of COD approval, partial allowance of the assessee's appeal on depreciation, and remand of several issues to the AO for re-examination. The decision underscores the importance of COD approval and the interpretation of 'used' in the context of depreciation claims.