TaxTMI 
TaxTMI 
2016 (7) TMI 1179
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....rcumstances of the case the Ld. CIT(A) has erred in law in directing the A.O. to delete the addition of Rs. 7099318/- on account of depreciation though the assessee could not explain properly the issues raised by the AO." 3. The Assessee is a company. It is engaged in the business of manufacturing of ductile iron. During the previous year relevant to AY 2007-08, the Assessee was in the process of setting up an industrial unit for manufacturing of ductile iron in Tamil Nadu. The Assessee had shown receipt of job work charges of Rs. 18 lakhs and claimed depreciation of Rs. 74.60 lakhs. The depreciation claimed as deduction u/s.32 of the Income Tax Act, 1961 (Act) was as follows: Block of Assets Plant & Machinery @ 15% Rs.67,78,828 Block of Assets Furniture & Fixtures @ 10% Rs. 73,106 Block of Assets computer, computer software @ 60% Rs. 5,43,458 Rs.74,60,392 The components of Block of Assets Plant and Machinery was motor car, cycle, two wheelers, generator (pre-operative expense), weighing machines, tools and gauges, inspection machinery, welding machines, machinery (machine shops), pumps and preoperative expense. The components of Block of Assets Furniture & fixtur....
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....tricity to carry out work of construction of factory building and erection of plant and machinery. The AO was of the view that without putting the machinery and plant the Assessee ought not to have capitalized their value in the books of accounts and claimed depreciation therein. The AO therefore disallowed claim of the Assessee for depreciation except depreciation on motor car, cycle and two wheelers of Rs. 3,61,074/-. This resulted in an addition of Rs. 70,99,318/- (Rs.74,60,392 - 3,61,074) to the total income of the Assessee. 7. Before CIT(A) the Assessee pointed out that in ductile iron foundry, the major area of the shed is occupied by furnace, molding line, sand plant, stores and stock yard and other ancillary plant and machinery and only small area is required for machining activities such as CNC lathes, planning machines, grinding machines etc. It was further submitted that the process of setting up the unit was started in the financial year 2005- 06 and around June, 2006, the machining section of the unit was made operational. The Assessee further claimed that the machineries on which depreciation was claimed had been installed in the machine shop and were used for the pu....
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....d paid Rs. 5,01,470/- to Tamilnadu Electricity Board as electricity charges. The ledger copy of electricity charges together with copies of electricity bills issued by Tamilnadu Electricity Board were produced before the AO for his verification. It was also submitted that the observations of the AO that power and fuel expense of Rs. 1,75,340/- appears to be very low and was for the generator is again not correct. In this regard it was submitted that Out of the power expenditure of Rs. 1,75,340/-, Rs. 2,896/- represents electric charges for office electricity, Rs. 97,977/- electric charges for running of machine shop and Rs. 74,.467/- incurred for purchase of diesel used for running the generator for generation of power for production purpose. The observation by the AO that power & fuel expenses appears to be very low is totally erroneous. The AO has chose to ignore the fact That the assessee has charged to its profit & loss account the power & fuel expenses incurred in relation to its use of machine shop activities only whereby the assessee has earned Rs. 18.15 lakh as job work charges. In face the assessee has incurred power & fuel expenses of Rs. 1.75lakh for earning job work cha....
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....sions of the Assessee and deleted the disallowance of depreciation as made by the AO. The following were his observations: "3.2. I have examined the rival submissions. It is a fact that the appellant has installed plant & machinery only to the extent of Rs. 1,92,19,931/- during the year and on the said assets it has claim depreciation for Rs. 64,07,754/-. Most of the amount spent on purchase of assets was towards purchase of machinery pertaining to the machine room. Machining section consists of turrets, lathes, plano-millers, borers, shapers and other simple machinery to give the iron castings of final tough before packing and shipping. The machine room does not consist of any heavy machinery or furnace which requires extensive activity of installation and electricity consumption. As will appear from the nature of machinery in the machine room, only final touches are required to be given to the Iron Castings. The machinery pertain to machine room was purchased during April and May, 2007 has not been doubted by the A.O. What has also been doubted is the installation of the said machinery. In fact, if one analyses the type of machinery purchased during April, May and upto the 1st ....
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....hich depreciation was claimed were in fact put to use by the Assessee for the purpose of its business during the previous year, was based on additional evidence which were taken cognizance by the CIT(A) in violation of Rule 46-A of the Income Tax Rules, 1962 (Rules). He reiterated the stand of the AO as reflected in the order of assessment. 15. The learned counsel for the Assessee submitted that the CIT(A) came to the conclusion that the machineries were put to use not on the basis of electricity bills filed before CIT(A) but for the reason that fuel and power charges were booked by the Assessee and the machining tools were not heavy duty machinery and could run on generators. The CIT(A) has also held that the receipt from job work was not doubted by the AO and therefore deleted the addition made by the AO. Without prejudice to the aforesaid submission, the learned counsel also submitted that the electricity bills at page 14 to 46 of the paper book filed by the Assessee were shown to the AO in the course of assessment proceedings. In this regard our attention was drawn to page 8 and 9 of the paper book of the Assessee wherein the record of proceedings before the AO have been filed....
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....ing of machine shop and Rs. 74,446 incurred for purchase of diesel used for running generator. The CIT(A) in coming to the conclusion that the Assessee had established use of the machineries has placed reliance on the fact that electricity charges of Rs. 5,01,470/- were incurred by the Assessee, the fact that receipts from job work were not doubted by the AO and that the machineries in the machine shop were not heavy duty machinery and that the electricity and power generator charges shown in the profit and loss account was sufficient to carry out the job work. The CIT(A) has also observed that the machineries in the machine room were purchased in April and May, 2006 and would not require much time for their assembly and use and therefore the claim of the Assessee that the machineries were put to use from June, 2006. These factual details coupled with the fact that electricity bills were not available before the AO, shows that the CIT(A) has relied on additional evidence in violation of Rule 46A of the Rules. Rule 46-A of the Rules read thus: 46-A: Production of additional evidence before the Deputy Commissioner (Appeals)and Commissioner (Appeals). (1) The appellant shall not ....