TaxTMI 
TaxTMI 
2014 (12) TMI 1310
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....ances: a) Interest paid on purchase tax : Rs. 9,51,160/- b) Contribution to District Collector, etc ; Rs. 55,000/- c) Lease rental paid to agriculturists : Rs. 5,81,920/- d) Wealth tax paid : Rs. 3,40,272/- e) Disallowance of claim of depreciation : Rs.5,27,63,534/- f) Electricity development fund paid to APEPDCL: Rs. 9,56,520/- 3. Aggrieved, the assessee carried the matter in appeal before the first appellate authority. The first appellate authority partly allowed the assessee's appeal. Further aggrieved, the assessee is before us on the following grounds; "Ground No.1: Appellant submits that the order of the Commissioner of Income Tax (Appeals) is contrary to the facts and also the law applicable to the facts in the case of the appellant. Ground No.2: Appellant submits that the Commissioner of Income Tax (Appeals) is not justified in upholding the action of the Assessing Officer in disallowing interest payable on purchase tax amounting to Rs. 9,51,160/-. Appellant respectfully submits that the ratio of the judgments; of the hon'ble Delhi High Court in the case of Mahalakshmi Sugar Mills Co. Ltd. v CIT....
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....f Income Tax (Appeals) is not justified in denying the claim for depreciation at the rate of 80% in respect of Steam Piping costing Rs. 56,05,451. Ground No.4 (vi): The Commissioner of Income Tax (Appeals) is not justified in denying the claim for depreciation at the rate of 80% in respect of Coal & gas feeding system costing Rs. 1,03,78,869. Ground No.4(vii) The Commissioner of Income Tax (Appeals) is not justified in denying the claim for depreciation at the rate of 80% in respect of Coal Handling system costing Rs. 1,23,77,145. Ground No.4 (viii): The Commissioner of Income Tax (Appeals) is not justified in denying the claim made for deduction as revenue expenditure in respect of Sub-station tower line costing Rs. 8,06,19,966/- Ground No. 4(ix): The learned Commissioner of Income Tax (Appeals) is not justified in not admitting the appellant's claim of extinguishment of ownership rights over Electrical Tower Lines costing Rs. 8,06,19,966/- . Ground No.4(x): The Commissioner of Income Tax (Appeals) is not justified in denying the claim for depreciation at the rate of 80% in respect of Sub....
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....rated systems are included for the benefit of higher depreciation. e) Reference is made to guidelines of IREDA (which is a government company under the administrative control of the Ministry of Non-conventional Energy Sources) to support the contention that the entire co-generation system is eligible for higher depreciation. f) Reliance is placed in para 1.1. at page 71 containing material downloaded from the web, to explain as to what is the cogeneration system and it was argued that that cogeneration systems consist of a number of individual components- 'prime mover (heat engine), generator, heat recovery and electrical interconnection configured into an integrated whole'. He argued that the phrase 'cogeneration system' includes within its fold all the individual components of the system which are interconnected. g) He referred to pages 72, 79 and 81 to drive home the point that configuration of entire cogeneration system is of utmost importance in ensuring the optimum efficiency of the cogeneration system. h) He referred to flow chart at page Nos.141 and 142 of the Paper Book to demonstrate the interconnectivity. He relied on the following cas....
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.... was factually in error in stating that the relevant documents were not submitted. He submitted that all the documents are on record and copy of the same was placed at page 117 of PB. On the findings of the ld CIT(A) that the claim is not admissible, as the assessee has enduring benefit, he argued that the arguments advanced for allowing the expenditure in the case of sub-station power lines should be adopted for the same. 10. On the other hand, ld D.R. Shri K.V.N.Charya controverted the arguments of the ld counsel for the assessee and submitted that there is no quarrel with the proposition that the cogeneration system is per se eligible for higher depreciation as per the Income tax Rules. The dispute, as per the ld DR, is as to whether a particular item of equipment forms part of cogeneration system as claimed by the assessee. He argued that the assessee sought to include all sundry equipments which are not even remotely connected with cogeneration system. He submitted that perusal of the assessment order and the order of the ld CIT(A) demonstrates that each equipment can perform cogeneration without any connectivity to the other equipment as claimed by the assessee. 10.1 He....
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....ation system. He submitted that the coal handling system cannot be considered as required as an integral part of boiler and also submitted that the Hon'ble M.P. High Court in the case of Vippy Solvex Products Limited (supra) did not correctly appreciate the proposition laid down by the Hon'ble Kerala High Court in the case of Cochin Refineries Limited (supra). He drew the attention of the Bench to the observation of the ld CIT(A) at para 7.19 to 7.23. 10.7 On the alternate claim of the assessee that the cost of sub-station tower line which stood handed over to APTRANSCO as per the terms and conditions on turnkey basis, ld D.R. relied on the order of the ld CIT(A). He submitted that the assessee on one hand claimed depreciation on the items and on the other hand submitting that this was a mistake and in fact the sub-station tower line, etc were handed over to APTRANSCO and the ownership is not with the assessee and thus, the expenditure should be allowed as revenue expenditure. He submits that this is a contradictory claim. Though not leaving his ground, he agreed that the claim is purely legal claim but submitted that verification of facts is required. Ld D.R. countered the clai....
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.... in the case of BSES Yamuna Powers Limited (supra) dealing with peripherals of a computer. 11.4 On issue of higher rate of depreciation in the case of steam piping, coal & gas feeding system, coal handling system, RCC chimney and bagassee Drier, ld counsel submitted that the observations of the ld CIT(A) at para 7.24 and 7.31 at pages 42 and 43 support the case of the assessee. The ld CIT(A) held that these items 'may be a part of the power plant or even boiler but they do not form part of integral part of cogeneration system.' Since, boiler is entitled for higher depreciation, all these peripheral items of the boiler shall also be entitled for higher depreciation. 11.5 He reiterated that the coal and gas feeding system and coal handling system is an integral part of boiler and hence, eligible for depreciation at a higher rate. Ld counsel further argued that the items DC drives also falls within one of the specified categories of 'Energy Saving Devices' and therefore even on a stand alone basis, depreciation at a higher rate is eligible for these DC drives. He pointed out that the ld CIT(A) has remained silent on the matter. 12. Rival contention heard. On a careful conside....
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....iii) Sub-station tower line 17. There is no dispute on the allowability of 12.65 KVA turbine for higher rate of depreciation. The dispute relates to other items only. 18. Before we consider each item separately, we extract following New Appendix-I of IT Rules, 1962 effective from assessment year 2006-07 onwards: PART A : TANGIBLE ASSETS ..................................... (III) Plant and machinery: ................................................. (8)(ix) Energy saving devices, being - A: Specialised boilers and furnaces ............................................. (d) High efficiency boilers - (thermal efficiency higher than 75% in case of coal fired and 80% in case of oil/gas fired boilers) .................................. D) Cogeneration systems: (a) Back pressure pass out, controlled extraction, extraction cum condensing turbines for co-generation along with pressure boilers. ................................................. Before going further, we would consider the legal position on the issue. 19. In the case of South Madras Electric Supply Corporation Li....
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....nery, etc. The AAC, on appeal, allowed depreciation and development rebate at the higher rate in respect of certain items, but allowed only lower rates in respect of other items. On further appeal by the assessee, the Tribunal allowed the higher rate of depreciation and development rebate for all the items. In our view, the Tribunal was right in doing so, for by the very nature of the assets in question, we have no doubt that they form part of the refinery plant and are as such entitled to these allowances at the higher rate. Accordingly, we answer question No.3 in the affirmative, that is, in favour of the assessee and against the revenue." 21.1 The proposition laid down is that the higher rate of depreciation should be allowed even on some of the peripheral items when these assets form part of the 'refinery plant' which is eligible for higher rate of depreciation. 22. In the case of DCIT vs. Vippy Solvex Products Limited (supra), the Hon'ble M.P. High Court was considering the case of 100% depreciation on high efficiency boiler. The automatic coal supply system consisting of coal container, coal conveyer, bucket elevator and dust collecting system were considered as integra....
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....arnataka High Court in the case of Amco Batteries Ltd., 91993) 203 ITR 614 (Karn) and held that the term 'exclusively' was perhaps implied in the order. The fact of the case at hand is different from the case of TTG Industries ltd (supra), wherein, the case of cogeneration system was not considered. Thus, the propositions laid down in this case law do not apply to the facts of the case. 26. Reliance was placed on the decision of Hon'ble Delhi High Court in the case of CIT vs. H.B. Leasing & Finance ltd., 360 ITR 362 (Del). This is a case where the Hon'ble Court held that a tanker or a gas cylinder attached to the body of a truck continued to be a gas cylinder and was, accordingly, entitled to depreciation @ 100%. The arguments of the revenue that parts cannot be segregated for the purpose of claiming depreciation at the different rates on different parts was rejected. In the case at hand the term is used 'system'. Hence, even separate part, which constitutes 'system' are eligible to higher depreciation. This case relied upon by the revenue is of no avail. 27. In the case of Kerala Sponge Iron ltd vs ACIT, 32 ITR (Trib) 0718, relied upon by ld D.R., the Bench was considering t....
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....ave to necessarily hold that steam piping cannot be used independently or standalone basis. It is an integral part of cogeneration system, hence, eligible for higher depreciation. 32. Coming to the coal & gas feeding system and coal handling system, we apply the decision of Hon'ble M.P. High Court in the case of Vippy Solvex Products Ltd (supra) and come to our conclusion that this is an integral part of high efficiency boiler. The very description of nature of the equipment demonstrates that it cannot be independently used and has to be used along with the boiler. Thus, we direct the AO to treat the coal & gas feeding system and coal handling system as integrated part of cogeneration system and allow higher depreciation on the same. 33. With regard expenditure on Sub-station power line, we cannot agree with the contention of the appellant that expenditure incurred on sub-station power line is also part of the cogeneration system. This expenditure is necessary for onward distribution of the power generated in a cogeneration system and hence cannot be considered as an integral part of the cogeneration system. 34. We now consider the additional ground raised by the assessee ....