TaxTMI 
TaxTMI 
TaxTMI 
2014 (12) TMI 1310
X X X X Extracts X X X X
X X X X Extracts X X X X
....: 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 157 ITR 683(Del.) (relied upon by the Commissioner of Income Tax (Appeals) and of the hon....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... (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-station tower line costing Rs. 10,77,37,223. Ground No.5: Appellant submits that the Commissioner of Income Tax (Appeals) is not justified in upholding the action of the Assessing Officer, in considering an amount of Rs. 11,25,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n 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 case laws: i) Andhra Organics vs ACIT (2014) 40 CCH 038 (Hyd)(Trib) ii) CIT vs. South Madras Electric Supply Corporation Ltd.(1966) 60 ITR 491 (Mad) iii) CIT vs. BSES Yamuna Powers Limited (2013) 358 ITR 47 (Del) iv) CIT vs. Cochin Refineries Limited (1988) 173 ITR 461 (Ker) v) DCIT vs. Vippysolvex Prod....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 submitted that the boiler was installed during the financial year 2006-07 and higher depreciation was claimed on it as energy saving device and the department has allowed the same. He argued that this fact demonstrates that the boiler can be stand alone device and part of it does not require RCC chimney, Bagasse drier, D.C. Drier, Steam Piping, Turbine, coal & gas feeding system, coal hand....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e 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 claim of the assessee equipment wise and supported the order of the AO. 10.8 On the development charges, ld D.R. supported the orders of the authorities below and argued that there is an enduring benefit to the assessee and hence, the claim was rightly rejected by the AO as well as the ld CIT(A). 11. In his rejoinder, the ld counsel for the assessee submitted that in the case of IDC of Orissa Ltd., (supr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ms '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 consideration of the facts and circumstances of the case and on perusal of the papers on record and orders of the authorities below as well as case laws cited, we hold as follows: 13. Ground No.1 is general in nature and does not require separate adjudication. 14. Ground Nos.2 & 3 are not pressed without prejudice to the rights of the appellant to take these grounds and arguments at a future date. Thus both these grounds a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng 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 Limited (supra), the Hon'ble Madras High Court has held that higher rate of depreciation to an electric supply corporation would include within its scope depreciation of service connection and parts including overhead cables and wires. At para-4, it is held that "in our opinion on that account, it cannot be said that electrical machinery in Cl. E should be read as excluding from its scope overhead cables and wires. The use of the expression "electric plant, machinery, boilers" in Cl. E appears to have been made in a comprehensive sense so as to include parts of the plant....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s, 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 integral part of high efficiency boiler and 100% depreciation was directed to be allowed. The Hon'ble Court noted the observations of the Tribunal that the boiler will not function in the absence of coal supply system and hence, coal supply system was part and parcel of the boiler and held that the entire coal handling system is entitled to 100% depreciation. The ld CIT(A) disputed these findings of the Hon'ble M.P. High Court. We do not find much substance in the observations of the ld CIT(A) and hence we do not approve the same. 23. In the case of Andhra Organics vs Addl. CIT, 40 CCH 038(Hyd)(Tri....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 the claim of the assessee for higher depreciation on the ground that certain equipments are 'pollution control equipment'. On facts, the Tribunal came to a conclusion that certain assets like air pollution control equipment and water pollution control equipment, etc do not qualify as pollution control equipment. This is a factual issue and has no relevance to the case at hand. 28. In the light of the above legal position, we now consider the contention of the assessee that the higher efficiency boiler and 12.65 KVA turbine have to be considered together along with other equipments necessary for generat....
X X X X Extracts X X X X
X X X X Extracts X X X X
....as 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 on the issue of expenditure incurred on sub-station power line, which was ultimately handed over to APTRANSCO. Both the parties agreed that this is legal claim and that the facts are on record. Under these circumstances, we hold that the ld CIT(A) should have admitted this additional ground of the assessee and adjudicated the same following the decision of Hon'ble Supreme Court in the case of NTPC Ltd., (supra). 35. Coming to allowability of this claim, the Hon'ble Rajasthan High Court in the case of CIT vs. Hindustan Zinc Ltd., (2009) 221 CTR (Raj) 637 considered the following question No.2 and answer as follows: ....