Akash Ceramics Pvt. Ltd., , Ahmedabad vs Assessee

सुनवाई क तार ख/ Date of Hea ring : 02 /01/201 5 घोषणा क तार ख /Date of P ronouncement: 9/01/2015

आदेश /O R D E R

PER MUKUL KUMAR SHRAWAT, JUDICIAL MEMBER

This is an Appeal filed by the Assessee arising from the order of the learned CIT-I, Ahmedabad passed u/s.263 of IT Act dated 25.02.2014. As per the grounds of Appeal the Appellant has challenged the impugned order passed u/s.263 and pleaded to quash the same. The main reason for invocation of the provisions of Section 263 of IT Act were pertaining to the grant of additional depreciation u/s.32(1)(iia) on account of reason that the assessee has not produced any article or thing to satisfy the condition as prescribed in the said section.

ITA No.943/Ahd/2014 Akash Ceramics Pvt. Ltd. Vs. CIT-I, Ahmedabad For A.Y. 2009-10 -2-

2. Facts in brief were that the assessee is running a Wind Mill and claimed an additional depreciation of Rs.89,94,404/-, however learned Commissioner was of the view that the conditions as prescribed u/s.32(1)(iia) were not fulfilled by the assessee for claim of additional depreciation. The Assessee has raised the following arguments before learned Commissioner, relevant portion reproduced:

"It is stated that the assessee had already made submissions on this issue during assessment proceedings and there is no error on the part of the AO in granting additional depreciation. The assessee has relied on several judicial pronouncements and more particularly on the decision of Supreme Court in the case of Malabar Industrial Co. Ltd., 243 ITR 83 whereby it was held that when two views are possible and the AO has taken one view with which the CIT does not agree, such order cannot be treated as erroneous order prejudicial to the interest of revenue unless the view taken by the AO is unsustainable in law. The AR has also relied on similar observation by Gujarat High Court in the cases of Arvind Jewellers (259 ITR 502) and R.K. Construction (313 ITR 65). The AR has also relied on ITAT decisions whereby reliance was placed on Supreme Court judgment in the case of Malabar Industrial Co. i.e. when two views are possible on an issue then such order cannot be regarded as erroneous.

On merits the assessee has contended that the claim of additional depreciation is as per the provisions of section 32(1)(iia) applicable for AY 2009-10. The wind farm is meant for captive consumption of power. The electricity generated through the new windmill is sold to Uttar Gujarat Vij Co. Ltd. The assessee is engaged in the manufacturing of glazed tiles and generation of power both of which have been treated as business. The assessee has further contended that it was eligible for additional depreciation on Wind Mill as per provisions of section 32(1)(iia) read with Rule 5(1A). It is submitted that the assessee has exercised the option available i.e to claim depreciation u/s. 32(1)(iia) instead of 32(1)(i). The assessee has also relied on several judicial pronouncements and more particularly on Madras High Court judgment in the case of Hi Tech Arai Ltd. (321 ITR 477) and VTM Ltd. (319 ITR 336) and ITAT Ahmedabad decision in the case of Diamines & Chemicals Ltd. (ITA No.409/Ahd/2013 dated 16.04.2013).

3. The facts of the case are that the assessee is a private company engaged in the business of manufacturing ceramic tiles. The original return of income was filed on 29-09-2009 declaring total income of Rs.3.20 Crores. Assessment order u/s.143(3) was passed on 15-12-20011 whereby the assessed income was Rs.3.35 Crores after making a disallowance of Rs.1.09 lacs u/s.40(a)(ia) and Rs.3.19 lacs towards trading loss."

ITA No.943/Ahd/2014 Akash Ceramics Pvt. Ltd. Vs. CIT-I, Ahmedabad For A.Y. 2009-10 -3-

2.1 However, learned Commissioner was not convinced and according to him the AO has not discussed in the assessment order the issue of additional depreciation and simply accepted the claim without making any inquiry. He has; therefore; mentioned that the AO being a quasi- judicial authority should have discussed the issue. Since, the claim of additional depreciation was allowed without discussing the merits hence the impugned assessment order was an erroneous order insofar as prejudicial to the interest of the Revenue. On merits, learned Commissioner has held that the production of electricity by the Wind Mill could not be considered as a physical article or thing produced by the assessee. The reasoning given by learned Commissioner was as under:

"6. Coming to the arguments on merits, it is evident that the assessee does not fully satisfy the conditions laid down in section 32(1)(iia) for claiming additional depreciation on Wind Mill since the Wind Mill does not produce any article or thing. The AR has simply stated that the assessee engaged in the generation and distribution of power on account of Wind Mill for captive consumption is eligible for additional depreciation. The assessee has also stated that the power generated from the Wind Mill is transmitted to Uttar Gujarat Vij Co. Ltd. The contention of the assessee are not acceptable since section 32(l)(iia) for claiming additional depreciation for A.Y.2009-10 requires the assessee to manufacture/produce any article or thing out of the machinery on which additional depreciation has been claimed. This section has been amended by Finance Act, 2012 w.e.f. 01-04-2013 to include the business of generation or generation and distribution of power. Such business has been specifically included in section 32(l)(iia) w.e.f. 01-04-2013 only. For A.Y.2009-10, the assessee should manufacture/produce any article or thing as envisaged u/s. 2(29BA). As per this section, manufacture means a change in a non living physical object or article or thing resulting in a new distinct object or article or thing. In this case, the electricity produced by the Wind Mill cannot be considered as a physical object/article/thing by any stretch of imagination."

3. Finally, learned Commissioner has held that the AO had erred in allowing additional depreciation on Wind Mill, therefore, the order of the AO was erroneous which was cancelled and the AO was directed to pass ITA No.943/Ahd/2014 Akash Ceramics Pvt. Ltd. Vs. CIT-I, Ahmedabad For A.Y. 2009-10 -4-

afresh assessment order. Being aggrieved, now the assessee has challenged the said order of the Commissioner passed u/s.263 of IT Act.

4. At the outset, learned AR, Mrs. Urvashi Shodan appeared and informed that the complete details were produced before the AO in compliance of a notice u/s.142(1) of IT Act. Learned AR has also mentioned that in the following orders it was held that the Wind Mill is entitled for the claim of additional depreciation:

:1. Diamines & Chemicals Ltd., 42 taxmann.com 193

2. Diamines & Chemicals Ltd., (ITA No.409/Ahd/2013)

3. Amol Dicalite Ltd. (ITA 795/Ahd/2014)

5. From the side of the Revenue, learned CIT-DR, Mr. Vimalendu Verma has supported the action of learned Commissioner and argued that the order passed u/s. 263 deserves to be approved.

6. We have heard both the sides at some length and carefully perused the orders of the authorities below in the light of the compilations filed. At the outset, it is worth to mention that in compliance of a questionnaire issued along with a notice u/s.142(1) dated 16.08.2011 the assessee has placed on record the details of the Wind Mill project and the reason for claim of additional depreciation. In respect of additional depreciation the assessee has furnished the calculation as per Annexure-F of IT Act. So the argument before us appears to be correct that the requisite details and the reason for claim of additional depreciation were duly placed before the AO and after considering all those submissions the AO had allowed the claim, although it was not discussed in the assessment order. Be that as it was, the latest position is that in an identical situation when the provisions of Section 263 were invoked in the case of Amol Dicalite ITA No.943/Ahd/2014 Akash Ceramics Pvt. Ltd. Vs. CIT-I, Ahmedabad For A.Y. 2009-10 -5-

Ltd., the Respected ITAT 'A' Bench Ahmedabad in ITA No.795/Ahd/2014 (A.Y. 2009-10) vide order dated 25.11.2014 has held as under:

"4. We have considered rival submissions and perused the orders of the AO and the CIT and also various decisions relied upon by the parties. We find that the issue of grant of additional depreciation under section 32(l)(iia) of the Act on wind mill is covered in favour of the assessee with the decision of the Hon'ble jurisdictional High Court in Diamines & Chemicals Ltd.(supra), which has followed the decision of the Hon'ble Madras High Court in VTM Ltd. (supra). The issue being covered in favour of the assessee, and the assessee being entitled for additional depreciation on wind mill, we hold that the order of the assessment could not be said to be erroneous and prejudicial to the interest of the Revenue, and accordingly, the order passed under section 263 of the Act could not be sustained, and is cancelled."

7. Since on identical facts, the Respected Co-ordinate Bench has taken a view that the grant of additional depreciation in respect of Wind Mill is an issue covered in favour of the assessee vide an order of Jurisdictional High Court pronounced in the case of Diamines and Chemicals, 42 taxmann.com 193 (Gujarat), therefore respectfully following these decisions we hereby quash the impugned order of learned Commissioner passed u/s.263 dated 25.02.2014. Resultantly, the ground of the Appeal is allowed.

8. In the result, the Appeal of the Assessee is allowed.

Sd/- Sd/- (ANIL CHATURVEDI) (MUKUL Kr. SHRAWAT) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 09/01/2015 Prabhat Kr. Kesarwani, Sr. P.S. आदेश क त ल प अ े षत/Copy of the Order forwarded to : 1. अपीलाथ / The Appellant 2. यथ / The Respondent. ITA No.943/Ahd/2014 Akash Ceramics Pvt. Ltd. Vs. CIT-I, Ahmedabad For A.Y. 2009-10 -6-

3. संबं धत आयकर आयु त / Concerned CIT 4. आयकर आयु त(अपील) / The CIT(A)-III, Ahmedabad

5. वभागीय त न ध, आयकर अपील य अ धकरण, अहमदाबाद / DR, ITAT, Ahmedabad

6. गाड फाईल / Guard file.

आदेशानुस ार / BY ORDER,

उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील य अ धकरण, अहमदाबाद / ITAT, Ahmedabad