Charotar Gas Sahakari Mandali Ltd., ... vs Assessee

I.T.A. No.: 2916/Ahd/2010 Assessment year 2007-08:

Page 1 of 6

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD ''D'' BENCH, AHMEDABAD

[Coram: Pramod Kumar AM and Rajpal Yadav JM]

I.T.A. No.: 2916/Ahd/2010 Assessment year: 2007-08

Charotar Gas Sahakari Mandali Ltd., ..........................Appellant New Address : Gas House, 11, GIDC Janta Crossing, Nr. CNG Station, Anand Sojitra Road, Vitthal Udyognagar, Anand-388 121 PAN AAATC 1831 F

Vs.

Dy. Commissioner of Income-tax, .... ................Respondent Anand Circle, Anand

Appearances by:

Arti N. Shah -for the appellant J. P. Jangid -for the respondent

Date of concluding the hearing: July 7, 2015 Date of pronouncing the order: July 10, 2015

O R D E R

Per Pramod Kumar, AM :

By way of this appeal, the assessee appellant has challenged correctness of the order dated 10 th August, 2010, passed by the CIT(A) in the matter of assessment under section 143(3) of the Income-tax Act, 1961 for the assessment year 2007-08.

2. In the first ground of appeal, the assessee has raised the following grievance :-

I.T.A. No.: 2916/Ahd/2010 Assessment year 2007-08:

Page 2 of 6 1. The ld. Commissioner of Income-tax (Appeals)VI, Baroda has erred in law and on facts of the case by confirming the disallowance of depreciation of Rs.26,97,661/- on Balvla-Bakrol Pipeline.

3. So far as this grievance of the assessee is concerned, the relevant material facts of the case are as follows. The assessee is engaged in the business of purchase of natural gas and supplying it to domestic and industrial consumers at their doorstep. During the course of the assessment proceedings, the Assessing Officer noticed that while the assessee has claimed depreciation on it's main pipeline, i.e. Bavla -Bakrol pipeline, the said pipeline was not actually used for the purpose of distribution of gas. When Assessing Officer required the assessee to show cause as to why depreciation on this pipeline not be disallowed, it was explained by the assessee that this pipeline was not used due to operational reasons, i.e. low gas pressure and use of alternate mode, the said pipeline was very much available for business purpose. On these facts, the Assessing Officer obtained directions of the Additional Commissioner of Income-tax under section 144A of the Act. These directions were as follows :-

''The assessee has submitted that the depreciation on plnt and machinery on pipeline from Bavla to Bakrol of worth Rs.1,79,85,075/- @ 15% amounting to Rs.26,97,661/- has been claimed. The installation work of the said pipeline having length of 65 km. Was completed and put to use from 24/6/2001. During the year, the assessee did not acquire gas through the said installation from Bavla due to temporary non- functioning on account of low pressure of gas. The gas will be acquired upon availability of sufficient pressure from Bavla and the said pipeline is fully alive and maintained. The assessee has further relied on the decision of Karnataka High Court in case of CVIT vs. Shri Chamunderswari Sugar Ltd. (2009) 223 CTR (Kar) 423.

7. The facts in the case of the assessee and the judgment of Karnataka High Court relied upon by the assessee, was examined and it is found that the said decision is distinguishable on facts. In the case of Chamundeshwari Sugar Limited the plant and machinery installed could not effectively function as the machinery was found defective during trial run. In the instant case the facts are different. The said pipeline was put to use in the earlier years. However, in the year under consideration it was not used at all. In order to ascertain as to whether the said pipeline was used in the subsequent years the question was asked to the I.T.A. No.: 2916/Ahd/2010 Assessment year 2007-08:

Page 3 of 6 Authorised Representative during the course of hearing who explained that the said pipeline has not been used after discontinuing the same in the year 2006-07.

8. Therefore, this is a case where the plant and machinery was not used at all for the purpose of business. There are decisions where it has been held that if the plant and machinery was not actually used the depreciation should not be allowed. Some of such decisions are as under :-

(i) Under section 32 of Income-tax Act depreciation is permissible in the case of machinery, plant or furniture owned by the assessee and used for the purpose of business or profession, when the legislature has used the word ''úsed'' full meaning must be given to it, the machinery has to be actually used in terms of statute.

The machinery was kept ready for use. However, there was no evidence of actual use. It was held that the assessee was not entitled for depreciation [DCIT vs. Yellamma Dasappa Hospital 290 ITR 353 (Kar)]

(ii) Asset was ready for use but not actually used. Depreciation cannot be claimed. The word ''used'' in s.32 denotes that the asset has been actually used and not that it is merely ready for use. [Dineshkumar Gulabchand Agrawal v. CIT 267 ITR 768 (Bom)]

SLP: The Supreme Court has dismissed the special leave petition filed by the assessee against this judgment (2204) 266 ITR (St) 106.

(iii) No depreciation is allowable if the assets are not used at all for the purpose of the business of the assessee in the relevant previous years [CIT v. Oriental Coal Co. Ltd. 206 ITR 683 (Cal)]

4. Accordingly, depreciation of Rs.26,97,761/- was disallowed. Aggrieved, assessee carried the matter in appeal before the CIT(A) but without any success. Rejecting the grievance of the assessee, CIT(A) observed as follows :-

''2.2 I have carefully considered the facts of the case and appellant's submissions. Even after the introduction of block of assets concept, as per section 32, depreciation is admissible in respect of any asset falling in the block of assets, only if the asset concerned is ''used for the purpose of business''. This contention of the appellant is therefore, not tenable. The Bavla Bakrol gas pipeline was not put to use during the previous year and any time thereafter. High Court of I.T.A. No.: 2916/Ahd/2010 Assessment year 2007-08:

Page 4 of 6 Karnataka in the case of Yellamma Dasappa Hospital (2007) 290 ITR 353 (Karnataka) and High Court of Bombay in the case of Dineshkumar Gulabchand Agarwal (2004) 267 ITR 768 have held that for the purpose of depreciation machinery has to be actually used in terms of statute and machineries kept ready for use are not eligible for depreciation. Depreciation on Bavla Bakrol pipeline is therefore, not admissible. Even other-wise, there is nothing on record to indicate that the pipeline was even kept ready for use or it was a case of temporary non functioning. The decision in the case of Shri Chamundeshwari Sugar Ltd. Relied upon by the appellant is distinguishable where the machinery became defective during the trial run itself and was temporarily out of use. Disallowance of depreciation of Rs.26,97,661/- on Bavla Bakrol pipeline is upheld.''

5. The assessee is not satisfied and is in further appeal before us.

6. We have heard the rival contentions, perused the material on record and duly considered factual matrix of the case in the light of the applicable legal position.

7. We find that this is not in dispute that the Bavla-Bakrol gas pipeline was used in earlier years, and that the reasons for its not being put into actual use was due to low gas pressure and other operational factors. The gas pipeline did exist and was available. As regards learned CIT(A)'s reliance on Hon'ble Bombay High Court's judgment in the case of Dineshkumar Gulab Chandra Agarwal vs. CIT [(2004) 267 ITR 768 (Bom)] and on Hon'ble Karnataka High Court's judgment in the case of DCIT vs. Yellamma Dasappa Hospital [(2007) 290 ITR 353 (Kar), suffice to say that the interpretation so given by Hon'ble non-jurisdictional High Court is diametrically opposed to the law laid down by Hon'ble Delhi High Court in the case of [(1980) 123 ITR 404 (Del)] Capital Bus Service (P) Ltd. Vs. CIT wherein it is held that even when machinery is kept ready for use in the business but could not be used for the reasons beyond assessee's control, depreciation is nonetheless is admissible. We are not aware of any direct decision on the issue by Hon'ble jurisdictional High Court. Accordingly, adopting one of the possible views in favour of the assessee, we uphold the grievance of the assessee and direct I.T.A. No.: 2916/Ahd/2010 Assessment year 2007-08:

Page 5 of 6 the Assessing Officer to delete the impugned disallowance. The assessee gets the relief accordingly.

8. Ground No.1 is thus allowed.

9. In ground no.2, the assessee has raised the following grievance :-

2. The learned Commissioner of Income-tax (Appeals)VI, Baroda has erred in law and on facts of the case by confirming the disallowance of Rs.1,11,96,029/- u/s 43B(e).

10. As regards this disallowance, it was made by the Assessing Officer on the short ground that the interest was debited, though not actually paid, and the interest was payable to an institution which was a scheduled bank at the point of time when loan was received though admittedly it was not a scheduled bank at present. The Assessing Officer was of the view that it is not necessary that the recipient of interest should also be a scheduled bank at the point of time when interest is claimed as deduction, and that it's being a scheduled bank at the point of time when loan was given, would suffice. Aggrieved, assessee carried the matter in appeal but without any success. The assessee is not satisfied and is in further appeal before us.

11. We have heard the rival contentions, perused the material on record and duly considered factual matrix of the case in the light of the applicable legal position.

12. We find that it is not even in dispute that the lender is not a scheduled bank any longer. The interest on such a loan cannot, therefore, be treated as interest on loan from a scheduled bank. In this view of the matter and the light of the limited scope of disallowance under section 43B(e), we direct the Assessing Officer to delete this disallowance of Rs.1,11,96,029/- as well.

I.T.A. No.: 2916/Ahd/2010 Assessment year 2007-08:

Page 6 of 6 13. Ground No.2 is thus allowed.

14. In the result, the appeal is allowed. Pronounced in the open court today on 10 th day of July, 2015.

Sd/- Sd/- Rajpal Yadav Pramod Kumar (Judicial Member) (Accountant Member)

Ahmedabad, the 10 th day of July, 2015

Copies to: (1) The appellant (2) The respondent (3) Commissioner (4) CIT(A) (5) Departmental Representative (6) Guard File By order etc

Assistant Registrar Income Tax Appellate Tribunal Ahmedabad benches, Ahmedabad