Rathi Super Steel Ltd., Delhi vs Assessee

This appeal by the assessee is directed against the order passed by

the CIT(A) on 20.09.2012 in relation to the assessment year 2009-10. ITA No.5858/Del/2012

2. The only issue raised in this appeal is against not allowing

depreciation on Energy saving furnace at higher rate.

3. Briefly stated, the facts of the case are that the assessee claimed to

have installed a Reheating Furnace during the year and capitalized a sum

of Rs.14,51,02,418/- on that score. Depreciation @ 80% was claimed by

treating it as Energy saving device. During the course of assessment

proceedings, the AO, with some mathematical exercise, observed that

there was no decline in the consumption of fuel and power by virtue of

the installation of the said Reheating furnace. On being called upon to

explain the reasons as to why depreciation on this capital asset should

not be allowed at normal rate instead of a higher rate, the assessee

reiterated that the Reheating furnace works as an energy saving device

and, hence, eligible for depreciation at a higher rate. Rejecting the

assessee's contention, the AO disallowed depreciation claimed @ 40%

of this asset to the tune of Rs.7.23 crore and allowed @ 15% amounting

to Rs.2.71 crore, which resulted into disallowance in the claim for

depreciation to the extent of Rs.4.52 crore. The assessee contended

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before the ld. CIT(A) that the asset installed was a new Reheating

furnace which was commissioned somewhere in the month of

February/March, 2009 and, hence, the deduction on account of

depreciation allowance ought to have been allowed at higher rate. The

ld. CIT(A) observed that there was no evidence to substantiate the

assessee's claim about the new asset falling in the category of 'Energy

saving device.' He, therefore, rejected the assessee's contention. Apart

from that, he also directed the AO to make rectification by allowing

depreciation @ 7.5% instead of 15% allowed in the assessment order

because the machinery was in use for less than 180 days.

4. We have heard the rival submissions and perused the relevant

material on record. The only dispute is about the rate at which

depreciation should be allowed on the new asset. New Appendix-I to the

Income-tax Rules, effective from assessment year 2006-07 onwards, is a

Table of rates at which depreciation is admissible. Item III of this Table

is 'Machinery and Plant' providing for general rate of depreciation @

15%. Item (8) under the broader head 'III. Machinery and Plant' has

3 ITA No.5858/Del/2012

thirteen clauses. Clause (ix) is 'Energy saving devices.' Item A under

this clause is 'Specialised boilers and furnaces' with sub-item (b) as

'Flameless furnaces and continuous pusher type furnaces' with the

admissible depreciation rate of 80%. The case of the assessee is that a

sum of Rs.14.51 crore incurred during this year is in respect of

'Continuous pusher type furnaces'.

5. We find from the assessment order that the claim of the assessee

has been rejected by the AO on the premise that there was no reduction

in the consumption of fuel and power with the installation of this

machinery. Au contraire, it can be seen from the impugned order that

the assessee categorically stated that the Reheating furnace was

commissioned in February/March 2009 and, as such, half of the eligible

depreciation rate should be allowed at 40%. In our considered opinion,

the reduction in consumption of fuel and power would be palpable only

from the succeeding year with the regular use of Reheating furnace for

the full year. Be that as it may, what is relevant for allowing

depreciation at the higher rate in the extant circumstances is that the

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asset should be in the nature of `Energy saving device', being

'Continuous pusher type furnace.' The fact as to whether there has

been, in fact, reduction in consumption of fuel and power is secondary

and not conclusive in the determination of the nature of the asset, being

an energy saving device. Under such circumstances, the impugned order

cannot be upheld.

6. There is nothing decisive in the assessment or the impugned order

to demonstrate that the asset in question is, in fact, an energy saving

device, which is a pre-requisite condition for claiming depreciation at a

higher rate. On a specific query, the ld. AR could not furnish the detail

of total amount of Rs.14.51 crore and odd claimed to have been incurred

on Reheating furnace. In our considered opinion, the ends of justice

would meet adequately if the impugned order is set aside and the matter

is restored to the file of AO. We order accordingly and direct the AO to

verify the details of the total sum capitalized at Rs.14.51 crore with a

view to ascertain if the entire amount capitalized is towards Reheating

furnace as claimed by the assessee. Once this detail is checked up, then

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the onus would be on the assessee to adduce some technical expert's

opinion etc. divulging the true nature of the asset produced, being a

Reheating furnace or otherwise. The AO, if not satisfied with the

expert's report furnished by the assessee, may also seek an expert

opinion at his own end. If the assessee's contention is found to be

correct that the capital asset is nothing but an energy saving device, then

depreciation should be allowed at the higher rate. The mere fact that the

consumption of fuel and power has not witnessed a declining trend in

that year, cannot be a criteria to judge the allowability or otherwise of

depreciation at higher rate.

7. In the result, the appeal is allowed for statistical purposes.

The order pronounced in the open court on 25.03.2015.

Sd/- Sd/- [A.T. VARKEY] [R.S. SYAL] JUDICIAL MEMBER ACCOUNTANT MEMBER

Dated, 25th March, 2015. dk

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Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT (A) 5. DR, ITAT

AR, ITAT, NEW DELHI.

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