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Income Tax Appellate Tribunal, “A” BENCH, AHMEDABAD
Before: SHRI RAJPAL YADAV, VICE- & SHRI AMARJIT SINH
PER RAJPAL YADAV, VICE-PRESIDENT:
Revenue is in appeal before the Tribunal against order of the ld.CIT(A)-1, Ahmedabad passed for the Asstt.Year 2006-07.
Revenue has taken two grounds of appeal, but its grievance revolves around a single issue whereby it has pleaded that the ld.CIT(A) has erred in deleting disallowance of Rs.4,54,45,709/- which was disallowed by the AO out of excess claim of depreciation on boilers.
Brief facts of the case are that the assessee company at the relevant time engaged in manufacturing and trading in yarn, fabrics and garment. It has filed its return of income on 27.12.2006 declaring
ITA No.1478/Ahd/2018 total income at Rs.2,92,30,230/-. The assessee has revised this return on 4.1.2008 whereby it has claimed depreciation on plant & machinery at 80% instead of 15% originally claimed. Cognizance of this revised return was not taken by the AO. He has passed assessment order on 30.12.2008 determining taxable income at Rs.3,14,59,505/-. The assessee went before the ld.first appellate authority, who took cognizance of the revised return and held that the AO ought to have decided the issue of depreciation after taking into consideration revised return filed by the assessee. Ultimately, matter came up before the Tribunal, who remitted the matter back to the file of AO with direction to re-adjudicate the issue with regard to the claim of depreciation after taking into consideration revised return filed by the assessee. In pursuance of the ITAT’s order, the ld.AO has re-adjudicated the issue and decided excess claim of depreciation. The discussion made by the AO read as under: “Depreciation on boiler As per the directions of the Hon'ble IT AT, as stated above, the assessee vide letter dated 04/06/2015 was requested to furnish evidence and explanation for claiming depreciation at 80% on boilers made in the revised return of income. In response thereto, the assessee vide letter dated furnished evidence in respect of filing of the revised return of income alongwith the claim of depreciation at 80% on boilers. However, the assessee failed to furnish any explanation and justification for claiming depreciation at 80% on boilers. A perusal of the claim of depreciation made by the assessee in the revised return of income dated 04/01/2008, it is seen that the assessee has claimed depreciation at 80% on CVL boiler, stem turbine amounting to Rs.6,71,83,690/-. As per Sr. No. 8(A)(d) of New Appendix-1 of Income-tax Rules, 1962, the depreciation at 80% is allowable to boiler having high efficiency boilers [thermal efficiency higher than 75 per cent in case of coal fired and 80 per cent in case of oil/gas fired boilers]. The assessee failed to furnish any evidence to prove that the boilers on which 80% depreciation claimed is of high efficiency boilers inspite of ample opportunities afforded during 2
ITA No.1478/Ahd/2018 the course of set-aside assessment proceedings. When a claim for higher depreciation is made, the assessee has to prove that such plant & machinery, in fact, fall within the ambit of Rule-5(l) read with New Appendix-1 of 1. T. Rules. During the course of appellate proceedings as well as in the course of set-aside proceedings the assessee could only produce evidence in respect of filing revised return of income where it made the claim of depreciation at 80%. It failed to produce any evidence to prove that boiler on which 80% depreciation claimed in the revised return is, in fact, an high efficiency boiler, the type of boiler whether it is coal fired or others are not mentioned. As such, the claim of the assessee for higher depreciation at 80% on boilers is not allowable and accordingly, the claim of the assessee is rejected. Accordingly, an amount of Rs. 4,54,45,709/- is disallowed after considering: regular depreciation at 15% & 7.5% on boiler, the working of which is given as under;
Dep. on CVL Dep. on CVL Total Dep. @ Dep. @ Total Allowable Disallowan Boiler before Boiler after 80% 40% Dep. @ ce 30/09/2005 30/09/2005 15% & [53438305 7.5% less 7992596] 66412071 771619 67183690 53129657 308648 53438305 7992596 45445709 15% 7.5% Total 7969448 23148 7992596
Dissatisfied with the finding of the AO, the assessee went in appeal before the ld.CIT(A). It appears that instead of filing a formal application for permission to lead additional evidence, as provided in Rule 46A of the Income Tax Rules, 1962, the assessee has filed written submissions which were forwarded to the AO, and after considering the remand report submitted by the AO, the ld.CIT(A) has allowed the claim of the assessee. We deem it appropriate o take note of the relevant finding recorded by the ld.CIT(A):
“3.5. Now coming to the merits of the case I have gone through the submission and the paper book filed by>the appellant, the only dispute in the matter is regarding the rate of claim of depreciation. Appellant has clamed depreciation @ 80% on boiler whereas the AO 3
ITA No.1478/Ahd/2018 has allowed the depreciation @ 15%. AO is not disputing the genuineness of the transaction as he has not disallowed the entire depreciation. The only issue is about the rate of depreciation. I have gone through the copies of bills submitted by the appellant, it can be seen from the bills that the boiler purchased by the appellant is BFBC boiler (bubbling fluidized bed combustion) which according to the appellant is specifically mentioned in the Act that depreciation will be allowed @ 80%. The relevant part of the act is as under:
Energy saving devices, being – A. Specialized boilers and furnaces: (a) Ignifluid/fluidized bed boilers - (b) Flameless furnaces and continuous pusher type furnaces (c) Fluidized bed type heat treatment furnaces (d) High efficiency boilers (thermal efficiency higher than 75 per cent in case of coal fired and per cent in case of oil/gas fired boilers)
The Act is specifically Allowing depreciation @ 80% to fluidized bed boilers which has been purchased by the appellant. The details of the boiler purchased are clearly mentioned in the bill. Further, it can be seen from the details submitted that the claim of depreciation has been allowed by the AO in next years and no disallowance has been made in the coming years. It is also submitted that the boiler is being used for the power plant in which depreciation has been allowed (5) 80% by the department in subsequent years. Further, the AO has made the addition by reading the wrong clause of the depreciation rules. He has made the addition as under:-
"As per Sr. No. 8(A)(d) of New Appenoix-1 of Income-tax Rules, 1962, the depreciation at 80% is allowable to boiler having high efficiency boilers [thermal efficiency higher than 75 per cent in case of coal fired and 80 per cent in case of oil/gas fired boilers]. The assessee failed to furnish any evidence to prove that the boilers on which 80% depreciation claimed is of high efficiency boilers inspite of ample opportunities afforded during the courses of set-aside assessment proceedings."
Whereas, as per the appellant they are in the clause a, fluidized bed boilers and the bill a/so mentions that the boiler purchased is BFBC boiler and is eligible for 80% depreciation.
ITA No.1478/Ahd/2018 3.6. Further, the AQ has stated in the remand report that the Appellant has failed to justify its claim in 11 years, in response appellant submitted all the necessary evidences including the copies of bills as well as engineers certificate in support of its claim, therefore the AO is not correct in stating that appellant has failed to justify its claim as all the necessary details have been duly submitted to the AO. Further, the AO stated that assessee has merely furnished copies of purchase bills, In this response appellant has submitted that to prove the purchases the bills are the most important piece of evidence which have been duly submitted and the AO has not asked for any further documents. I find that the appellant is correct in stating that bills are an important piece of evidence and further to support their contention they have also submitted engineers certificate.
Further, the payments have also been made through banking channel and there is no doubt about the genuineness of the parties horn whom purchases have been done. Most importantly, the genuineness of the purchase was never doubted in the assessment orders passed by the A.O. It was a matter related to the amount of the depreciation to be given which was to be verified and the A.O. in the Remand Report has not concentrated on this aspect and started looking for the genuineness of the purchase which was not the issue to be remanded and reported.
3.7. AO has further stated In the Remand Report that he has issued notice u/s 133(6) to both the parties from whom purchases were done, however no response has been received from them. The appellant submitted that notices have been duly served and as the matter is more than 11 years old therefore it might be possible that these parties have destroyed the records as according to /aw only 6 years details are required to be kept. Appellant also staled the AO should have informed the appellant about non receipt of reply from these parties. In its support appellant also filed the balance sheet and memorandum of these parties from the MCA website to support its claim. I therefore find that the appellant has duty submitted valid reason for non receipt of reply as the matter was 11 years old. Further, there is no issue regarding the genuineness of the parties, therefore whether reply is received or not will not hold much importance in this case as the AO has found the bills to be genuine and no disallowance of complete depreciation has been made. The issue is only with regards to the rate of depreciation. Further, the memorandum of these parties also state that these companies are 5
ITA No.1478/Ahd/2018 existing and are involved in the manufacturing of boilers and related products, therefore the genuineness of the transaction is in no doubt AO has further stated that certificate issued by a charter engineer is dated 24.01.2017 and is certifying the event which has taken place 11 years ago. Appellant has submitted that the certificate was only additional evidence and date of issue of certificate has no relevance. I have gone through the certificate and find that the certificate has no relevance as it has been issued so late. 3.8. After going through the above submissions I am inclined to accept the contention of the appellant that the only dispute is regarding the allowability of rate of depreciation whether @ 80% or@15% as the genuineness of bills has not been doubted by AO and he has allowed depreciation @15% in the original assessment. The bills of addition submitted clearly mentions that it is BFBC boiler on which 80% depreciation is allowable as per the Act. The same boiler is being used in the power plant on which deduction is also being claimed u/s 80/6 and depreciation has also been claimed in next year which has not been disallowed. Further, no disallowance on depreciation on boiler also has been done in next years by the AOs. Also the AO has made the addition under wrong clause as it was BFBC boiler whereas the AO has made the addition stating that it is not a high efficiency boiler. In view of the above facts and the discussion, it is held that the appellant is entitled to the depreciation @ 80% on BFBC boiler installed during the year under appeal. The AO is directed to delete the addition on account of disallowance of depreciation Rs.4,54,45,709/-. The ground of the appeal is allowed.
The ld.DR on the other hand submitted that in the second round of assessment proceedings, the assessee never produced material indicating the fact that plant & machinery on which depreciation has been claimed at the rate of 80% does qualify for such claim. The AO has repeatedly asked the assessee to produce evidence in respect of the filing of the revised return of income, where it has claimed depreciation at the rate of 80%. According to the AO, this rate of depreciation is applicable on high efficiency boilers and the assessee failed to prove that its boiler was of that category. While impugning the order of the ld.CIT(A), the ld.DR further contended that the 6
ITA No.1478/Ahd/2018 ld.CIT(A) has ignored this non-verification of the details under the garb of arguments that 11 years have passed, but these 11 years have not been passed due to the mistake of the AO, rather it is the assessee who failed to collect evidence and submitted before the AO. Certificate of chartered engineer considered by the ld.CIT(A) is dated 24.1.2017 whereas the assessment order was passed on 31.7.2015. This certificate was not produced before the AO, and it could only be placed on the record with the help of Rule 46A of the Income Tax Rules and not in any other manner. The ld.CIT(A) has erred in taking cognizance of the certificate.
On the other hand, the ld.cousnel for the assessee relied upon the order of the ld.CIT(A). He submitted that originally revised return was filed well in time, but its cognizance was not taken by the AO. It was a patent error at the end of AO and on the direction from the higher appellate authority, the ld.AO has considered the claim of the assessee, but rejected it. He further contended that Income Tax Rules an appendix is being annexed wherein the rate of depreciation admissible under section 32 of the Act is being provided. The details of specialized boilers and furnace have been categorized under serial no.(a) to (d) as noticed by the ld.CIT(A) on page no.3 of the impugned order. The ld.AO has considered the claim of the assessee under serial no.(d) whereas its claim fall at serial no.(a). The assessee has submitted a certificate of chartered engineer exhibiting the fact that ignifluid/fluidized bed boilers was installed by the assessee. He further made reference to the copies of bills placed on page no.39 to 53 of the paper book. Accordingly, major bills have been placed on
ITA No.1478/Ahd/2018 record. In these invoices, it has been observed that ignifluid boiler was sold to the assessee.
We have duly considered rival contentions and gone through the record carefully. A short controversy before us is, whether the assessee has installed energy saving device being a specialized boiler and furnace on which it can claim depreciation at the rate of 80%. As far as rate of depreciation is concerned, there is no dispute. Dispute relates to the fact whether the assessee has installed an energy saving device in the shape of a boiler. Rule has prescribed the following specialized boilers: A. Specialized boilers and furnaces: (a) Ignifluid/fluidized bed boilers - (b) Flameless furnaces and continuous pusher type furnaces (c) Fluidized bed type heat treatment furnaces (d) High efficiency boilers (thermal efficiency higher than 75 per cent in case of coal fired and per cent in case of oil/gas fired boilers)
According to the assessee, it has installed a boiler as shown at serial (a), and therefore, it is entitled to higher rate of depreciation. We have taken cognizance of the finding recorded by the AO extracted (supra). A perusal of the above finding would indicate that the AO has granted ample opportunity and specifically directed the assessee to produce evidence exhibiting the fact that the boiler installed by it, is of higher efficiency on which depreciation at the rate of 80% can be claimed. According to the finding of the AO, no such evidence was produced. Rule 46A of the Income Tax Rules provides a mechanism for an assessee for producing additional evidence before the ld.CIT(A). This rule read as under:
ITA No.1478/Ahd/2018 “46A. (1) The appellant shall not be entitled to produce before the [Deputy Commissioner (Appeals)] [or, as the case may be, the Commissioner (Appeals)], any evidence, whether oral or documentary, other than the evidence produced by him during the course of proceedings before the [Assessing Officer], except in the following circumstances, namely :— (a) where the [Assessing Officer] has refused to admit evidence which ought to have been admitted ; or (b) where the appellant was prevented by sufficient cause from producing the evidence which he was called upon to produce by the [Assessing Officer] ; or (c) where the appellant was prevented by sufficient cause from producing before the [Assessing Officer] any evidence which is relevant to any ground of appeal ; or (d) where the [Assessing Officer] has made the order appealed against without giving sufficient opportunity to the appellant to adduce evidence relevant to any ground of appeal.
(2) No evidence shall be admitted under sub-rule (1) unless the [Deputy Commissioner (Appeals)] [or, as the case may be, the Commissioner (Appeals)] records in writing the reasons for its admission.
(3) The [Deputy Commissioner (Appeals)] [or, as the case may be, the Commissioner (Appeals)] shall not take into account any evidence produced under sub-rule (1) unless the [Assessing Officer] has been allowed a reasonable opportunity— (a) to examine the evidence or document or to cross-examine the witness produced by the appellant, or (b) to produce any evidence or document or any witness in rebuttal of the additional evidence produced by the appellant.
(4) Nothing contained in this rule shall affect the power of the [Deputy Commissioner (Appeals)] [or, as the case may be, the Commissioner (Appeals)] to direct the production of any document, or the examination of any witness, to enable him to dispose of the appeal, or for any other substantial cause including the enhancement of the assessment or penalty 9
ITA No.1478/Ahd/2018 (whether on his own motion or on the request of the [Assessing Officer]) under clause (a) of sub-section (1) of section 251 or the imposition of penalty under section 271.]”
A perusal of the above rule would indicate that it has prohibited any appellant to produce any evidence unless conditions enumerated in clause (a) to (d) exist. The ld.CIT(A) on its satisfaction about availability of any of the conditions enumerated in clause (a) to (d) in subsection (1) of Rule 46A would not admit evidence without giving any opportunity of hearing to the AO. After hearing the AO, he would record in writing the reasons for admission of evidence.
After admission of the evidence he will again give an opportunity to the AO for rebutting that evidence on merit. No doubt, under clause (4), the ld.Commissioner can himself direct for production of any evidence by any of the parties, which can help him to decide the appeal judiciously. The procedure contemplated in the above rule has not been followed by the ld.CIT(A). He simply took written submission filed by the assessee, and sent them for comments of the AO. The ld.CIT(A) has made reference to the certificate of chartered engineer in support of his reason that boiler was installed. Copy of that certificate is available on page no.54 of the paper book, which reads as under: CERTIFICATE TO WHOM SO EVER IT MAY CONCERN
SUB: EFFICIENCY CERTIFICATE OF BOILER This is to certify that M/s. Chiripal Industries Limited, Registered Office at 199, 200/1 & 2, Saijpur-Gopalpur Pirana Road, Piplej, Ahmedabad-382405, have installed the BFBC boiler (bubbling fluidized bed combustion) in the year 2005-06 and it is specialized boiler which is of the category of Fluidized 10
ITA No.1478/Ahd/2018 bed boiler and being covered under the income tax act under Energy saving devices on which 80% depreciation rate should be applied.
Place : Ahmedabad Sd/- Date : 24/01/2017 S.K. Patel. (Chartered Engineer)”
A perusal of the certificate would indicate that it is dated 24.1.2017 issued after the assessment order. This chartered engineer has no where specified that such BFBC boiler was installed under his supervision or he has inspected the boiler. He simply stated that this concern has installed a boiler but no mention on what basis he observed so; had he ever visited the premises of the assessee ? Therefore, it was necessary for the AO to examine such type of person, but he was not produced before the AO even in the remand proceedings. Other evidences submitted by the assessee are copies of invoices vide which parts of the boilers have been purchased. The ld.AO has issued notice under section 133(6) of the Income Tax Act and directed this person to furnish information, but these were not responded. We have perused these bills, and particularly examined copy of invoice placed at page no.41o the paper book. The date on the bill is not discernible completely. Under the head particulars it reads like this – PARTICULARS WEIGHT (KG) AMOUNT SUPPLY OF 23 TFH BFEC BOILER MUD DRUM 33.84.92 530000.00 BANK TUBES 4884.98 640000.00 SUPPORTING STRUCTURE 729.64 65000.00 1235000.00
ITA No.1478/Ahd/2018 Similarly in other bills, there are supplies of parts viz. air ducting, supporting structure, bed coil etc. All these items have been purchased on different dates, namely, first invoice on page no.41 is dated 17.8.2004, but another invoice on page no.47 is dated 23.2.2005. It is not discernible actually how these components have been used, and when they were installed. These are details, which have been furnished in a very casual manner, and have been accepted by the ld.CIT(A) without any proper verification. Therefore, we are of the view that in spite of second round of litigation, the assessee could not produce complete details in support of its claim. The finding of the ld.CIT(A) is not based on correct appreciation of the material facts, rather the ld.CIT(A) has misconstrued partial and incomplete documents available on the record. We do not have any hesitation in setting aside this finding. On analysis of the record, we are of the firm view that assessee failed to prove the installation of high efficiency boiler on which depreciation at the rate of 80% could be claimed. Therefore, we allow the appeal of the Revenue, and set aside the finding of the ld.CIT(A) and confirm the disallowance of Rs.4,54,45,709/-. In other words, order of the AO is restored on this issue.
In the result, the appeal of the Revenue is allowed.
Order pronounced in the Court on 28th January, 2021 at Ahmedabad.
Sd/- Sd/- (AMARJIT SINGH) (RAJPAL YADAV) ACCOUNTANT MEMBER VICE-PRESIDENT
Ahmedabad; Dated 28/01/2021