THE DCIT, CIRCLE-2(1)(1), BARODA vs. M/S. UNIMED TECHNOLOGIES LIMITED, PANCHMAHAL

Revenue has taken two grounds of appeal in each case. It contained five sub-grounds, hence, grounds of appeal in both the cases are not in consonance with Rule 8 of Income Tax (Appellate Tribunal) Rules; they are descriptive and argumentative in nature. In brief, its grievance in both the appeals relates to grant of depreciation on Solar Power Plant (“SPP” for short) by the ld.CIT(A). First of all, we notice that vital points in both the cases are common. Therefore, for the facility of reference, we take up the facts from Unimed Technologies Ltd. (“UTL” for short), as this appeal has been extensively argued by ld.representatives.

Brief facts of the case are that Unimed Technologies Ltd. has filed its return of income electronically on 18.9.2013 declaring total income at Rs.4,45,94,808/-. The case of the assessee was selected for scrutiny assessment, and notice under section 143(2) was issued on 2.9.2014. The assessee at the relevant time was engaged in manufacturing and dealing with pharmaceutical products and also development/sale of product technologies relating to pharmaceutical formulation. On scrutiny of the accounts, it revealed to the AO that the assessee-company has made an addition in the assets of Rs.10,65,00,000/- on account of Solar Power Plant on which depreciation at the rate of 80% and additional depreciation at the rate of 20% was claimed totaling to Rs.5,32,50,000/- under the head “Finance Lease Assets”. The facts with regard to M/s.Sun Petrochemicals P.Ltd. are that the assessee has filed its return of income on 29.9.2013 declaring total income at Rs.3,51,52,094/- under the normal provision, and book profit under section 115JB of the Act at Rs.58,14,44,436/-. The case of this assessee was also selected for scrutiny assessment and notice under section 143(2) was issued on 4.9.2014. The and 1636/Ahd/2018 - 3 - assessee at the relevant time was engaged in the business of manufacturing and trading of petrochemical products. This concern has also made addition of Rs.10,65,00,000/- on account of “SPP” on which depreciation at the rate of 80% and additional deprecation at the rate of 20% was claimed totaling to Rs.5,32,50,000/-. This depreciation of Rs.5,32,50,000/- was claimed at 50% because asset was not put to use for the complete years in both the cases. In this way, it is observed that facts on all vital points are common in both the cases. A perusal of the record would further show that M/s. Alpha Infrapop Pvt. Ltd. (“AIPL” for short) got a contract from MP Power Management Co. Ltd. (“MPPMCL” for short) and “MPPMCL” to install a “SPP” with a capacity of 20MW DC. A power purchase agreement was signed by “MPPMCL” and “AIPL” on 19.10.2012. M/s.Real Gold Developers LLP (“RGD” for short) had purchased the assets and made investment of Rs.120 crores. It was required to establish 16 blocks. These assets were later on given on lease to “AIPL”. According these assessees, they have purchased these assets and later on given them on lease. The break-up of solar block numbers, ownership of various parties along with their corresponding cost, has been submitted before the ld.CIT(A) in tabular form in the submissions filed by the assessee. For the facility of reference, we take note of such details, which reads as under: Owner Block No. No. of Total MW Cost (Rs. in blocks DC Crores) 10.50 Aditya Medisales Ltd Block No. 14 & 1.33 1.85 17 Tables of Block 10 1.87 10.65 Sun Petrochemicals Pvt Block No. 15 & 1.33 Ltd 18 Tables of Block 10 and 1636/Ahd/2018 - 4 -

1.87 10.65 Unimed Technologies Ltd. Block No. 16, 18 1.33 Tables of Block 10 5.81 33.10 Sun Medications Block No. 9, 11, 4 12, 13 Private Limited (Now known as Sun Pharma Laboratories Ltd.)

In order to satisfy himself that assessees have acquired assets and put them for use of their business purpose, the ld.AO has called for various details, and issued a detailed questionnaire. Copy of such questionnaire is being reproduced on page no.4 to 6 of the assessment order. Thereafter, the ld.AO has analysised submissions made by the assessee. He thereafter made comparative study of the information called for vis-à-vis the kind of information submitted by the assessee. The ld.AO after going through such details rejected the claim of the assessee. The comparison made by the AO is worth to note. It reads as under: “4.6. In response to the above show cause, the assessee company replied vide it's letter dated 16/03/2016 which is reproduced hereunder -

The identical finding has been recorded in the case of Sun Petrochemicals P.Ltd. Dissatisfied with the action of the AO, both the respondents went in appeal before the ld.first appellate authority. They have filed detailed written submissions, which has been reproduced by the ld.CIT(A). The ld.CIT(A) without making any analysis of the facts, discussed by the AO observed that in the case of Aditya Medisales Ltd. (“AMSL” for short) similar exercise was undertaken by the assessee. The ld.CIT(A)-1 has allowed the appeal of “AMSL”. The ld.CIT(A) has reproduced the order of “AMSL”, and thereafter observed that there is no disparity on the facts. Therefore, he concurred with ld.CIT(A)-1, who has allowed depreciation to “AMSL”. The ld.CIT(A) accepted the claim of the assessee and allowed this ground of appeal. The brief discussion made by the ld.CIT(A) qua both the assessees is available in para 4.1.3 which reads as under:

The ld.DR submitted that the ld.CIT(A) has not applied his mind on the facts highlighted by the ld.AO. The ld.CIT(A) simply concurred with ld.CIT(A)-1, Vadodra, who has granted depreciation to “AMSL”. He pointed out that for allowing depreciation, two fundamental aspects are to be looked into; i.e. purchase on or before 31.3.2013, and asset would have been put to use for the purpose of business of the assessee. If the AO is able to demonstrate that the asset cannot be construed as put to use before the end of the accounting year, then the depreciation and 1636/Ahd/2018 - 9 - will not be allowed to the assessee. He pointed out that it is not ascertainable, what were the facts in the case of “AMSL”; what type of inquiry the AO has made. But in the present two cases, the ld.AO has demonstrated that it could not have been stated that assets have been acquired and put to use by the assessee vis-à-vis documents produced before the AO. He made reference to page no.163 of the paper book, wherein lease deed dated 14.3.2013 has been placed on record. He submitted that though this deal was executed as such, but was made applicable w.e.f. 1.3.2013. He also made reference to the installation report, inspection report and so many other documents in order to demonstrate that practically it was not possible to construe that asset was put to use before 31st March. Impugning orders of the ld.CIT(A), he contended that the ld.CIT(A) failed to record any finding rebutting the facts pointed out by the AO. Finding of the AO is based on inquiry conducted in the cases of these assets, and that aspect could not be construed as covered with the case of “AMSL”.

The ld.counsel for the assessee on the other hand submitted that 16 blocks were to be installed. Out of these 16 blocks, assessees present before this Tribunal were required to only install 1.33 blocks i.e. block no.15 and 18 tables of block 10; block no.16, 18 tables of block no.10. Out of these total 16 numbers of blocks, “AMSL” purchased block no.14 and 17, tables of block no.10. In other words, his emphasis was that a composite of block of 16 which was operative. In the case of “AMSL”, it was construed that this “SPP” commenced its work, and in other words, it is to be treated as put to use. Depreciation has been allowed to “AMSL”. This order of the ld.CIT(A) has been accepted by the department in the case of “AMSL”. No further appeal has been filed. and 1636/Ahd/2018 - 10 - Thus, according to the ld.counsel for the assessee, department cannot be permitted to challenge order of the ld.CIT(A) in the present two cases.

We have duly considered rival contentions and gone through the record carefully. Section 32 of the Income Tax Act has directed bearing on the controversy, and therefore, it is imperative upon us to take note of relevant part of this section. It reads as under 32. (1) In respect of depreciation of— (i) buildings, machinery, plant or furniture, being tangible assets; (ii) know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after the 1st day of April, 1998, owned, wholly or partly, by the assessee and used for the purposes of the business or profession, the following deductions shall be allowed—

A perusal of the above would indicate that in order to claim depreciation under section 32 of the Income Tax Act, the assessee has to demonstrate that it has owned an asset wholly or partly, and such asset has been used for the purpose of business or profession. Thus, for the purpose of controversy in hand, it is to be ascertained whether both the assessees were able to prove on record that they have acquired the assets before end of the accounting year, and such assets have been put to use for the purpose of their business. The ld.AO has issued a detailed questionnaire and called for information on more than 12 counts. Brief analysis of such information was given in a tabular form. We have taken cognizance of such analysis in para 4 of this order. According to the AO, if setting of this information is being appreciated as a whole, then it would indicate that assessees have failed to prove acquisition of the assets before the end of the accounting year as well as its user for the purpose of their business. The ld.AO has pointed out some and 1636/Ahd/2018 - 11 - discrepancies specifically, the transportation details, inspection report, installation report etc. On the other hand, the ld.CIT(A) instead of making analysis of this information observed that this very issue has been considered in the case of other assesees i.e. AMSL who is also one of the contributors to the total block of assets. The emphasis of the ld.DR was that the ld.CIT(A) has overruled the discrepancies pointed out by the AO for demonstrating the fact that assets have been acquired before the end of the accounting year, and put to use without recording any finding or rebutting the reasoning of the AO. On the other hand, the stand of the assessee was that M/s.AIPL has acquired a contract from MP Power Management Co. Ltd. for establishment of a solar power plant. It has also entered into a power purchase agreement with MPPMCL. This is a composite solar power plant consisting of 16 blocks. It was installed, and later on M/s.Real Gold Developers LLP has purchased all these assets, and these were given on lease to AIPL. Assessees along with three more assesses have purchased these total 16 blocks of solar power plant. In the case of Aditya Medisales Ltd., department has accepted the establishment of solar power plant and allowed the depreciation. This order of the ld.CIT(A) was not challenged, thus, the same treatment be given to the purchase agreement and installation of SPP of the present assesses.

On due consideration of these facts, we are of the view that to some extent discrepancies pointed out by the AO and brought to our notice by the ld.CIT-DR do create a suspicion in our mind about the user of the assets for the purpose of business by the present assessees, but simultaneously if it is to be looked in such a manner that MP Power Management Co. Ltd. an instrumentality of Madhya Pradesh State and 1636/Ahd/2018 - 12 - Government, has awarded a contract for establishment of 16 blocks of solar power plant, and such blocks were established, thereafter it as sold to Real Gold Developers LLP, and RGD LLP further sold these 16 blocks in part to five concerns including the present two assessees. It is to be appreciated that if this solar power plant of 16 blocks is an integrated power plant and part of the block purchased by present two assessees cannot work independently, then it is to be treated that the plant was established. Though there is no specific discussion on this point, and there is no conclusion, but we would like to take note of the fact that as far as purchase of these assets, its user for the purpose of business has not been denied by the AO himself in the subsequent year. He has allowed the depreciation to the assessee in the next assessment year. In the present year only dispute is year of admissibility of the depreciation. On account of some technical ground, if it is denied in this year, then it will be admissible in the next year, thus, considering stand of the Revenue in the case of Aditya Medisales Ltd. where such depreciation has been allowed and accepted, more so when no finding was recorded that the part of the assets owned by the assessees could be used independently for generation of power in a phased manner. We construe that blocks of panel owned by assessees be treated as integrated part of 16 blocks purchased and installed by AIPL and not to be treated separately. In other words, part of assets owned by these two assessees be treated as integrated part of total solar plant consisting of 16 blocks. If that be so, then installation of other blocks have been accepted by the department, and not challenged before the Tribunal. There is no disparity on the facts with regard to the blocks owned by the AMSL vis- à-vis of the assessee. We are of the view that there is no justification to and 1636/Ahd/2018 - 13 - interfere in the finding of the ld.CIT(A) in the cases of present two assessees also. Therefore, we do not find any merit in these two appeals; they are dismissed.

In the result, both the appeals of the Revenue are dismissed.