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Income Tax Appellate Tribunal, JAIPUR BENCHE-B, JAIPUR
Before: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM vk;dj vihy la-@ITA No. 949/JP/2018
आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE-B, JAIPUR Jh fot; iky jko] U;kf;d lnL; ,oa Jh foØe flag ;kno] ys[kk lnL; ds le{k BEFORE: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM vk;dj vihy la-@ITA No. 949/JP/2018 fu/kZkj.k o"kZ@Assessment Year :2010-11 cuke Asstt. Commissioner of M/s Shree Agencies Pvt. Vs. Income-tax Ltd., Circle-1, B-45, I.P.I.A. Jhalawar Kota Road, Kota LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAFCS3329A vihykFkhZ@Appellant izR;FkhZ@Respondent jktLo dh vksj ls@ Revenue by : Shri Ran Singh (Addl.CIT) fu/kZkfjrh dh vksj ls@ Assessee by : Shri P. C. Parwal (CA) lquokbZ dh rkjh[k@ Date of Hearing : 10/10/2018 mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 08/01/2019 vkns'k@ ORDER PER: VIKRAM SINGH YADAV, A.M.
This is an appeal filed by the Revenue against the order of ld. CIT(A), Kota dated 24.05.2018 for A.Y. 2010-11 wherein the Revenue has taken following grounds of appeal.
(i) On the facts and in the circumstances of the case, the CIT(A) has erred in deleting the disallowance of Rs. 4,11,896/- made by on account of loading unloading expenses.
(ii) On the facts and circumstances of the cases, the CIT(A) has erred in restricting the disallowance to Rs. 1,16,943/- out of total Rs. 2,33,887/- made by on account of office expenses.
(iii) On the facts and circumstances of the case, the CIT(A) has erred in restricting the disallowance to Rs. 3,79,975/- made by on account of excess claim on vehicle.
(iv) On the facts and circumstances of the case, the CIT(A) has erred in deleting the disallowance of Rs. 2,51,48,014/- made by AO on account of depreciation on wind mill.
(v) On the facts and circumstances of the case, the CIT(A) has erred in deleting the disallowance of Rs. 8,16,265/- made u/s 36(1)(iii).
(vi) On the facts and circumstances of the case, the CIT(A) has erred in deleting the addition of Rs. 11,38,784/- made by the AO u/s 14A.”
Regarding Ground No. 1, briefly stated, the facts of the case are that the assessee has claimed loading and unloading expenses of Rs. 41,18,961/- in its EOU Division. As per Assessing officer, majority of the expenses are incurred in cash and claimed on self made vouchers and no supporting evidence is attached with these vouchers. Therefore, the claim made by the assessee was held not verifiable in entirety and 10% of above expenses i.e. a sum of Rs. 4,11,896/- of the total expenses was disallowed and added to the income of the assessee. The ld. CIT(A) held that since no specific discrepancy in particular vouchers have been brought to notice by the AO, he is not in agreement with the disallowance @ 10% made by the AO in respect of loading and unloading expenses as these are normal business expenses and AO himself has accepted 90% of these expenses as allowable, therefore genuine expenses. The disallowance of Rs. 4,11,896/- was accordingly not upheld and was directed to be deleted. We do not find any infirmity in the said finding of the ld. CIT(A). Hence, the ground of appeal taken by the Revenue appeal is dismissed.
3. Regarding Ground No. 2, the facts of the case are that the assessee has claimed office expenses at Rs. 23,38,872/-. On verification of expenses, it was found by the AO that some of the expenses are claimed on self made vouchers and no supporting details are available. In some of the expenses, personal expenditure incurred by the Directors of the company cannot be denied. Thus, considering this fact, the whole expenditure claimed cannot be treated for the purposes of business. Hence, 10% of above expenditure claimed i.e. Rs. 2,33,887/- was disallowed and added to the total income of the assessee. The ld. CIT(A) has restricted the disallowance to 5% and the balance disallowance was directed to be deleted. We do not find any infirmity in the said finding. Hence, the Ground No. 2 of Revenue’s appeal is dismissed.
4. Regarding Ground No. 3, the facts of the case are that during the course of assessment proceedings, it was noticed by the AO that the assessee company has claimed insurance, depreciation and car expenses in the P & L account, though these vehicles were owned by the Directors. Therefore, the assessee was required to give separate details of expenditure claimed on account of expenses, insurance and depreciation of the vehicles registered in the name of the Directors, and asked to explain as to why the disallowance may not be made to the total income, due to non ownership of the vehicles in the name of the assessee company. In compliance to above, the assessee has filed details of depreciation, insurance & car expenses claimed in respect of the following vehicles (owned by the Directors) as under:- Vehicle No. Depreciation Insurance Petrol & Diesel Repair and expenses maintenance RJ 20 CA 1000 17657 21066 97784 84703 RJ 20 IC 2085 7535 33291 12647 RJ 20CA 1484 3459 85553 16280 17657 32060 216628 113630
From the purchases bills and the copies of the registration certificates, it was noted by the AO that the above vehicles were owned by the Directors. Hence, the company has no legal entitlement of vehicles because the assessee has not provided any evidence for use of assets for business purposes of company, other than used by the directors. It shows that the vehicles are registered in the personal name of the directors and depreciation and other incidental expenses claimed by the assessee are to be disallowed. It is held in the case of Assam Pesticides & Agro Chemicals vs. CIT [1997] 227 ITR 846 (Gau) that mere payment by itself would not entitle an assessee to deduction of an expenditure, unless the same was proved to be paid for commercial consideration. The onus of the proof at all relevant times rests upon the assessee. Further, it was held in case of Kalpaka Tourist Home (P) Ltd vs CIT [1998] 172 ITR 364 (Ker) that the deduction under section 32(1) cannot be claimed by someone having no real connection with the assets and the claimant must be one with much more than some threads of right. Depreciation is claimable by the owner who uses the assets in question. Therefore, depreciation and other expenses claimed by the assessee are not allowable in the case of the company and accordingly, total amount of Rs. 3,79,975/- (17,657 + 32,060 + 21,66,28 + 11,36,30) was disallowed and added to total income of the assessee.
On appeal, the ld. CIT(A) referring to the decision of the Hon’ble Allahabad High Court in case of CIT, Varanasi vs. Varanasi Auto Sales (P.) Ltd. 190 Taxman 60 (Allahabad) and the decision of Hon’ble Supreme Court in case of I.C.D.S Ltd vs. CIT [2013] 29 taxmann.com 129 (SC) has held that the disallowance made by the AO in respect of vehicle related depreciation and other expenses cannot be upheld. It was further held by the ld. CIT(A) that the AO has also not brought on record that the payment for these vehicles was made by the directors in their personal capacity.
During the course of hearing, the ld. AR submitted that the assessee has purchased vehicles for the purpose of its business use. The entire cost incurred for purchase of vehicles were shown in the company’s books of accounts and treated as business assets. The registration of vehicles in names of director were obtained for mere conveyance purposes. The vehicles were owned by the company and were used for the purpose of its business, therefore, the ld. CIT(A) was right in allowing the claim of depreciation and the other expenditure incurred for running and maintenance of this vehicle.
We have heard the rival contentions and perused the material available on record. Given the fact that the vehicles have been purchased by company from the own funds and the same have been utilized for the purpose of its business and the assets being duly effected in the companies of books of accounts, merely on account of fact that the vehicles have been registered in the name of the directors of the assessee company, the assessee’s claim for depreciation and other vehicle running and maintenance expenses cannot be denied. The decisions relied on by the ld. CIT(A) supports the case of the assessee. In the result, the ground taken by the Revenue’s appeal is dismissed.
Regarding Ground No. 4, briefly stated, the facts of the case are that during the year under consideration, the assessee company has increased its Wind Power installed capacity from 1.40 MW to 2.65 MW by installation of a new 1.25 MW Wind Mill Power Plant at Village, Akal, Dist. Jaisalmer (Rajasthan). The new wind power plant was installed on 31.03.2010 and accordingly, the assessee has claimed depreciation of Rs. 25,14,80,14/- at the rate of 50% of the normal allowable depreciation rate of 80% on such assets. In order to verify the assessee’s claim of depreciation, a show cause was issued to the assessee, however the submission so filed by the assessee regarding commissioning of the said wind mill power plant as on 31.03.2010 was not found acceptable by the Assessing officer due to the following reasons:- i) The assessee has given break up of net export units (KWH) as stated to have been recorded at Main Meter of RVPNL (Joint Energy Meter Reading stated to have been taken on dated 02.04.2010 for the month of March 2010), as under:- S. No. Customer Capacity Break up of Energy (KWH) Energy Delivered at Common (MW) Delivery Point (KWH)
Export Import Net Export Import Net Export Export KWH KWH 4 Shree 1.25 22 2 20 Agencies Pvt Ltd 1600 160 1440 However, the aforesaid calculations have not been authenticated by any of the competent authorities of RPPC. ii) The so called commissioning of the wind mill power plant on 31.03.2010 is only a colourful design on the part of the assessee to show sale of energy on 31.03.2010 itself so that depreciation may be availed by it. iii) No evidence regarding installation of joint meter at common delivery point has been filed during the course of assessment proceedings. iv) Necessary evidence regarding the original reading of the power produced has not been furnished. v) It is absolutely unbelievable that sale of energy (worth Rs. 86/- only) would have been effected on 31.03.2010 itself, as there is no evidence of even any trial run of the wind mill power plant. vi) Certificate regarding commissioning of the plant has been issued on 21.04.2010 i.e. after 21 days, which is not trustworthy. vii) Evidence of permission of electrical Inspector for WTGs has not been furnished. viii) In the Director’s report filed during the course of assessment proceedings, it has been stipulated that :- “During the year the company has increased its installed capacity from 1.40 MW to 2.65 MW by installation a new 1.25 MW Wind Power Plant at Village, Akal, Dist Jaiselmer (Rajasthan). The new wind power plant was installed and started generating power in the month of March 2010. The power purchase agreement for the new power plant with the State Government of Rajasthan was signed on dated …… with in agreed rate of Rs. 4.28/- fixed for the period of 20 years. The vendor of the Wind Power Plant has assured a minimum generation of 20.00 lakhs unit per year. The revenue from its already installed 1.40 MW power plant has decreased slightly to Rs. 63.72 lakhs from Rs. 69.53 lakhs, mainly due to the breakdown of our 0.35 MW wind power plant at Baramasar, Dist Jaiselmer.”
As per the said clause, the date of signing of power purchase agreement has been left blank, which clearly shows that power purchase agreement was not signed as on 31.03.2010, but it was signed after 31.03.2010 and shown to have been signed on 23.03.2010 simply to defraud the revenue by claiming the depreciation and reducing the profits. ix) No documentary evidence regarding connectivity of the delivery point to the power plant has been furnished. x) Sale of energy for Rs. 86/- only is strategy clever on the part of the assessee to show running of the power plant in order to claim the depreciation. xi) The wind mill power plant provider has issued a invoice No. 321 dated 31.03.2010, in respect of labour charges for Rs. 1,12,506/-. It is, therefore, is absolutely unbelievable that the generation of power would have started on 31.03.2010 itself, when final testing was not over on 31.03.2010. xii) Further another debit note No. 59 dated 31.03.2010 has been issued in the name of the assessee company by Synefra Engineering & Construction Limited (Formally known as Suzlon Infrastructure Ltd.) which contains the following narrations:- “Providing sub lease rights of lands and rights of suitable access of Rs. 10,00,000/- surrounding (including free access, right of way etc.) for windmill purpose for 1.25 MW WTG being installed at Akal Site, Rajasthan, in respect of 1 WTG (Location No. AK-224)”
The said debit note is a clear cut evidence that the sub lease rights of lands and right suitable surrounding were provided to the assessee company only on 31.03.2010. Further, the debit note has been issued by Synefra Engineering & Construction Limited (Formally known as Suzlon Infrastructure Ltd.) on its letter head; while the invoice No. 321 dated 31.03.2010 referred to in para xi above has been issued by Suzlon Infrastructure Services Limited, when the name Synefra Engineering & Construction Limited has already come into being on 31.03.2010 itself. Hence, there is contradiction of the invoice date and debit note date. Hence, considering the totality of the circumstantial evidence and the above noted observations, it was held that the wind mill power plant installed during the year did not sell any power on 31.03.2010 and therefore, was not entitled to depreciation of Rs. 2,51,48,014/- as the asset was not put into use before 31.03.2010. Hence, depreciation of Rs. 2,51,48,014/- was disallowed and added to the assessee’s total income.
Being aggrieved, the assessee carried the matter in appeal before the ld. CIT(A). In support of its claim, it submitted the following documents which were also claimed to have been submitted before the Assessing Officer during the course of assessment proceedings:-
a) Commissioning report dated 31.03.2010 issued jointly by the committee comprising of officers/representatives of PRECL, Jaiselmer, AVVNL, Ajmer RVPNL Jaiselmer, JVVNL, Jaiselmer and M/s Suzlon. b) Wind Project- Commissioning certificate no. SE (RDPPC)/XEN (C & R)/D-160 dated 21.04.2010 issued by Superintending Engineer (RDPPC) Ajmer Discom, Jaipur. c) Power purchase agreement made and entered into effective as of 23rd day of March 2010 amongst Shree Agencies Pvt. Ltd., Suzlon Energy Ltd & Ajmer Vidyut Vitran Nigam Ltd. d) Copy of joint meter reading taken on 2 April 2010 for the month of March 2010 as per which net power generation for the month of March 2010 was 20 units which was sold to Ajmer Discom Rajasthan.
On appeal, the ld CIT(A) has examine the aforesaid documentation in detail and given his detailed findings. Further, the ld. CIT(A) has relied on the decision of the Co-ordinate Bench in case of Mr. V. K. Rajendran Prop Arasi Fabrics, Karur vs. Deputy Commissioner of Income Tax, Circle-II, Trichy (in the decision of Gujarat High Court in case of Asstt. CIT vs. Ashima Syntex Ltd., [2002] 251 ITR 133 (Guj.) and the decision of Punjab and Haryana High Court in case of CIT vs. Oswal Woollen Mills Ltd. 289 ITR 261 sides various other decisions and the following legal proposition laid down therein held that the legal opinion also favours the allowability of depreciation in the instant case. Accordingly, depreciation of Rs. 2,51,48,014/- was directed to be allowed.
We have heard the rival contentions and purused the material available on record. The case of the Revenue is that the wind mill plant was not commissioned as on 31.3.2010 and there is no sale of power so generated during the year, hence, the wind mill plant was not put to use as on 31.3.2010 and thus not eligible for depreciation for the impunged assessment year. In support, the Revenue has raised various contentions regarding authencity of various documentation so submitted by the assessee company. We find that the said contentions of the Revenue have been duly addressed by the ld CIT(A) who has examined the aforesaid documentation in detail and his detailed findings are contained at pages 26 and 27 of his order which reads as under:
“As regards the various doubts raised by the AO in respect of the disallowance of depreciation on the windmill because of it not being used for commercial production, the following documents prove otherwise;- (i) The commissioning report dated 31.03.2010 of a committee constituted by Superintending Engineer (RDPPC), Ajmer Discom for following up on the turbine generator which mentions that the Wind Turbine Generator (WTGs) are connected to the newly commissioned main meter Sr. No. MSB10307 & backup meter MSB10309 which is considered as the metering arrangement. The joint inspection report of this metering arrangement is referred as enclosed.
The committee is constituted of 4 senior officials of the State Electricity Department & copy of the permission of Electrical Inspector’s for the WTGs is also enclosed.
(ii) The commissioning certificate dated 21.04.2010 is issued certifying the commissioning having been done on 31.03.2010, successfully. The certificate is issued by Superintending Engineer (RDPPC) Ajmer Discom, Jaipur office. A copy of the said certificate is also issued to the Chief Engineer (RDPPC) Jaipur & Chief Engineer (commercial) AVVNL, Ajmer, besides others & the WTG company.
(iii) The power purchase agreement between the appellant assessee M/s Shree Agencies P. Ltd. Suzlon Energy Ltd. and Ajmer Vidyut Vitran Nigam Ltd. (AVVNL) is dated 23rd day of March, 2010 for 1.25MV wind power plant of the assessee. On behalf of the AVVNL, it is signed by the MD of AVVNL, who is a Senior Government functionary & not any private party. The tariff is fixed @ 4.28/KWH & Rs. 4.50/KWH for different districts.
(iv) As per the joint meter reading report of Suzlon Energy Ltd. of the 220 KV Sub-station AKAL, Jaisalmer taken on 02/04/10 (succeeding the commissioning by default) is 20 KWH exported, which multiplied with Rs. 4.28/KWH issues to Rs. 86/- as mentioned in the A.O’s order.
Thus, first of all, with several Government departments & officials involved in the whole process showing actual generation of Engery (Power) after commission of the WTG, it would not be held to be a ‘colourful design’ by the A.O. without bringing on record any collusion to claim bogus depreciation. Merely mentioning of such projects vis-à-vis the State Government, the AO’s arguments appear at best theoretical & conjectural.
The A.O did not seek any confirmation from the Electricity Department to counter act the assessee’s claim of if he had any doubts regarding the claim of depreciation. His observations regarding the invoices, debit notes of power plant provider are also not based on independent cogent evidentiary material which could establish any discrepancy beyond doubt in the claim made. It was also not the A.O’s case that the windmill could not have been installed at site due to transportation in ‘short period’ or that payment had not been made till date of commission as was in some other cases of this nature.
Under the circumstances, even if hypothetically it is to be believed that the doubts of the A.O were in place, then he has not denied that the windmill was ready & in place.”
The commissioning of the wind mill power plant has been duly certified as on 31.03.2010, the power purchase agreement is in place and there is actual generation of electricity even though to the tune of 20KWH which has been duly exported out to the common electricity grid. There is thus no dispute that the wind mill has been commissioned and put to use during the year. In light of same, we donot see any infirmity in the above findings of the ld CIT(A) who has rightly directed the allowance of depreciation on such wind mill plant installed and commissioned during the year. In the result, ground of Revenue’s appeal is dismissed.
Regarding ground no. 5 of the Revenue’s appeal regarding disallowance of interest u/s 36(1)(iii), briefly the facts of the case are that the assessee has shown investments in quoted and unquoted shares to the extent of Rs. 1,59,79,841/- as on 31.03.2010 as against investments of Rs. 69,10,229/- as on 31.03.2009. The assessee has shown Long Term Capital Gain on sale of shares at Rs. 13,06,533/-, which has been claimed exempt u/s 10(38), besides dividend at Rs. 37,991/- from shares. Total exempt income has been claimed at Rs. 13,44,671/-. The assessee has raised loans from the various persons/banks against which interest of Rs. 77,96,715/- has been paid. As per the Assessing officer, investment in quoted and unquoted shares is not incidental to the business purposes of the assessee, as there is no commercial expediency for the assesse company to utilize its borrowed funds for investment in the shares against which exempt income has been earned. Investments in shares have increased by Rs, 90,69,612/- (15979841-6910229). The assessee has paid interest of Rs. 9,07,131/-@ 9% on the unsecured loans. Interest chargeable on the investments made during the year at Rs, 90,69,612/- @ 9% comes to Rs. 8,16,265/. Hence, considering the totality of the facts, interest to the tune of Rs. 8,16,265/- was disallowed u/s 36(1)(iii) and added to the assesse's total income.
On appeal by the assessee, the ld. CIT(A) referred to the decision of the Hon’ble Supreme Court in case of Hero Cycles (P.) Ltd vs. Commissioner of Income-tax (Central), Ludhiana 63 taxmann.com 308 (SC) and the decision of the Rajasthan High Court in case of CIT vs. Vijay Solvex Ltd. 59 taxmann.com 294 (Raj) and held that in the assessee’s case, not only the investments were made in earlier years but AO has not proved any nexus between the interest bearing borrowed funds and the investments made. However, the assessee through financial statements has proved that he had sufficient own funds to make the investments which have yielded exempt income and also that the borrowed funds have been utilized for business purposes. The ld. CIT(A) further held that the assessee’s own fund being substantially higher than the investments and even otherwise, no notional interest or hypothetical interest could have been disallowed on such facts. He accordingly directed the deletion of addition of Rs. 8,16,265/- made u/s 36(1)(iii) of the Act.
We have heard the rival contentions and perused the material available on record. In absence of necessary nexus being established between the borrowed funds and the investment yielding exempt income, no disallowance can be made. Further, the ld CIT(A) has returned a finding that assessee’s own funds being greater such investments. In view of the same, we find that no disallowance of interest paid on borrowed funds can be made in the hands of the assessee. The decisions relied upon by the ld CIT(A) supports the case of the assessee. In the result, the ground of Revenue’s appeal is dismissed.
Regarding Ground No. 6, briefly stated, the facts of the case are that the assessee has shown net profit at Rs. 6,94,52,309/- as on 31.03.2010 and after deduction of exempt income of Rs. 13,44,671/-, the resultant net profit comes to Rs. 6,81,07,785/-. The assessee has incurred expenses on account of director’s remunerations at Rs. 1,44,00,000/- office expenses at Rs. 38,22,756/- and telephone expenses at Rs. 5,20,509/-, which are also partly incidental to earning of exempt income. Ratio of exempt income over net profit comes to 1.97%. Hence, 1.97% of total expenses claimed in respect of director’s remuneration, office expenses and telephone expenses aggregating at Rs. 1,87,43,965/- i.e. a sum of Rs. 3,69,256/- was disallowed u/s 14A, being expenses attributable to earning of exempt income.
The ld. CIT(A) referring to the decision of Rajasthan High Court in case of Pr. Commissioner of Income Tax, Central, Jaipur (Raj.) vs. M/s Deepak Vegpro Pvt. Ltd and others decision of Hon’ble Punjab and Haryana High Court in case of CIT, Jalandhar-1, Jalandhar vs. Max India Ltd. 80 taxmann.com 98 (Punjab & Haryana) held that the AO action does not appear to be on sound footings in respect of the disallowance made u/s 14A. Therefore, he directed the deletion of said disallowance.
We have heard the rival contentions and perused the material available on record. The AO has invoked the provisions of section 14A in respect of expenditure incurred in relation to exempt income and then has gone ahead and has disallowed 1.97% of expenses claimed in respect of director’s remuneration, office expenses and telephone expenses without applying the provisions laid down in Rule 8D of Income tax Rules. There is 17 ACIT, Kota Vs. Ms Shree Agencies Pvt. Ltd., Kota no dispute that the assessee has earned exempt income during the year and incurrence of certain administrative expenses are also not being disputed. Therefore, the disallowance towards the administrative expenses incurred in relation to exempt income has to be determined in terms of section 14A read with Rule 8D(iii) of the Act. During the course of appellate proceedings, the assessee has submitted a working wherein disallowance under Rule 8D(iii) has been worked out at Rs 57,225. The matter is accordingly set-aside to the file of the AO to verify and determine the quantum of disallowance as per Rule 8D(iii) of the Act. In the result, the ground of appeal is allowed for statistical purposes.
In the result, appeal filed by the Revenue is partly allowed for statistical purposes.
Pronounced in the Open Court on 08/01/2019.