PR COMMISSIONER OF INCOME TAX-II vs. M/S SANKALP INTERNATIONAL

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 319 / 2017 Principal Commissioner of Income Tax, Jaipur-2, Jaipur ----Appellant Versus M/s. Sankalp International, F-944, Road No. 14, V.K.I. Area, Jaipur ----Respondent _____________________________________________________ For Appellant(s) : Mr. Prateek Kedawat for Mr. R.B. Mathur _____________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYAS Judgment 06/12/2017 1. By way of this appeal, the appellant has assailed the judgment and order of the tribunal whereby tribunal has allowed the appeal of the assessee and dismissed the appeal of the department. 2. Counsel for the department has framed following substantial question of law:- “i) Whether in the facts and circumstances deleting the disallowance of depreciation of Rs.17200000/- on the windmill at Village Nu despite the windmill having been installed only and not having started actual power generation. ii) Whether in the facts and circumstances confirming the order of the CIT(A) in respect the disallowance of depreciation of Rs.13955850/- on the windmill at Village Akal. iii) Whether depreciation is allowable only when the windmill actually starts

(2 of 6) commercial power generation rather than when it is only ready for power generation. iv) Whether in the facts and circumstances allowing depreciation when the finding of the Assessing Officer was that the assets were not been put to use during the year.” 3. The facts of the case are that during the course of assessment proceedings, it was noticed that the assessee had installed windmills but TDS has not been deducted by the assessee as required under the provision of the IT Act. It was also noticed that during the course of proceeding u/s. 201 of the Act the ITO had raised the liability in the case of the assessee on account of non deduction of TDS u/s. 194C treating it as composite contract on the supply the windmill. Total cost of the windmills, which were supplied installed, operated and maintained by Suzlon Energy Ltd and Enercon India, was amounting to Rs. 53450150/- thereon no TDS had been deducted by the assessee. The Assessing Officer treated that the contract made was not only for sale. The nature of work was to supply, labour, liasioning, consultancy, acquisition of land, making arrangement of sale of power erection and commissioning, operation and maintenance. 4. We have heard Mr. Mathur. 5. Counsel for the department Mr. Mathur has taken us to the order of the AO as well as CIT(A) and Tribunal. 6. He has relied upon the decision of Bombay High Court in B. Malani and Co. vs. Commissioner of Income Tax (1995) 214 ITR 192 wherein it has been held as under:-

(3 of 6) Having regard to the object of depreciation allowance, the expression "owned by the assessee and used for the purposes of the business" and the language used in clause (vi), it seems to us that unless the machinery is actually put to use for the purposes of business of the assessee, the depreciation allowance is not to be granted. This view is fortified by a decision of the Gujarat High Court in the case of CIT v. Suhrid Geigy Ltd. [1982] 133 ITR 884. Inviting our attention to the following words of clause (vi) : "in respect of the previous year in which the ship or aircraft is acquired or the machinery or plant is installed, or if the ship, aircraft, machinery or plant is first put to use in the immediately succeeding previous year, then, in respect of that previous year," In this context our attention was invited to some decisions. CIT v. Viswanath Bhaskar Sathe[1937] 5 ITR 621. This is a Bombay High Court decision taking a view that the word "use" in section 10(2)(vi) of the Indian Income-tax Act, 1922, should be understood in a wide sense so as to embrace passive as well as active user. In a subsequent decision, the Bombay High Court in Whittle Anderson Ltd. v. CIT [1971] 79 ITR 613, following the above decision, has given the same meaning to the word "user" as found in the second proviso to section 10(2)(vii) of the Indian Income-tax Act, 1922. A bare perusal of those provisions will indicate that the object, the words and the context of section 10(2) are not similar to the object, words and context of section 32 of the Income-tax Act. The case of CIT v. Vayithri Plantations Ltd. [1981] 128 ITR 675 (Mad) pertains to development rebate under section 33 of the 1961 Act. The object of this provision and that of section 32 are not similar and hence the ratio of that decision also does not apply to this case.” 7. On going through, the order of the CIT(A) wherein it has been observed as under:- “3.5 In this case, both the windmills at Village- Akal and Nu have been commissioned on 31.03.2010. As regards, the windmill at

(4 of 6) Village-Nu, it is seen that this windmill has generated only 5.2 units of electricity on 31.03.2010 and thereafter, no electricity has been generated in the month of April, 2010. Thereafter, in the month of May, 2010; 78089 units were generated, in the month of June, 2010; 73,950 units were generated and so on. Since, no generation of electricity has taken place in April, 2010 and only 5.2 units have been sporadically generated on 31.03.2010, it does not appear to me that the 5.2 units of electricity were generated during the course of a successful trial run (on 31.03.2010). From the facts of electricity generated by this windmill, it appears to me that the trial run was not successful on 31.03.2010 since no electricity could be generated in April 2010 and only a meager amount of electricity wa possible to have been recorded on 31.03.2010. Therefore, it is held that this windmill was not ready for use on 31.03.2010, for if it were so, it would have generated electricity in the month of April, 2010. In view of the above discussion, it is held that this windmill at Village-Nu, was not put to use in this previous year but was only put to use in the month of May, 2010. Therefore, the disallowance of depreciation on this windmill for this previous year amounting to Rs.1,72,00,000/-, is directed to be added to the total income. 3.6 The windmill at village-Akal has generated 49 units of electricity and drawn 5 units of electricity, thereby producing net electricity of 44 units. I have perused the assessment records and have seen that in case of this windmill, the Superintending Engineer, Jodhpur Discom, vide letter dated 26.06.2013, has informed that this windmill has generated 44, 177 units in April 2010; 1,61,634 units in May, 2010.... 44,842 units in August, 2010, 37,085 units in September, 2010 and so on. Therefore, this reply from the Superintending Engineer shows that this windmill which was commissioned on 31.03.2010 has continuously generated electricity from this date onwards. Therefore, the fact that a new metering arrangement was not put in place on 31.03.2010 will not alter the fact that this windmill was not put to use during the previous year in question. In view of the above discussion, it is held that windmill at Village- Akal has been put to use in this previous year

(5 of 6) and therefore, depreciation claimed on this windmill, amounting to Rs.1,39,55,850/- is therefore, not sustainable.” 8. In appeal before the tribunal, the tribunal has observed as under:- “3.7.1 As regards Ground No.1 and 2 of the assessee, it is noted that the CIT(A) has disallowed the depreciation amounting to Rs.1,72,00,000/- with regard to windmill at NU Unit by observing as under:- "3.5 In this case, both the windmills at Village- Akar and NU have been commissioned on 31.03.2010. As regards the windmill at village- UN, it is seen that this windmill has generated only 5.2 units of electricity on 31.03.2010 and thereafter, no electricity has been generated in the month of April, 2010. Therefore in the month of May, 2010; 78,089 units were generated, in the month of June, 2010; 73,950 units were generated and so on. Since, no generation of electricity has taken placed in April, 2010 and only 5.2 units have been sporadically generated on 31.03.2010, it does not appear to me that the 5.2 units of electricity were generated during the course of a successful trial run (on 31.03.2010). From the facts of electriity generated by this windmill, it appears that the trial was not successful on 31.03.2010 since no electricity could be generated in April 2010 and only a meagre amount of electricity was possible to have been recorded on 31.03.2010. Therefore it is held that this windmill was not ready for use on 31.03.2010, for if it were so, it would have generated electricity in the month of April, 2010. In view of the above discussion, it is held that this windmill at Village-UN was not put to use in this previous year but was only put to use in the month of May, 2010. Therefore, the disallowance of depreciation on this windmill for this previous year amounting to Rs. 1,72,00,000/- is directed to be added to the total income. 3.7.2 During the course of hearing, the ld. AR of the assessee submitted a certificate at Page 74 of the Assessee's paper book issued by the AEN, AVVNL, Jaipur for the period from March

(6 of 6) 2010 to April 2011 in which he has explicitly mentioned that commissioning of the NU Unit was done by the assessee on 31.03.2010 and 5.2KW electricity was generated by the assessee in the month of March, 2010. The AEN, AVVNL vide his certificate at Page 74 of the assessee's paper book has given the monthwise details of generation of electricity by the assessee as under:- March April May 2010 June July Aug 2010 Sept Oct Nov 2010 Dec 2010 Jan Feb March April 5.2 Kwh

780089.44 73950.24 54490.8 65867.36 48250.8 63112.4 51185.68 73237.84 81712.8 72664.8 92107.6 94260.4 Hence, it is noted from the certificate of AEN, AVVNL that the wind mills was put to use in the month of March, 2010 and it has generated electricity of 5.2 Kwh. Thus it shows that the assets of thw wind mill at NU Unit was put to use by the assessee for the purpose of business. Hence, the documents produced by the assessee from the AEN, AVVL and the details of the generation of electricity that wind mill at NU Unit was had generated the power on 31.03.2010 proves that wind mill at NU unit was put to use. Thus in view of the above facts and circumstances of the case and the case relied on by the ld. AR of the assessee, we are of the considered view that the ld. CIT(A) is not justified in confirming the disallowance of depreciation of Rs.1,72,00,000/- which is directed to be deleted. Thus Ground No.1 and 2 of the assessee are allowed.” 9. We see no reason to interfere in this appeal. Hence, no substantial question of law arises. 10. The appeal stands dismissed.

(VIJAY KUMAR VYAS) J. (K.S. JHAVERI)J. Brijesh 75.