SUNSTONE ENGINEERING,JAIPUR vs. ITO, JAIPUR

आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES (SMC), JAIPUR Jh HkkxpUn] ys[kk lnL; ds le{k BEFORE: SHRI BHAGCHAND, ACCOUNTANT MEMBER vk;dj vihy la-@ITA No. 1018/ & 1019JP/2016 fu/kZkj.k o"kZ@Assessment Year : 2012-13 & 2013-14 cuke M/s. Sunstone Engineering Industries (P)Ltd. The ITO Vs. L-5, B-11, Krishna Marg, C-Scheme, Jaipur Ward- (T&J) Jaipur LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AABCS 9144 D vihykFkhZ@Appellant izR;FkhZ@Respondent vk;dj vihy la-@ITA No. 1098/JP/2016 fu/kZkj.k o"kZ@Assessment Year : 2013-14 cuke The ACIT M/s. Sunstone Engineering Industries (P)Ltd. Vs. Circle- 6, Jaipur L-5, B-11, Krishna Marg, C-Scheme, Jaipur LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AABCS 9144 D vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@Assessee by: Shri Amit Kothari, CA jktLo dh vksj ls@ Revenue by: Shri R.A. Verma, Addl. CIT - DR lquokbZ dh rkjh[k@ Date of Hearing : 03/03/2017 ?kks"k.kk dh rkjh[k@ Date of Pronouncement : 07/03/2017 vkns'k@ ORDER PER BHAGCHAND, AM The assessee has filed an appeal against the order of the ld. CIT(A)-2, Jaipur dated 21-09-2016 for the assessment year 2012-13. Further, the assessee and Revenue has filed the cross appeals against the

2 ITA No.1018/JP/2016 M/s. Sunstone Engineering Industries (P) Ltd.,Jaipur vs. ITO, Ward- (T&J), Jaipur order of the ld. CIT(A)-2, Jaipur dated 19-09-2016 for the assessment

year 2013-13. The grounds of appeal raised by the assessee and the

Revenue in the respective appeals are as under:-

ITA No. 1018/JP/2016 – Assessee (A.Y. 2012-13)

‘’1. (a) The ld. CIT(A) has erred in not allowing higher depreciation civil foundation work and has erred in not treating the same as part of the wind mill cost.

(b) The ld. CIT(A) has also erred in not appreciating the fact that the said issue was fully covered by the decision of Hon'ble Rajasthan High Court in the case of K.K. Enterprises.

ITA No. 1019/JP/2016 – Assessee (A.Y. 2013-14)

‘’1. (a) The ld. CIT(A) has erred in not allowing higher depreciation civil foundation work and has erred in not treating the same as part of the wind mill cost.

(b) The ld. CIT(A) has also erred in not appreciating the fact that the said issue was fully covered by the decision of Hon'ble Rajasthan High Court in the case of K.K. Enterprises.

3 ITA No.1018/JP/2016 M/s. Sunstone Engineering Industries (P) Ltd.,Jaipur vs. ITO, Ward- (T&J), Jaipur

ITA No. 1098/JP/2016 – Revenue (A.Y. 2013-14)

2.1 First of all, the appeal of the assessee for the assessment year 2012-

2013 is taken up for adjudication.

3.1 Apropos Ground No. 1(a), (b) and 2 of the assessee, the facts as

emerges from the order of the ld. CIT(A) is as under:-

Ground No. 1(a) and 1(b)

‘’3.3 I have perused the fats of the case, the assessment order and the submissions of the appellant. As noted in the assessment order, the assessee company had set up a windmill electric turbine generator in Feb. 2011. The Assessing Officer examined the claim of depreciation of Rs. 1,40,66,354/- which consisted of wind energy or windmill worth Rs. 2,71,82,555/- building and civil foundation work of Rs. 30,89,793/- and plant and machinery which consisted of electrical lines and installation of Rs. 48,93,538/-. The Assessing Officer after discussing the facts restricted the depreciation on the civil foundation work to be treated as

4 ITA No.1018/JP/2016 M/s. Sunstone Engineering Industries (P) Ltd.,Jaipur vs. ITO, Ward- (T&J), Jaipur building at 5% (50% of 10%) and electrical installation at 15% (50% of 30%) treating the same as plant and machinery

In the present proceedings, it was submitted that in relation to depreciation on wind mill, installed items like concrete tower, converters and transformers, cable networking are also plant and machinery ad since specific rate of depreciation is provided for the wind mill, these items would also be eligible for the same rate of depreciation. Reliance was placed on various decisions on the issue. This issue came up in another case of M/s. Gangaur Exports for the assessment year 2012-13 wherein it had been held by predecessor that while electrical installation, would be a part of wind mill however, the civil foundation work would form part of building and depreciation rate of 10% would be allowable. The Hon'ble ITAT in its judgement dated 17-06- 2016 has upheld this findings. The relevant portion of the same is reproduced (at pages 9 to 11 of ld. CIT(A)’s order).

In view of the above, and following the decision of the ITAT on this issue this ground of appeal is partly allowed.

Ground No. 2

4.3 I have perused the facts of the case, the assessment order and the submission of the appellant. The AO has allowed the additional depreciation claimed by the assessee which had been claimed at 50% in the previous year. However, due to applicability of different rates of depreciation by the assessee and Assessing Officer on the wind mill itself, there is a difference of amount of Rs. 3,08,979/- which has not been allowed by Assessing Officer. In view of the ground 1 where the issue of rate of depreciation on wind mill has been discussed, this modified. The Assessing Officer to accordingly modify the quantum of additional depreciation. This ground of appeal is partly allowed.

5 ITA No.1018/JP/2016 M/s. Sunstone Engineering Industries (P) Ltd.,Jaipur vs. ITO, Ward- (T&J), Jaipur 3.2 During the course of hearing, the ld. AR of the assessee relied on

the decision of Hon'ble Rajasthan High Court in the case of CIT vs. K.K.

Enterprises (2014) 108 DTR 0109 (Raj) praying therein that both the

grounds i.e. 1(a), (b) and 2 are covered by the decision of Hon'ble

Jurisdictional High Court in which Hon'ble Court held that civil structure

and electric fitting, equipments are part and parcel of wind mill and

depreciation on investment of such work should be allowed.

3.3 During the course of hearing, the ld. DR supported the orders of the

authorities below.

3.4 I have heard the rival contentions and perused the materials

available on record. It is noted that the issues raised by the assessee are

covered by the decision of Hon'ble Jurisdictional High Court in the case

of CIT vs. K.K. Enterprises wherein the observation of the Hon'ble Court

is as under:-

‘’Held:- The issue involved in these appeals has been considered by the Hon'ble Gujarat High Court in Tax Appeal No. 604/2012 decided on 29-1-2013, in Commissioner of Income Tax, Ahemdabad-III vs. Parry Enginerng and Electronics (P) Ltd. In the case aforesaid Hon'ble Gujarat High Court held that ‘’Windmill would require scientifically designed machinery in order to harness the wind energy to the maximum potential. Such device has to be fitted and mounted on a civil construction, equipped with electric fittings in order to transmit the electricity so generated. Such civil structure and electric fittings, therefore, it can be well imaged, would be highly specialized. Thus,

6 ITA No.1018/JP/2016 M/s. Sunstone Engineering Industries (P) Ltd.,Jaipur vs. ITO, Ward- (T&J), Jaipur such civil construction and electric fitting would have no used other than for the purpose of functioning of the wind mill. On the other hand, it can be easily imagined that windmill cannot function without appropriate installation and electrification. In other words, the installation of wind mill and the civil structure and the electric fittings are so closely interconnected and linked as to form the common plant. As already noted, the legislature has provided for higher rate of depreciation of 80 per cent on renewable energy devises including wind mill and any specially designed devise, which runs on wind mill. The civil structure and electric fittings, equipments are part and parcel of the wind mill and cannot be separated form the same. The assessee's claim for higher depreciation on such investment was, therefore, rightly allowed.

Conclusion :- Civil structure and electric fitting, equipments are part and parcel of wind mill and depreciation on investment of such work should be allowed.’’

Respectfully following the decision of Hon'ble Jurisdictional High Court

in the case of CIT vs. K.K. Enterprises (supra), the Ground No. 1(a),(b)

and 2 of the assessee are allowed.

4.1 Apropos Ground No. 3 of the assessee, the facts as emerges from

the order of the ld. CIT(A) is as under:-

‘’5.3 I have perused the facts of the case, the AO and the submissions of the appellant. The Assessing Officer on examination of the balance sheet and relevant documents and submissions made by the assessee observed that assessee company claimed short term loss on sales of shares of Rs. 8,24,443/- as business loss, Rs., 5,914/- other charges on shares and Rs. 4,559/- on STT on shares totaling to Rs. 8,34,916/-. This short term loss on shares had been shown as expenses in profit and loss account while the AO opined

7 ITA No.1018/JP/2016 M/s. Sunstone Engineering Industries (P) Ltd.,Jaipur vs. ITO, Ward- (T&J), Jaipur that the company is engaged in the business of manufacture of emery flour mills, mills stone, machinery etc. and shares held at the end of F.Y. 31st March 2012 as current investments. Further, in the Audit Report on quantitative details of shares traded was reported.

It was further seen that the assessee himself has claimed the same to be short term capital loss in the letter written on 12-12-2014 and business loss in letter dated 13- 03-2015. The Assessing Officer based on the above treated the loss as short term capital loss under the head ‘Capital Gain’ treating the transaction as investment activity and did not allow set off against business income accordingly to set 72 of the I.T. Act, 1961. In the present proceedings, the Authorized Representative submitted that the loss on account of shares was part of the business loss and the same can also be not treated a speculative in view of the amendments made in Section 43(5). Reliance was also on Circular No. 6/2016 dated 29th Feb. 2016 with regard to issue of taxability of surplus on sale of shares and securities.

In view of the reasons discussed by the Assessing Officer for holding the same as capital loss as well as the fact that the assessee itself admitted it to be a capital loss initially before the Assessing Officer, the submissions of the authorized representative cannot be agreed to. Further the Circular gives the option to the assessee but in this case, the facts shows that the assessee itself was treating the loss as capital loss. As regards Section 43(5), it has certain conditions attracted as to what transactions cannot be treated as speculative. No details for the same were furnished. The stand of the Assessing Officer is confirmed and the ground of appeal is dismissed. ‘’

4.2 During the course of hearing, the ld. AR of the assessee prayed that

the ld. CIT(A) has erred in not allowing the set off of loss on shares

8 ITA No.1018/JP/2016 M/s. Sunstone Engineering Industries (P) Ltd.,Jaipur vs. ITO, Ward- (T&J), Jaipur amounting to Rs. 8,34,916/-. The ld. AR of the assessee relied on the CBDT Circular No. 6/2016 dated 29th Feb. 2016.

4.3 On the other hand, the ld. DR relied on the orders of the authorities

below.

4.4 I have heard the rival contentions and perused the materials

available on record. It is noted that during the course of hearing the ld.

AR of the assessee repeated the same arguments as made before the ld.

CIT(A). In the appeal before this Bench, the ld. AR of the assessee

submitted that details of loss on sale of shares were submitted before the

authorities below (page15 to 18 of the paper book). The same was

claimed as business loss while the AO treated the same as short term

capital loss. The ld. AR of the assessee placed reliance on CBDT Circular No. 6/2016 dated 29th Feb. 2016 to this effect. From the perusal of the

facts as mentioned by the AO in his order, I noted that the ld. CIT(A) has

rightly confirmed the action of the AO by not allowing the set off of loss

on shares amounting to Rs. 8,34,916/- claimed as business loss by the

assessee. Thus Ground No. 3 of the assessee is dismissed.

In the result, the appeal of the assessee is partly allowed.

5.1 The appeal of the assessee for the assessment year 2013-2014 is

taken up for adjudication.

9 ITA No.1018/JP/2016 M/s. Sunstone Engineering Industries (P) Ltd.,Jaipur vs. ITO, Ward- (T&J), Jaipur 6.1 The Ground No. 1(a) and (b) of the assessee is as under:-

‘’1. (a) The ld. CIT(A) has erred in not allowing higher depreciation civil foundation work and has erred in not treating the same as part of the wind mill cost.

(b) The ld. CIT(A) has also erred in not appreciating the fact that the said issue was fully covered by the decision of Hon'ble Rajasthan High Court in the case of K.K. Enterprises.

6.2 I have heard the rival contentions and perused the materials

available on record. This issue has been decided in favour of the assessee

by this Bench in assessee's own case for the assessment year 2012-12 in

ITA No. 1018/JP/2016 (supra). Thus the decision taken therein shall

apply mutatis mutandis in assessee's own case in ITA No. 1019/JP/2016

for the assessment year 2013-14. Hence, the Ground No. 1(a) and (b) of

the assessee is allowed.

7.1 The Ground No. 2 of the assessee is regarding sustaining the

addition of Rs. 68,559/- by the ld. CIT(A) by invoking the provisions of

Section 14. The facts as emerges from the order of the ld. CIT(A) is as

under:-

‘’5.3 I have perused the facts of the case, the assessment order and the submissions of the appellant. The Assessing Officer noted that the assessee has earned dividend income of Rs. 1,73,404/- while an expenditure of Rs. 6,77,136/- was incurred during the year. The Authorized Representative explained that provisions of Section 14A of the I.T. Act were not applicable as some investments and

10 ITA No.1018/JP/2016 M/s. Sunstone Engineering Industries (P) Ltd.,Jaipur vs. ITO, Ward- (T&J), Jaipur advances were interest bearing and also that the assessee had a share capital of Rs. 19,75,000/- and reserves of Rs. 2,14,50,506/- which adequately cover such advances and investment in shares. The Assessing Officer did not agree with the same as no details of availability of funds with details of investment and their linkage to own funds was provided. The provisions of Section 14A were invoked and a disallowance of Rs. 68,559/- was made. In the present proceedings, the submissions made before the Assessing Officer have been reiterated. However, no details of investment made, own funds available and the availability of the same at the time of making the investments has been demonstrated. The disallowance made by the Assessing Officer is confirmed. Ground of appeal is dismissed.’’

7.2 During the course of hearing, the ld. AR of the assessee prayed for

deletion of addition of Rs. 68,559/- sustained by the ld. CIT(A) by

invoking the provisions of Section 14. The ld. AR of the assessee filed the

written submission to this effect as under:-

‘’The AO made addition of Rs. 68,559/- on the basis of certain investments made in shares and Mutual Fund by invoking Section 14A which has been confirmed by the ld. CIT(A). The assessee had claimed that no expenditure was required to be incurred as such no disallowance was warranted. Further the interest net was only Rs. 10,914/- (paid Rs. 6,77,136/- and received Rs. 6,66,222/-). Alternatively only proportionate disallowance out of interest paid could be made. There was no new investment made during the year. Letter is submitted to AO giving detailed facts at pages 11 and 12 of the paper book. Shares of Diwakar Leasing and Fin. (P) Ltd. and shares of Sabook Engitech (P) Ltd. and HDFC Equity were old shares. Other current investments shown in balance sheet were also old investments. Further there was share capital of Rs. 19,75,000/- and reserves of Rs. 2,14,50,556/- which

11 ITA No.1018/JP/2016 M/s. Sunstone Engineering Industries (P) Ltd.,Jaipur vs. ITO, Ward- (T&J), Jaipur adequately covers the investments made. Reliance is placed on following decisions. (a) DCIT vs. Cosmos International Ltd. (2014) 41 CCH 32 (b) Bharat Shantilal Kadakia vs. ITO (2013) 35 CCH 352

© CIT vs. Gujarat Power Corporation (2013) 352 ITR 583 (d) CIT vs. Suzlon Energy Ltd. (2013) 354 ITR 630 (Guj)

(e) CIT vs. Deepak Mittal (2013) 361 ITR 131 (P&H)’’

7.3 The ld. DR relied on the orders of the authorities below.

7.4 I have heard the rival contentions and perused the materials

available on record. The AO during the course of assessment proceedings

observed that the assessee had earned dividend income of Rs. 1,73,404/-

while an expenditure of Rs. 6,77,136/- was during the year. During

assessment proceedings, the ld. AR of the assessee explained that Section

14A of the Act are not applicable as some investments and advances wee

interest bearing and also that the assessee had a share capital of Rs.

19,75,000/- and reserves of Rs. 2,14,50,506/- which adequately covers

such advances and investment in shares. The AO did not agree with the

submissions of the assessee as no details of availability of funds with

details of investments and their linkage to own funds was provided.

Therefore, the AO invoked the provisions of Section 14A of the Act made

a disallowance of Rs. 68,559/- which has been confirmed by the ld.

12 ITA No.1018/JP/2016 M/s. Sunstone Engineering Industries (P) Ltd.,Jaipur vs. ITO, Ward- (T&J), Jaipur CIT(A) in first appeal. Taking into consideration the facts, circumstances

of the case and the written submission of the assessee, the assessee is

directed to submit the details of investment made, own funds available

and the availability of the same at the time of making investment relating

to the linkage of the own funds before the AO. The AO is directed to

provide adequate opportunity of being heard to the assessee in accordance

with law. Thus Ground No. 2 of the assessee is allowed for statistical

purposes.

8.1 The Ground No. 3 of the assessee is regarding not allowing set off

of loss of Rs. 36,778/- claimed as business loss by treating the same as

capital loss.

8.2 After hearing both the parties and perusing the materials available

on record, it is noted that the similar issue was raised by the assessee in

A.Y. 2012-13 which has been dismissed by this Bench in assessee's own

case in ITA No. 1018/JP/2016. Since, the decision has been taken against

the assessee in assessee's own case for the assessment year 2012-13,

therefore, the same result shall apply mutatis mutandis in assessee's own

case for the assessment year 2013-13. Thus Ground No. 3 of the assessee

is dismissed.

13 ITA No.1018/JP/2016 M/s. Sunstone Engineering Industries (P) Ltd.,Jaipur vs. ITO, Ward- (T&J), Jaipur In the result, the appeal of the assessee is partly allowed for

statistical purposes.

9.1 The grounds of appeal of the Revenue for the A.Y. 2013-14 is

taken up for adjudication as under:-

‘’1. Whether on the facts and in the circumstances of the case and in law, the ld. CIT(A) was justified in deleting the addition of Rs. 22,94,27/- made by the AO on account of disallowance of depreciation on windmill ignoring the fact that civil structure and internal/ external power lines do not constitute the plants.

9.2 After hearing both the parties and perusing the materials available

on record, it is noted that the similar issue has been decided in favour of

the assessee in ITA No. 1018/JP/2016 for the assessment year 2012-13 by

observing as under:-

‘’I have heard the rival contentions and perused the materials available on record. It is noted that the issues raised by the assessee are covered by the decision of Hon'ble Jurisdictional High Court in the case of CIT vs. K.K. Enterprises wherein the observation of the Hon'ble Court is as under:- ‘’Held:- The issue involved in these appeals has been considered by the Hon'ble Gujarat High Court in Tax Appeal No. 604/2012 decided on 29-1-2013, in Commissioner of Income Tax, Ahemdabad-III vs. Parry Enginerng and Electronics (P) Ltd. In the case aforesaid Hon'ble Gujarat High Court held that ‘’Windmill would

14 ITA No.1018/JP/2016 M/s. Sunstone Engineering Industries (P) Ltd.,Jaipur vs. ITO, Ward- (T&J), Jaipur require scientifically designed machinery in order to harness the wind energy to the maximum potential. Such device has to be fitted and mounted on a civil construction, equipped with electric fittings in order to transmit the electricity so generated. Such civil structure and electric fittings, therefore, it can be well imaged, would be highly specialized. Thus, such civil construction and electric fitting would have no used other than for the purpose of functioning of the wind mill. On the other hand, it can be easily imagined that windmill cannot function without appropriate installation and electrification. In other words, the installation of wind mill and the civil structure and the electric fittings are so closely interconnected and linked as to form the common plant. As already noted, the legislature has provided for higher rate of depreciation of 80 per cent on renewable energy devises including wind mill and any specially designed devise, which runs on wind mill. The civil structure and electric fittings, equipments are part and parcel of the wind mill and cannot be separated form the same. The assessee's claim for higher depreciation on such investment was, therefore, rightly allowed.

Conclusion :- Civil structure and electric fitting, equipments are part and parcel of wind mill and depreciation on investment of such work should be allowed.’’

It is noted that the issue raised above by the assessee are covered by the decision of the decision of Hon'ble Jurisdictional High Court in the case of CIT vs. K.K. Enterprises (supra). Respectfully following the decision of Hon'ble Jurisdictional High Court in the case of CIT vs. K.K. Enterprises (supra), the Ground No. 1(a),(b) and 2 of the assessee are allowed’’

Since the issue of the Revenue is covered with the decision of ITAT

Jaipur Bench in assessee's own case for the assessment year 2012-13,

15 ITA No.1018/JP/2016 M/s. Sunstone Engineering Industries (P) Ltd.,Jaipur vs. ITO, Ward- (T&J), Jaipur therefore, the decision taken therein shall apply mutatis mutandis in Revenue grounds of appeal. Thus Ground No. 1 and 2 of the Revenue are dismissed. 10.0 In the result, the appeals of the assessee in ITA No. 1018/JP/2016 is partly allowed, ITA No. 1019/JP/2016 is partly allowed for statistical purposes and the appeal of the Revenue in ITA No. 1098/JP/2016 is dismissed. Order pronounced in the open court on 07/03/2017.

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सहायक पंजीकार@ Aेेपेजंदज. त्महपेजतंत