RAMANIKLAL S. GOSALIA & CO,MUMBAI vs. ASST CIT RG 21(2), MUMBAI

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ITA 7347/MUM/2016Status: DisposedITAT Mumbai25 April 2018AY 2008-096 pages
AI SummaryRemanded

What did the Tribunal hold?

The Tribunal noted that a similar issue for a prior assessment year was restored to the Assessing Officer for de novo adjudication. Therefore, the current year's claim is consequential and should also be restored.

What were the facts?

The assessee claimed depreciation on expenditure for a common infrastructure facility for wind mills, treating it as an intangible asset. The Assessing Officer disallowed this, stating it was a capital expenditure without acquiring ownership of an asset. The CIT(A) upheld the disallowance.

What were the issues?

Whether expenditure on a common infrastructure facility qualifies for depreciation as an intangible asset. Whether the issue should be restored to the Assessing Officer for fresh adjudication.

Which sections of the Income-tax Act were involved?

Section 37(1)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “D” BENCH, MUMBAI

Before: SHRI SAKTIJIT DEY & SHRI RAMIT KOCHAR

For Appellant: Smt. M.K. Patel
For Respondent: Shri Ram Tiwari

This appeal by the assessee is against order dated 19th September 2016, passed by the learned Commissioner (Appeals)–33, Mumbai, for the assessment year 2008–09.

2.

Ground no.1, is not pressed, hence, dismissed.

3.

In ground no.2, assessee has challenged disallowance of depreciation on intangible asset.

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4.

Brief facts relating to the aforesaid issue are, the assessee a partnership firm is a wholeseller of chemicals, solvents and polymers. Assessee is also in the business of generating electricity through wind mills. For the assessment year under dispute, the assessee filed its return of income on 4.09.2008 declaring total income of ` 3,10,38,071. During the assessment proceedings, the Assessing Officer noticing that assessee has claimed depreciation of ` 13,18,359 on the opening written down value of ` 52,73,460, relating to rights in common infrastructure I and II by treating it as intangible asset, called upon the assessee to furnish details of such claim. On verifying the details he found that the expenditure was incurred towards payment for a common infrastructure facility created by Suzlon Energy Ltd. for use of all wind mills situated in that area. The Assessing Officer was of the view that the expenditure incurred by the assessee was a capital expenditure, hence, depreciation cannot be allowed by holding it as intangible asset. Accordingly, the Assessing Officer proposed to disallow the depreciation claimed by the assessee. The assessee objected to the proposed disallowance by relying upon an order of the first appellate authority for assessment year 2006–07, wherein assessee’s claim of depreciation was partly allowed. The Assessing Officer, however, was not convinced with the submissions of the assessee. He held that the common infrastructure facility on which the assessee had claimed depreciation @ 25%, as applicable to intangible

3 Ramaniklal S. Gosalia & Co. asset, not being in the nature of knowhow, patent, copy right for trade mark or license or a franchise cannot be treated as intangible asset, hence, assessee’s claim of deprecation @ 25% is not allowable. Further, the Assessing Officer also held that though, the expenditure incurred by the assessee on the common infrastructure facility is a capital expenditure, but, the assessee has not acquired any asset by incurring such expenditure. Accordingly, he disallowed assessee’s claim of depreciation. Being aggrieved of the disallowance of depreciation, assessee preferred appeal before the first appellate authority.

5.

The learned Commissioner (Appeals) after examining the facts on record observed that neither the assessee has acquired any ownership in power evacuation facility nor any cost is borne by the assessee since the entire cost of the evacuation facility was made by way of loans and grants. Hence, he held that assessee’s claim of deprecation cannot be allowed, since, according to him, by paying for common infrastructure facility no right in the form of an intangible asset has been created. Therefore, he disallowed assessee’s claim of depreciation.

6.

The learned Authorised Representative submitted, similar issue relating to assessee’s claim of deduction of the expenditure incurred towards infrastructure facility of common power evacuation either as 4 Ramaniklal S. Gosalia & Co. revenue expenditure or towards depreciation came up for consideration before the Tribunal in assessment year 2007–08. Vide order dated 22nd September 2016, in ITA no.6463/Mum./2012, the Tribunal has restored the issue to the Assessing Officer for fresh adjudication. Therefore, it was submitted, the claim of the assessee in the impugned assessment year will be consequential to the decision to be taken by the Assessing Officer in assessment year 2007–08. Therefore, she submitted that the issue may be restored back to the file of the Assessing Officer for de novo adjudication.

7.

The learned Departmental Representative agreed with the aforesaid submissions of the learned Authorised Representative.

8.

We have considered rival submissions and perused materials on record. Undisputedly, depreciation claimed by the assessee which is the subject matter of dispute in the present appeal relates to the expenditure incurred towards contribution to common infrastructure facility created by Suzlon Energy Ltd. Notably, in course of the appeal proceedings before the learned Commissioner (Appeals) in assessment year 2007–08, the assessee claimed deduction of such expenditure incurred as revenue expenditure under section 37(1) of the Act. Alternatively, assessee claimed depreciation by treating it as an intangible asset. However, the learned Commissioner (Appeals) rejected assessee’s claim. When the assessee challenged the decision

5 Ramaniklal S. Gosalia & Co. of the learned Commissioner (Appeals) before the Tribunal, the Tribunal in the order referred to above, restored the issue to the Assessing Officer with the following observations:–

“4. After hearing the rival contentions, we find that the assessee has made claim of payment of Rs.37.50 lacs in the course of business of generation of power from Windmill and claimed the same as business expenditure u/s 37(1) of the Act. We have gone through the assessment order and noticed that at page 2 of the assessment order in Para 4.1 the assessee has made a claim regarding payment in respect to infrastructure facility of common power evacuation of Rs.37.50 lacs to Suzlon Energy Ltd. We find that these facts are very much available on record of the AO as well as the CIT (A). The only issue which is to be considered is as to whether these facts need verification and the issue is to be set aside to the file of the AO. Hence, we admit the additional grounds of appeal and set aside the issue to the file of the AO for deciding the issue after allowing reasonable opportunity of being heard to the assessee. This issue of the assessee’s appeal is allowed for statistical purpose.”

9. After perusing the observations of the Co–ordinate Bench as above, we agree with the learned Authorised Representative that the issue relating to assessee’s claim of depreciation in the impugned assessment year is dependent upon the ultimate outcome of the decision to be taken with regard to assessee’s claim of deduction in respect of similar expenditure in assessment year 2007–08. That being the case, we restore the issue raised in this ground to the file of the Assessing Officer for de novo adjudication after due opportunity of being heard to the assessee. This ground is allowed for statistical purposes.

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10.

In the result, assessee’s appeal is allowed for statistical purposes. Order pronounced in the open Court on 25.04.2018

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