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Before: SHRI S.V. MEHROTRA & MS. SUCHITRA KAMBLE
ORDER PER SUCHITRA KAMBLE, JM
This appeal is filed by the revenue against the order dated 12/8/2010 passed by Ld. CIT A) XIII, New Delhi. 2. The grounds of appeal are as follow:-
“1. On the facts and circumstances of the case and in law, the Ld. CIT (A) is wrong, perverse, illegal and against the provisions of law which is liable to be set aside.
On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in holding that the assessee is entitled for claim of depreciation amounting to Rs.24,38,680/- without appreciating the fact that the assessee do not have the ownership right on the assets on which depreciation has been claimed.
The first ground is in general and not pressed by the Ld. AR, hence dismissed.
The assessee had applied for the sanction of electric load of 3,200 KVA for running its induction furnace. The electric connection of the desired load had to be applied well in advance, since large number of formalities is involved in the sanction and installation of the power connection. On an application made to the Uttar Pradesh Power Corporation Limited, the factory premises of the assessee company were surveyed by the Department and an estimate letter dated 8/11/2004 was prepared and issued in favour of the assessee company. The Uttar Pradesh Power Corporation Limited had prepared and estimated for laying high tension wires, for the construction of bay for installing transformer and power panel for the supply of the power of the desired load. This was a dedicated line along with transformer wherefrom the power was drawn exclusively by the assessee for running its induction furnace. The payment was deposited with the Uttar Pradesh Power Corporation Limited, after the deposit of the amount as directed by the Department, the transformer and electric distribution system was installed in the premises of the assessee and the assessee alone had an exclusive right to draw power out of the distribution station installed in the factory premises of the assessee. The Uttar Pradesh Power Corporation Limited maintains control over the power station/distribution lines installed for the assesee for the security reasons and more importantly to insure that there is no power theft and /or illegal diversion of power to any person other than the assessee company. The Uttar Pradesh Power Corporation Limited, thus exercises the control for the limited periods though the beneficial ownership over the entire power distribution system installed at the cost of the assessee company raised exclusively with the assessee.
The Assessing Officer in his order observed that during the year under consideration the assessee claimed deprecation at 15% as per the provisions of Section 32(1) as well as additional depreciation at 20% as per the provisions of Section 32(1) (iia) on the electric installations of Rs.69,61,944/-. As per the fixed asset schedule, the electric installations of Rs.48,44,910/- were purchased prior to 1/4/2005 and installation of Rs.21,17,034/- was purchased during the year. The deprecation u/s 32 (1) (iia) is allowed only if the plant and machinery must be acquired and installed after 31/3/2005. Thus it is clear that the expenditure incurred prior to 31/5/2005 will not qualify for the additional depreciation u/s32(1)(2a) of the Income Tax Act.
The assessee in its reply stated that as the current year was the first year of production the investment made before 31/5/2005 also qualify for the additional depreciation in order to further verify the claim of the assessee on the deprecation claimed. The assessee was asked to furnish relevant bills in respect of the investment made. As per the details submitted, it was observed that the said expenditure pertains to payment made to Electricity Department in the form of security and other charges for installation of power connections for the assessee.
The Assessing Officer further observed that by making the above expenditure the assessee has not acquired any ownership rights on the said asset for claiming deprecation the assessee must be the owner of the asset. The Assessing Officer referred the Hon'ble Supreme Court decision in the case of R.B Jodhamal Kuthiala Vs. CIT 1971 182 ITR 570 (Supreme Court) wherein it was held that the real estate to ascertain whether the assessee was entitled to the income from the property and hence the owner must be the person who can exercise the rights of owner not on behalf of the owner but in his own right in view of aforesaid, it is clear that the assessee was not the owner of the said electrical installations and accordingly the Assessing Officer disallowed the depreciation claim by the assessee.
Aggrieved by the said order, the assessee preferred appeal before the Ld. CIT (A). The Ld. CIT(A) held in para 4 as under:
“I have carefully considered the submissions made by the counsel as also the order passed by the A.O and the observations made by him. I have gone through the documents filed by the appellant at the time of assessment as well as certain additional documents before the in support of his contention. The veracity of these documents are not in dispute as stated by the A.O in his remand report where the A.O adds that these documents were not possessed by the assessee during the assessment. However, in order to impart substantive justice all these documents are admitted.
It is noted that the appellant had made security deposit and part of the advance amount with the Uttar Pradesh Power Corporation Limited, up to 31/3/2005. From the letter dated 7/4/2005 it is clear that the agreement for the sanction and installation of the machinery to provide power connection of 3200 KVA was signed by the appellant only on 7/4/2005. The installation process was subsequently under taken and completed by the UPPCL during the period April 2005 to June 2005. This finds support from the statement of electrical installations placed on file by the A.R where it is seen that expenses to the tune of Rs.21,17,034/- were incurred during this period on the construction/installation and commissioning of the machinery for the supply of power connection of 3200 KVA to the industrial unit of the appellant. The connection was released on 22/6/2005 after the sealing report was provided by Uttar Pradesh Power Corporation Limited. I have also examined the first Electricity bill issued by the UPPCL dated 23/8/2005 were also it is clearly mentioned that the new connection is released on 22/6/2005 as per sealing report number 03/27 dated 22/6/2005. I have also considered the submission of the A.R that the entire system is installed in the premises of the appellant company and that the appellant alone is entitled to draw power out of the said power distribution machinery. It is observed that in electrical installation of such nature the Power Corporation Ltd exercises control over such system for the limited purpose of maintaining regular supply and to avoid power theft and safely of the equipment which could turn hazardous in self-handling. It is also noted that the appellant has not claimed depreciation on the security deposit which is separately reflected on the asset side of the balance sheet. I am thus of the view that appellant is the sole beneficial owner of the power distribution machinery and that he draws power from the said system in his own right as an owner. On this issue reliance is also placed on decisions of Hon'ble Supreme Court & Hon'ble High Court in cases of Jodhamal Kuthalia 82 ITR 570; Poddar Cement P. Ltd 226 ITR 625; Mysore Minerals Ltd. 239 ITR 775; Fazilka Dabwali Transport Co. 270 ITR 398 and several other decisions of Hon'ble High Court viz. CIT vs. Gaekwad & Co. 277 ITR 553; CIT vs. Sarabhai Chemicals P. Ltd. 254 ITR 625; CIT vs. Parthas Trust 249 ITR 120. The sum and substance of these decisions are that the term “ownership” as occurring in S. 32 of IT Act should be assigned a wider meaning. That anyone in possession of property in his own right and enjoying the beneficial ownership thereof to exclusion of others and entitled to receive income from the same is a “owner” for purpose of allowance of depreciation under S. 32 of IT Act. Any narrow interpretation would run counter to the concept of allowance of depreciation. As regards the judgments relied upon by the A.O in his remand report viz. CIT vs. ABC India Ltd. 226 ITR 733, CIT Vs. Bharath Gold Mines Ltd. 192 ITR 639, Tamil Nadu Civil Supplies Corporation Ltd. Vs. CIT 228 ITR 399, CIT Vs. Tamil Nadu Agro Industries Corporation 192 ITR 108, Ram Kumar Mills P. Ltd. Vs. CIT 180 ITR 464 are concerned, in view of the an aforesaid recent decisions including that of the apex court the decisions cited by the A.O may not be applicable now.
Further the submission of the appellant regarding treating expenditure for business purpose either under revenue or capital can be examined from a different perspective also. There is no denying the fact that the impugned expenditure has been for purpose of business and as they are necessary adjunct to his plant and machinery and therefore needs to be capitalized and depreciation allowed on the same. From the copy of schedule for fixed assets as on 31/3/2006 it is seen that while Plant and Machinery up to 31/3/2005 was Nil, there has been addition under this head for Rs.98,57,986/- during the year. The details of their addition has also been provided which are in the nature of Power and Control system, furnaces and power supply unit, transformer and loose accessories, crane structure and others. Now these plant and machinery would be of no use, if electrical installation/connection is not done. Rather the business operation itself cannot operation-lize. Therefore, expenditure made by the appellant on electrical installations can in the alternative be capitalized with Plant and Machinery and normal depreciation and additional deprecation can be allowed on both the items taken together. The decisions in CIT Vs. Tata Mills 118 ITR 496 and CIT Vs. Indian Turpentine 75 ITR 533 are also relied in this context.
To conclude, as the system was installed only after 1/4/2005 and put to use on 22/6/2005. Upon issue of sealing certificate there is no justification for denial of normal and additional depreciation as claimed by the appellant in the return filed for the aforesaid year.”
The Ld. DR submitted that the Assessing Officer has rightly disallowed the claim of depreciation as there was no ownership established by the assessee company. The Ld. DR further stated that the ownership lies with the Uttar Pradesh Power Corporation Limited. He relied upon the Assessing Officer’s order. He stated that the CIT (A) has not taken the Assessing Officer’s order in proper spirit hence pleaded that the present appeal to be allowed and Ld. CIT(A) order should be set aside.
The Ld. AR submitted that the assessee company has installed induction furnace and the same was reflected in the details of addition of fixed assets from 1/4/2005 to 31/3/2006 the same was annexed to the written submission by the assessee and at Page 16 of the paper book, the date of induction furnace was installed on 25/4/2005. The Ld. AR further pointed out remand report dated 20/5/2010 (page 20 of the paper book), wherein the assessee company has furnished all the details related to the electrical installations to the Assessing Officer. The Ld. AR further pointed out the security deposit which was paid to the Uttar Pradesh Power Corporation Limited, and clearly stated that the assessee has not taken any depreciation on the security deposit but only has claimed deprecation on system loading charges, bay charges and proceeding charges. Though, the security deposit was paid on 8/11/2004, the assessee has not claimed any depreciation in the earlier year. Therefore, the assessee has rightly claimed the depreciation in the year under consideration.
We have perused all the records and heard both the counsels. It is pertinent to note that the assessee company has submitted all the details related to the electrical installation and its co-relation with the business activities of the assessee. The said installation was within the premises of the assessee. The assessee company has installed induction furnace and the same was reflected in the details of addition of fixed assets from 1/4/2005 to 31/3/2006 the same was annexed to the written submission by the assessee and the date of induction furnace was installed on 25/4/2005.Though, the security deposit was paid on 8/11/2004, the assessee has not claimed any depreciation in the earlier year. Therefore, the assessee has rightly claimed the depreciation in the year under consideration. The CIT (A) has given a detailed finding to this aspect. Therefore, the CIT (A) has rightly set aside the findings of the Assessing Officer and allowed the deprecation to the assessee.
In result, the appeal is dismissed.
The order is pronounced in the open court on 15th of December 2015.