ACIT, NEW DELHI vs. D.V.S. STEELS & ALLOYS PVT. LTD., NEW DELHI

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:

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.