Commissioner Of Income Tax, Alwar v. M/S Vijay Solvex Ltd., Bhagwati Sadan, Dayanand Marg, Alwar

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH ATJAIPUR D.B. Income Tax Appeal No. 371 / 2011 Commissioner Of Income Tax, Alwar. ----Appellant Versus M/s Vijay Solvex Ltd., Bhagwati Sadan, Dayanand Marg, Alwar. ----Respondent _____________________________________________________ For Appellant(s) : Mr. Anil Mehta with Mr. Sameer SharmaFor Respondent(s) : Mr. Sanjay Jhanwar with Ms. Archana _____________________________________________________ HON'BLE MR. JUSTICE K.S.JHAVERIHON'BLE MR. JUSTICE INDERJEET SINGHJudgment 03/08/2017 1. By way of this appeal, the appellant has assailed thejudgment and order of the Tribunal whereby Tribunal has partlyallowed the appeal of the assessee and dismissed the appeal ofthe department. 2.This court while admitting the appeal on 1.3.2012 framedfollowing substantial question of law:- “Whether on law as well as on the facts andcircumstances of the case Hon’ble ITAT wasjustified in not upholding the applicability ofprovisions of Section 145(3) ignoring thedefects in the books of accounts and findings ofthe AO? Whether on law as well as on the facts andcircumstances of the case Hon’ble ITAT wasjustified in holding that the construction of roomwas entitled for higher rate of depreciation i.e.@ 8% by treating it as a part of wind mill fordepreciation purposes?” 3.Counsel for the appellant Mr. Mehta has taken us to theorder of the AO and contended that after considering the evidenceon record, AO has given detailed reasoning and tribunal in cursorymanner observed as under:- “We have heard the rival contentions andperused the facts of the case. The rejectionof books of account by AO are mainlybecause the assessee has purchased themustard seeds and sold the same on whichit has incurred loss of Rs.48,84,212/- forwhich no plausible reasons have been givenand there is a decline of gross profit rate aswell. The stock register of husk is notmaintained and consumption of raw materialand production did not give uniform ration ofelectricity consumption. After perusal of thefact, we find that the assessee has producedthe books of account, voucher etc. and if theassessee has incurred the loss in anytransactions, it is part of its business. Asregards the ratio of raw material andproduction to the electricity consumption,there are many factors for variation ofelectricity consumption. As regards husk,the same has been explained that the huskis used in the factory itself. The explanationwith regard to scrap was also given. In suchcircumstances and facts of the case, the AOis not justified in invoking the Provisions ofSection 145(3) of the Act and therefore, noaddition can be made on account of trading.Hence the addition sustained by the ld.CIT(A) is directed to be deleted.Thus GroundNo.1 of the assessee is allowed and Groundno.1 of the Revenue is dismissed. Ground no.2 of the Assessee: The ld. CIT(A)has erred in giving a finding that the roomfor putting the controllers cannot be treatedas part of machinery and allowing 10% ofdepreciation on the cost of construction ofroom in place of treating the same as part ofthe Wind Mill.” 3.1Therefore, he contended that view taken by the AO whichwas partially confirmed by CIT(A) is restored back andobservations made by the tribunal is required to be quashed andset aside. 4.Counsel for the respondent has relied upon the decision ofthis court on consumption of electricity in the case ofCommissioner of Income Tax vs. Sulabh Marbles (P) Ltd. reportedin (2007) 165 taxman 258 (Rajasthan) para no.4 wherein it hasbeen held as under:- Ground no.2 of the Assessee: The ld. CIT(A)has erred in giving a finding that the roomfor putting the controllers cannot be treatedas part of machinery and allowing 10% ofdepreciation on the cost of construction ofroom in place of treating the same as part ofthe Wind Mill.” 3.1Therefore, he contended that view taken by the AO whichwas partially confirmed by CIT(A) is restored back andobservations made by the tribunal is required to be quashed andset aside. 4.Counsel for the respondent has relied upon the decision ofthis court on consumption of electricity in the case ofCommissioner of Income Tax vs. Sulabh Marbles (P) Ltd. reportedin (2007) 165 taxman 258 (Rajasthan) para no.4 wherein it hasbeen held as under:- 4. The AO has rejected the books of account ofassessee. The books of account were rejected not onthe ground that any of the details of sale andpurchase were found to be wrong but on the basis ofamount paid for power and fuel consumption to theElectricity Department. The AO assumed that lookingto the bills of RSEB, the actual production should begenerated more than whatsoever have beendisclosed and to that extent sales must have alsobeen more. On this account, the books of accountwere rejected and the AO resorted to best judgmentassessment by adopting the GP rate of 52 per centand total income was computed as nil by rejectingthe claim of assessee for carrying forward loss of Rs.11,89,487. On appeal, the CIT(A) found that the rejection of thebooks of account was not warranted on the basis ofthe expenses shown on the power consumption. Itwas noticed that during the assessment period, theassessee was required to pay minimum chargerather than actual electricity consumption, which theassessee has contested before the Court successfullyand ultimately the assessee was made to only actualconsumption. Thus, the books of account have beenrejected on non-existing grounds and merely onsurmises in a very casual manner. Consequently, theresult shown in the books was accepted and theadditions made by AO were deleted. The Tribunal on second appeal recorded the findingas under: We have heard both the parties and given our thoughtfulconsideration to the rival submissions with reference tofacts, evidence and material on record. From the factsdiscussed above, it is obvious that the assessee had startedproduction in the middle of accounting year relevant to theassessment year under reference. The AO has not givenany specific finding for rejection of book results. He hasalso not pointed out any defects in the books of accountmaintained or the method of accounting followed. There isno material placed on record to show any instance ofsuppression of sales or inflation of purchases or expenses.The AO was wrong in drawing adverse inference against theassessee by only referring to the electricity expenses. TheElectricity Department had charged the assessee at theminimum rate rather than actual consumption. This isprecisely for this reason that the assessee contested theaccount of the Electricity Department in the Court of lawand the matter was decided by the Court in its favour. Inany case, the Revenue has not placed any material onrecord to controvert the finding of the CIT(A) that theassessee was charged electricity not at the minimum ratebut on actual consumption. Thus, there being no specificfinding recorded by the AO for rejection of the book resultsand in the absence of any defects in the books of account,we are of the considered opinion that the CIT(A) wasjustified in deleting the impugned addition. We confirm hisorder and dismiss both the grounds of appeal of theRevenue. 4.1He contended that on estimation, rejection of books ofaccounts is not permitted. 4.2Counsel for the respondent has relied upon the decision ofthis court in Tax Appeal No.14/2013 decided on 18.7.2014wherein it has been held as under:- 4.1He contended that on estimation, rejection of books ofaccounts is not permitted. 4.2Counsel for the respondent has relied upon the decision ofthis court in Tax Appeal No.14/2013 decided on 18.7.2014wherein it has been held as under:- “The issue involved in these appeals has been consideredby the Hon'ble Gujarat High Court in Tax AppealNo.604/2012, decided on 29.1.2013, in Commissioner ofIncome Tax, Ahmedabad-III v. Parry Engineering andElecronics Pvt. Ltd. In the case aforesaid Hon'ble GujaratHigh Court held that “Windmill would require a scientificallydesigned machinery in order to harness the wind energy tothe maximum potential. Such device has to be fitted andmounted on a civil construction, equipped with electricfittings in order to transmit the electricity so generated.Such civil structure and electric fittings, therefore, it can bewell imagined, would be highly specialized. Thus, such civil construction and electric fitting would have no use otherthan for the purpose of functioning of the windmill. On theother hand, it can be easily imagined that windmill cannotfunction without appropriate installation and electrification.In other words, the installation of windmill and the civilstructure and the electric fittings are so closelyinterconnected and linked as to form the common plant. Asalready noted, the legislature has provided for higher rateof depreciation of 80 per cent on renewable energy devisesincluding windmill and any specially designed devise, whichruns on windmill. The civil structure and the electric fitting,equipments are part and parcel of the windmill and cannotbe separated from the same. The assessees claim forhigher depreciation on such investment was, therefore,rightly allowed.” We are in absolute agreement with the reasonings given byHon'ble the Gujarat High Court. We accept the same andfor the same reasons these appeals are dismissed.“ 4.3He also relied upon the decision of Gujarat High Court inCommissioner of Income Tax vs. Parry Engineering & Electronics(P) Ltd. reported in (2014) 49 taxmann.com 252 (Gujarat)wherein it has been held as under:- “5. We are of the opinion that the approach of both theauthorities is perfectly justified. Windmill would require ascientifically designed machinery in order to harness thewind energy to the maximum potential. Such device has tobe fitted and mounted on a civil construction, equippedwith electric fittings in order to transmit the electricity sogenerated. Such civil structure and electric fittings,therefore, it can be well imagined, would be highlyspecialized. Thus, such civil construction and electric fittingwould have no use other than for the purpose offunctioning of the windmill. On the other hand, it can beeasily imagined that windmill cannot function withoutappropriate installation and electrification. In other words,the installation of windmill and the civil structure and theelectric fittings are so closely interconnected and linked asto form the common plant. As already noted, thelegislature has provided for higher rate of depreciation of80 per cent on renewable energy devises includingwindmill and any specially designed devise, which runs onwindmill. The civil structure and the electric fitting,equipments are part and parcel of the windmill and cannot be separated from the same. The assessee s claim forhigher depreciation on such investment was, therefore,rightly allowed.“ 5.We have heard counsel for the parties. 6.The contentions raised by the department is required to beviewed very seriously, however, tribunal while considering thematter as a fact finding authority in para no.7 observed as under:- be separated from the same. The assessee s claim forhigher depreciation on such investment was, therefore,rightly allowed.“ 5.We have heard counsel for the parties. 6.The contentions raised by the department is required to beviewed very seriously, however, tribunal while considering thematter as a fact finding authority in para no.7 observed as under:- “We have heard the rival contentions and perused thefacts of the case. We concur with the views of the ld.CIT(A) that the assessee has not maintained the recordsfor day today use of the telephone and therefore, itcannot be said that the assessee has incurred theexpenditure wholly and exclusively for the purpose ofbusiness. The disallowance appears to be reasonable.Therefore, we find no infirmity in the order of theld.CIT(A).” 7.In our considered opinion, in view of the observations of thetribunal, it will not be appropriate to disturb the finding of thetribunal in view of the decision of this court and Gujarat HighCourt. 8.Therefore, both the issues are answered in favour of theassessee and against the department. The appeal stands dismissed. (INDERJEET SINGH)J. (K.S.JHAVERI)J. Brijesh 76.