Commissioner Of Income Tax-L, Ludhiana v. M/S Eastman Impex

ITA No. 350 of 2013 a IN THE HIGH COURT OF PUNJAB AND HARYANAAl CHANDIGARH ITA No. 350 of 2013.Date of Decision : 18.17.7014. Commissioner of Income Tax-l, Ludhiana ..Appellant Versus M/s Eastman Impex ...Respondent CORAM:FON BLE MR. JUSTICE RAJIVE BHALLAHON'BLE MR. JUSTICE B.S. WALIA Present:Mr. Rajesh Katoch, Advocate for the appellant. Ms. Prerna, Advocate and}Mr. S.K. Mukni, Advocate for the respondent. ::: Rajive Bhalla, |. By way of this order, we snall dispose of ITA No. 350 of 2013(Commissioner of Income Tax-l, Ludhiana Vs. M/s Eastman Impex), ITANo. 349 of 2013 (Commissioner of Income Tax-l, Ludhiana Vs. M/sEastman Impex), ITA No. 98 of 2014 (Commissioner of Income Tax-l,|Ludhiana Vs. M/s Eastman International), ITA No. 99 of 2014(Commissioner of Income _ Tax-l, Ludhiana Vs. M/s EastmanInternational) and ITA No. 167 of 2014 (Commissioner of Income Tax-l,Luaniana Vs. M/s Maxwell Inc.) pertaining to alfferentiy wordedsubstantial questions of law but relating to the same questions. Thesubstantial questions of law framed In ITA No. 350 of 2013 are as follows "( Whether on the facts and circumstances of the case,the Hon'ble [TAT was justified in law, in uoholding theorder of the Ld. CIT(A) wherein disallowance of hignerdeoreciation @ 80% on account of expenditure onInstallation of electrical line for power transmissionand metering treated as not part of wind mill by theA.O., was deleted by the CIT(A).,the Hon'ble [TAT was justified in law, in uoholding theorder of the Ld. CIT(A) wherein disallowance of hignerdeoreciation @ 80% on account of expenditure onInstallation of electrical line for power transmissionand metering treated as not part of wind mill by theA.O., was deleted by the CIT(A)., I)Whether on the facts and circumstances of the case ITA No. 350 of 2013 2 and in law, the Hon'ble [TAT was right in treating thePower evacuation infrastructure as part of wind milfand as Renewable Energy Device whereas the AO hasbrought on record sufficient material to prove thatSame was in fact not a Renewable Energy Device. I)Whether on the facts ang circumstances of the caseand in law, the Hon'ble [TAT was right in treating thee/ectrical lines for power transmission and metering aspart of Renewable Energy Device eligible’ fordeoreciation @ 80% whereas the A.O. has brought onrecord sufficient material to prove’ that’ thetransmission and distribution network was actuallyPlant and Machinery which its eligible only for normafates of depreciation @ 15%. [lf Is by no stretch ofImagination a part of the power generation Wind MillDevice. It’s only function is the transmission of thegenerated power to the common grid.” Counsel for the revenue submits tnat by treating power ofevacuation infrastructure as part of wind mill a renewable energydevice, tne Tribunal has ignored the material collected and referred toby the Assessing Officer whicn clearly proves that power evacuationInfrastructure like electricity lines etc. are not part of the wind mill and,therefore, should invite depreciation @15%. Counsel for the revenuefurther submits that though it is true that if power transmission lines etc.are part of a renewable energy device they as eligible to depreciation @80% but there Is no evidence on record that transmission andidistribution network etc. are an integral part of the wind mill. TheTribunal has erred in granting depreciation @ 80%. | Counsel for the revenue submits tnat by treating power ofevacuation infrastructure as part of wind mill a renewable energydevice, tne Tribunal has ignored the material collected and referred toby the Assessing Officer whicn clearly proves that power evacuationInfrastructure like electricity lines etc. are not part of the wind mill and,therefore, should invite depreciation @15%. Counsel for the revenuefurther submits that though it is true that if power transmission lines etc.are part of a renewable energy device they as eligible to depreciation @80% but there Is no evidence on record that transmission andidistribution network etc. are an integral part of the wind mill. TheTribunal has erred in granting depreciation @ 80%. | Counsel for the assessee, nowever, submits that power ofevacuation infrastructure like electric lines etc. are specifically dedicatedto the wind mill and cannot be used for any otner purpose. The powerevacuation infrastructure being Integra! and necessary for the wind millto transmit electricity are integral to the renewable energy device and,tnerefore, aqepreciation @ 80% nas been rigntly allowed by the IncomTax Appellate Tribunal as well as by the CIT(A). Counsel for theassessee relies upon a judgment of the Rajasthan High Court inKANCHANCommissioner of Income TaxVs_K.K. Enterprises)(2014) 108 DTR2015.01.06 16:04I attest to the accuracy andauthenticity of this documentChandigarh ITA No. 350 of 2013 S judgments 109, and a judgment of the Income Tax Appellate Tribunal,Bombay Bench in-Trumac EngineeringCo. Pvt. Ltd.,Mumbal —Vs.Income Tax Officer, Ward 2(3)(3), Mumbal We have heard counsel! for the parties, perused the entirpaper book Including orders passed by the Assessing Officer, CIT(A) andtne ITAT (B), Cnandigarh. The dispute that nas given rise to thesesubstantial questions of law Is the nature of power evacuationinfrastructure attacned to a wind mill, a renewable energy device andwhether this infrastructure would be eligible for depreciation @ 80% or15%. The Assessing Officer after a laboured attempt to separatethe renewable energy devices, in the case a wind mill for the powerevacuation infrastructure referred to the nature of renewable energy,wind mills etc. and held that power evacuation infrastructure is not anintegral part of a renewable energy devices and, therefore, proceeded tonola that depreciation snall be calculated at 15%. Tne CIT(A) set-aside this order and by holding that tne powerevacuation infrastructure Is an integral part of the renewable energydevices and allowed depreciation @ 80%. Tne ITAT nas considered thematter In its entirety and after placing rellance upon a judgment of theITAT, Mumbal Bencn, affirmed the order passed by the CIT(A) by noldingas follows °: “10. We have considered the submissions of both theparties and gone through the material available on record. /nthe present case it is noticed that the facts of the presentcase are similar to the facts Invo/ved in the case of TrumacEngineering Co. Pvt. Ltd. Mumbai Vs. 1TO (supra) whereinvide order dated 27.6.2008 relevant finding given by theITAT, Mumbai Bench "!l" in para 21 to 24 read as under "21. Coming to the next item, t.e. disallowance ofdeoreciation of Rs. 42,50,000/ In respect ofcontribution made to GEDA, /d. counsel reiterated the ITA No. 350 of 2013 4 suUbmIssions made before the revenue authonties andSubmitted that the power generated trom the wind milfarm at Navadra/Bhogat site is delivered fo theSubstation of GEDA through HT fines. This power inturn 1s transferred to GEDA for further transm/ss/on.For this puroose, connection of grid at substation Isreguired. The contribution information avatlable. Infact, subseguently, assessee received contirmation, asStated in the preceding Para, from GEDA, for fixing thecontribution of Rs.35,60,862.75 out of Rs.42,50, OO0/-for formation of substation and the balance, it wasintimated, will be utilized towards running andmaintenance ofsubstation . ITA No. 350 of 2013 4 suUbmIssions made before the revenue authonties andSubmitted that the power generated trom the wind milfarm at Navadra/Bhogat site is delivered fo theSubstation of GEDA through HT fines. This power inturn 1s transferred to GEDA for further transm/ss/on.For this puroose, connection of grid at substation Isreguired. The contribution information avatlable. Infact, subseguently, assessee received contirmation, asStated in the preceding Para, from GEDA, for fixing thecontribution of Rs.35,60,862.75 out of Rs.42,50, OO0/-for formation of substation and the balance, it wasintimated, will be utilized towards running andmaintenance ofsubstation . DZ./n the alternate, learned counsel submitted thatthe payment made to GEDA atleast to be treated asrevenue expenditure. /[f the revenue treats this as nosomething owned by the assessee (substation), then it naturally follows thatassessee contributed the above amount for creation.of substation, which Is the property of GEDA. /[n thacase, learned counsel submitted, the decision of theHon'ble Calcutta High Court in the case of CIT vs. BirlaJute Manufacturing Ltd., reoorted 1n 182 1TR 497 (Cal)Is Clearly applicable: Learned counsel submitted, tneSame view has been taken by the Hon'ble BombayHigh Court in the case of CIT vs. Excel /ndustries Ltd,reported 1n 122 1TR 995 (Bom). D3. Learned DR, on the other hand, submitted thatthe assessee Is now Improving the method oftransaction by installing new machineries, withoutwhich also the winamill will continue to operate. Thiscannot be treated as an integral part of the windmill assuch. This nas indeoendent standing. Assessee’swingm|/// worked even without these machineries. AsuUCh ld. D.R. for the revenue submitted that the orderof the revenue authorities may be upheld. 24.Considering the rival submissions, we are of theview that the assessee’s appeal Is to be allowed onmerit. Firstly, it is to be seen that these macineries ITA No. 350 of 2013 had no indeoendent functioning as such. Merelybecause it improves the working system or controlling/monitoring system, it cannot oe treated as anindependent machinery and not part of the integratedMachinery. The submission of the learned counsel isthat if the machinery installed at the first stage ofInstalling the windmill itself, the claim of the assessee:would have been allowed, Merely because for somereason or other it was subsequently installed, does notmean that it is not a part of the macninery as such.Since the machinery had no indeoendent functioning,we are of the wew thet the decision of the Hon'b/eCalcutta High Court in the case of Birla JuteManutacturing; Ltd. (supra) is clearly applicable. [n thecase of Excel Industries Ltd. (supra), the Hon'bleBombay High Court held: payment made for overheadservice line, which remained the property of ElectricityBoard, 1s allowable as revenue expenditure. On facts,in the instant case of the assessee, the payment toGEDA is to be allowed in the light of this decision ofthe jurisdictional High Court. Hence, appeal by theassessee with regard to Ground No.1, 2, 3 and 4 areallowed. ” Since the facts of the present case are similar to thefacts invo/ved in the aforesaid referred to case of Trt/maEngineering Co. Pvt. Ltd. Mumbai Vs. /11TO (supra), so,respectfully following the aforesaid referred to decisionsdated 727.6.72008 of ITAT, Mumbai Bench ‘'/' we do not sany valid ground to interfere with the findings of the Ld. /T(A). Ll.For assessment year 2009-10 in ITA No. 8&20/Cha/201the facts are [dentical as in ITA No. 8IOYO/CHD/72017 for assessment year 2008-09, therefore, our findings given inthe formerpart of this order shall apply mutatis mutandis. ”To a specific query whether the revenue nas filed an appeal ITA No. 350 of 2013 of Rajasthan in Commissioner of Income Tax Vs. K.K. Enterprises. Afterconsidering the matter in its entirety, it was held as follows :- Since the facts of the present case are similar to thefacts invo/ved in the aforesaid referred to case of Trt/maEngineering Co. Pvt. Ltd. Mumbai Vs. /11TO (supra), so,respectfully following the aforesaid referred to decisionsdated 727.6.72008 of ITAT, Mumbai Bench ‘'/' we do not sany valid ground to interfere with the findings of the Ld. /T(A). Ll.For assessment year 2009-10 in ITA No. 8&20/Cha/201the facts are [dentical as in ITA No. 8IOYO/CHD/72017 for assessment year 2008-09, therefore, our findings given inthe formerpart of this order shall apply mutatis mutandis. ”To a specific query whether the revenue nas filed an appeal ITA No. 350 of 2013 of Rajasthan in Commissioner of Income Tax Vs. K.K. Enterprises. Afterconsidering the matter in its entirety, it was held as follows :- “FyWe do not find any merit in the argument advanced.The issue involved in these appeals has beenconsidered by the Hon'ble Gujarat High Court in Tax AppealNo. 604 of 2012, decided on 2¢[tA]fan., 2013, in CIT Vs.Parry Engineering & Electronics (P) Ltd. In the caseaforesaid, Hon'ble Gujarat High Court held that “Windmillwould require a scientifically designed machinery in order toharness the wind energy to the maximum potential. Suchdevice has to be fitted and mounted on a2 civil constructioneguiopped with electric fittings in order to transmit theelectricity so generated. Such civil structure and electricfittings, therefore, it can be well imagined, would be highlysoecialized. Thus, such civil construction and electric fittingwould have no use other than for the purpose of functioningof the windmill. On the other hand, it can be easilyImagined that windmill cannot function without appropriateInstallation and electrification. /n other words, theInstallation of windmill and the clivi/ structure and theelectric fittings are so closely interconnected and linked asfo form the common plant. As already noted, the legis/ature|has provided for higher rate of deoreciation of &O per centon renewable energy devices including windmill and anyspecially designed devise, which runs on windmill. The civil)Structure and tne electric fitting, eguioments are part andparcel of the windmill and cannot be separated from thesame. The assessees Claim for higher depreciation no such|Investment was, therefore, rightly alowed.” A perusal of the aforesaid juggment reveals that theRajasthan High Court placed reliance upon a judgment of the GujaratHigh Court in Tax Appeal No. 604 of 2012, decided on 29.01.2013 titledas CIT Vs. Parry Engineering & Electronics (P) Ltd. | We have perused the opinion recorded by the RajasthanHigh Court and find no reason to record an opinion to the contrary. Awind mill, which is admittedly a source of renewable energy, cannotKANCHAN2015.01.06 16:04I attest to the accuracy andauthenticity of this documentChandigarh ITA No. 350 of 2013 | possibly function without power evacuation infrastructure and,therefore, to hold that it is not integral to a wind mill would betravestying of facts and justice. It would be necessary to clarify that weare not dealing with an ordinary device, where transmission lines andelectricity generation devices are involved but a wind mili, whichobviously cannot supply” electricity without power evacuationInfrastructure as integral to its very functioning and user. Consequently,]we answer questions of law against the revenue and dismiss the appealsaccordingly. (RAJIVE BHALLA)JUDGE| December 18, 2014.kanchen (B.S. WALIA)JUDGE.