Ita/328/2022 Of The Pr. Commissioner Of Income Tax v. Shri. Bg Channappa

Digitallysigned by K GRENUKAMBALocation: HighCourt ofKarnataka IN THE HIGH COURT OFKARNATAKA AT BENGALURU DATED THIS THE 25 DAY OF NOVEMBER, 2024 PRESENT THE HON'BLE MR JUSTICE V KAMESWAR RAO AND THE HON'BLE MR JUSTICE S RACHAIAH INCOME TAX APPEAL NO. 328 OF 2022 BETWEEN: 1. THE PR. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE, C.R. BUILDING, QUEENS ROAD, BENGALURU-560 001. 2. THE ASST. COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE-2(4), PRESENT ADDRESS: DCIT, CENTRAL CIRCLE-1(4), C.R. BUILDING, QUEENS ROAD, BENGALURU-560 001. …APPELLANTS (BY SRI. M DILIP, ADVOCATE FOR SRI. RAVI RAJ Y V, ADVOCATE) AND: SHRI. B G CHANNAPPA, NO. 135/A-35, 9 MAIN ROAD, RMV EXTENSION, SADASHIVANAGAR, BENGALURU-560 003, PAN ACLPC 1790N …RESPONDENT (BY SRI. RAJEEV CHANNAPPA NULVI AND SMT. JINITA CHATTERJEE, ADVOCATES) - 2 - THE ADVOCATE FOR THE APPELLANTS HAS FILED THE ABOVE INCOME TAX APPEAL UNDER SEC.260-A OF INCOME TAX ACT 1961, PRAYING THIS HON’BLE COURT TO ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, BENGALURU IN ITA NO. 2104/BANG/2017 DATED 27/01/2022 FOR ASSESSMENT YEAR 2013-2014 ANNEXURE-C CONFIRMING THE ORDER OF THE APPELLATE COMMISSIONER AND CONFIRM THE ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-1(4), BENGALURU, ETC. THIS APPEAL COMING ON FOR FINAL HEARING THIS DAY, JUDGMENT WAS DELIVERED THEREIN AS UNDER: CORAM: HON'BLE MR JUSTICE V KAMESWAR RAO and HON'BLE MR JUSTICE S RACHAIAH ORAL JUDGMENT (PER: HON'BLE MR JUSTICE V KAMESWAR RAO) The challenge in this appeal is to an order dated 27.01.2022 passed by the Income Tax Appellate Tribunal ‘B’ Bench, Bengaluru (‘ITAT’ for short) in ITA No.2104/Bang/2017. It may be stated here, vide the said order, ITAT has disposed of two cross-appeals against the order of the Commissioner of Income Tax (Appeals) [‘CIT(A)’ for short]. 2. The appeal was admitted on 26.06.2023 on the following substantial questions of law: “1. Whether, on the facts and in the circumstances of the case and law, the Tribunal is right in law in allowing depreciation on solar plant for Rs.20,27,43,229/- by holding that the asset was put to use during the relevant financial year when conditions for claiming depreciation as prescribed in Section 32 are not satisfied by assessee for financial period 2012-13 and when approval for setup of Solar Power Project was approved by the Chief Electrical Inspector to Government of Andra Pradesh, only for financial period 2013-14? 2. Whether, on the facts and in the circumstances of the case and law, the Tribunal's order can be said as perverse in nature in holding that assessee is eligible to claim depreciation on Solar plant by following decision of this Hon'ble Court which has not reached finality? 3. Whether on the facts and in the circumstances of the case, the Tribunal is right in law in not considering the written submission filed by Revenue before Tribunal on 1/12/2021 whereby it was stated that Grid at 33KV level was made with F.Y.2013-14 and not in FY 2012-13 as such condition prescribed under section 32 of the Act i.e. ownership and use of the asset have not been satisfied by assessee?” 3. The challenge in ITA No.2104/Bang/2017 was with regard to allowing depreciation on solar plant. - 4 - 2. Whether, on the facts and in the circumstances of the case and law, the Tribunal's order can be said as perverse in nature in holding that assessee is eligible to claim depreciation on Solar plant by following decision of this Hon'ble Court which has not reached finality? 3. Whether on the facts and in the circumstances of the case, the Tribunal is right in law in not considering the written submission filed by Revenue before Tribunal on 1/12/2021 whereby it was stated that Grid at 33KV level was made with F.Y.2013-14 and not in FY 2012-13 as such condition prescribed under section 32 of the Act i.e. ownership and use of the asset have not been satisfied by assessee?” 3. The challenge in ITA No.2104/Bang/2017 was with regard to allowing depreciation on solar plant. - 4 - 4. The case of the respondent before CIT(A) and ITAT was, that on 24.11.2012, he entered into a contract with the EPC Contractor for setting up the solar plant. On 19.03.2013 and 20.03.2013, final bills were raised by the EPC Contractor on the respondent after completion of the works. That on 20.03.2013, the solar plant installed by the respondent started generating power, which was supplied to the workers’ colony, locally. On 29.03.2013, completion certificate was issued by the EPC Contractor. On 29.03.2013, payments were made by the respondent for grid connectivity and purchase of ABT Meters. On 30.03.2013, the respondent received approval of the Chief Electrical Inspector, Government of Andhra Pradesh for energizing the electrical equipment. On 30.03.2013, supervisory charges were paid by the respondent to the Central Power Distribution Company Ltd. for connecting the solar plant to the Central Grid and carrying out works in that regard. On 30.03.2013, respondent raised bills for the power generated and supplied to the EPC Contractor. Similarly on 31.03.2013, another bill was raised for power - 5 - generated and supplied to the EPC Contractor. On 10.04.2013, transmission lines and grid connection works were completed. On 12.04.2013, completion report was issued in respect of the aforesaid works by the Superintending Engineer, Operations to the Chief General Manager, Commercial. On 17.04.2013, the Chief General Manager, Commercial accorded approval for synchronization of the solar plant with the grid. On 20.06.2013, the respondent signed the power purchase agreement for supply of power to the consumer Dr. Reddy’s Laboratories and bills were raised as per the agreement. 5. The Assessing Officer proceeded to hold that the respondent-Assessee has put the plant to use only on the date of synchronization of the solar plant with the grid i.e., 22.04.2013. This conclusion of the Assessing Officer was primarily on the basis of letters dated 19.03.2015 and 27.04.2014. 6. Whereas, the CIT(A) was of the view that the solar plant was completed and approved by the Chief Electrical Inspector, Government of Andhra Pradesh on 30.03.2013. The respondent was also generating solar power from 20.03.2013 and it was being supplied to the workers’ colony, locally from 30.03.2013 to 22.04.2013 when the power purchase agreement was signed and supply of solar power to the purchaser through the grid was entered into. Submissions: 7. Sri. Dilip.M, learned counsel for the appellant-Revenue states, the Tribunal has erred in allowing depreciation on solar plant for Rs.20,27,43,229/- by holding that the asset was put to use when conditions for claiming depreciation as prescribed in Section 32 of the Income Tax Act, 1961 (‘the Act’ for short) were not satisfied by the Assessee for the financial year 2012-13. The approval for setting up of solar power project was granted by the Chief Electrical Inspector, Government of - 7 - Submissions: 7. Sri. Dilip.M, learned counsel for the appellant-Revenue states, the Tribunal has erred in allowing depreciation on solar plant for Rs.20,27,43,229/- by holding that the asset was put to use when conditions for claiming depreciation as prescribed in Section 32 of the Income Tax Act, 1961 (‘the Act’ for short) were not satisfied by the Assessee for the financial year 2012-13. The approval for setting up of solar power project was granted by the Chief Electrical Inspector, Government of - 7 - Andhra Pradesh only in the financial period 2013-14. According to him, the order of the Tribunal holding that Assessee is eligible to claim depreciation on solar plant by following decision of this Court in the case of Commissioner of Income Tax -Vs.- Sri. Chamundeshwari Sugar Ltd. [(2009) 309 ITR 326 (Kar)] is a perverse finding. He also states, the Tribunal erred in not considering the written submissions filed by the Revenue before the Tribunal on 01.12.2021, wherein it was stated that the grid at 33KV level was made in the financial year 2013-14 and not in financial year 2012-13 as conditions prescribed under Section 32 of the Act i.e., ownership and use of the asset have not been satisfied by the respondent. 8. On the other hand, learned counsel for the respondent would justify the order of the CIT(A) as well as the ITAT. In fact, it is her submission that the case of the appellant-Revenue that synchronization of the solar plant with the grid on 22.04.2013 would be the relevant date is untenable, by overlooking the fact that the respondent-Assessee started production of electricity as early as on 20.03.2013 itself. It supplied power to the workers colony in the nearby village and in that regard, bills were raised by the respondent for supply of power dated 30.03.2013 and 31.03.2013 and as such, no substantial question of law arises for consideration, as the question is of fact. She also stated, the fact that Chief Electrical Officer, Government of Andhra Pradesh certified that the solar plant of the respondent could be energized on 30.03.2013 after inspection of the facilities is also a fact which will demonstrate that the use of the power plant had commenced in the financial year 2012-13. She heavily relied upon the judgment of this Court in the case of Sri. Chamundeshwari Sugar Ltd.(supra). She seeks dismissal of the appeal. Analysis: 9. Having heard the learned counsel for the parties and perused the record, the only issue which arises for consideration is, whether the generation of electricity had started on 20.03.2013 i.e., in the financial year 2012-13 or it only started on 20.04.2013 when synchronization took place with the grid, in the financial year 2013-14. 10. As stated above, the CIT(A) in paragraphs No.6.9 to 6.12, has held as under: “6.9 In my view, the date of synchronisation of the Solar Plant with the grid cannot be regarded as the date on which the Solar Plant is put to use, for the simple reason that an asset could be regarded as being put to use when it used by the assessee for purpose of business. Thus, the date on which the Solar Plant starts generation of electricity will be the date of which the asset has been put to use and not when it supplied electricity to the grid. The reason for this conclusion is quite simple. As has been clarified by the Electricity Authorities, the synchronisation of solar plant to the grid means operation of the Solar Plant in exact co-ordination with time or rate with the grid and this is required to supply electricity through the grid. However, in case the appellant does not want to supply electricity to the grid, there would be no reason or occasion to connect the Solar Plant to the grid at all and hence, the connection to the grid is not determinative of the matter. Captive power plants are not unknown and the true test of when an asset is put to use has to be considered in light of the generation of electricity by the Solar Plant and not the date of synchronisation with the grid. to use has to be considered in light of the generation of electricity by the Solar Plant and not the date of synchronisation with the grid. 6.10. I find that the appellant has generated power on 30.03.2013 and 31.03.2013 and produced invoices for sale of power to M/s. EMMVEE Photovoltaic Private Limited. The A.O. has brushed aside this evidence by simply observing that these invoices are self-serving documents and cannot be relied upon. However, the A.O. has assessed the income shown by the appellant from the generation of electricity and the same is not excluded. I also find that the A.O. has not examined M/s. Emmvee Photovoltaic Private Limited to discredit the claim of the appellant that he has supplied electricity to them during the assessment year 2013-14. When the appellant has shown invoices for supply of power and the amount is credited to the profit & loss account and assessed by the A.O., it cannot be brushed aside as the self- serving evidence. To put it in other words, the A.O. has accepted the electricity charges credited to the profit & loss account as income but, disregarded the same only for the limited purpose upholding that the Solar Plant is not put to use. Such contradictory findings and approach followed by the A.O. cannot be a basis for denial of depreciation. It is therefore held that the appellant has been able to substantiate the use of the Solar Plant during the year under appeal. 6.11. I also find that the generation of electricity by the Solar Plant during the year is independently certified by the Superintending Engineer, Operations, Government of A.P. The appellant has produced the clarification of the Superintending Engineer dated 18.11.2016 along with the appellant's reply dated 24.11.2016 addressed to the A.O. In this clarification, it has been stated by the Superintending Engineer that:- "In continuation to the reference 1st cited and as per the representation of B.G.Channappa vide reference2nd cited, it is to confirm that the 4MW Solar Power Plant installed at Manepalle Village, Lepakshi Mandal in Anantapuramu District set up by the generator M/s. B.G.Chanappa, was generating power from 30.03.2013, which is evident from the report of CEIG to Government of Andhra Pradesh dated 30.03.2013 even though the plant is ready and generated the power from 20.03.2013 onwards. It is to submit that, your plant is ready and generated the power, but unable to evacuate the power due to non receiving CEIG approval in time i.e., on 20.03.2013 and pending of line work. Later on got the CEIG approval on 30.03.2013, entire line work was completed in full shape by 10.04.2013 and plant was synchronized with the grid at 33 KV on 22.04.2013 at 13.54 hrs. Pending execution of the evacuation arrangement and the Power Purchase Agreement, the generator extended the power supply to the workers colony which is nearer to local village from 30.03.2013 till NC: 2024:KHC:48830-DBITA No. 328 of 2022 22.04.2013 at 13.54 hrs until the plant was synchronized to the sub-station after completion of evacuation arrangement. Further, the generator has continued to supply free power to Government of Andhra Pradesh through dedicated line during the period 22.04.2013 to 20.06.2013, upto the Power Purchase Agreement was signed and came into force. After the execution of the Power Purchase Agreement, the generator has supplied the power to the consumers M/s. Dr. Reddy's Laboratories Ltd., and bills have been raised as per the Power Purchase Agreement". Pending execution of the evacuation arrangement and the Power Purchase Agreement, the generator extended the power supply to the workers colony which is nearer to local village from 30.03.2013 till NC: 2024:KHC:48830-DBITA No. 328 of 2022 22.04.2013 at 13.54 hrs until the plant was synchronized to the sub-station after completion of evacuation arrangement. Further, the generator has continued to supply free power to Government of Andhra Pradesh through dedicated line during the period 22.04.2013 to 20.06.2013, upto the Power Purchase Agreement was signed and came into force. After the execution of the Power Purchase Agreement, the generator has supplied the power to the consumers M/s. Dr. Reddy's Laboratories Ltd., and bills have been raised as per the Power Purchase Agreement". 6.12. From the aforesaid facts and material on record, I find that the appellant's solar plant was completed and approved by the CEIG on 30.03.2013. The appellant was also generating solar power from 20.03.2013 and it was being supplied to the workers colony near the local villages from 30.03.2013 till 22.04.2013 when the power purchase agreement was signed and supply of solar power to the purchaser through the grid was entered into. Having regard to the fact that the appellant has generated power and supplied it and earned revenue, which is offered in the profit & loss account, it cannot be said that the Solar Plant was not put to use during the relevant previous year. Accordingly the appellant's claim of depreciation (including additional depreciation claimed in the return of income) is allowable. The disallowance of depreciation of Rs.20,27,43,299/- made by the A.O. is hereby deleted. The Ground raised by the appellant is ALLOWED.” - 13 - 11. The aforesaid finding of fact has been upheld by the ITAT. Though we are of the view that the reliance placed by the ITAT on the decision of Sri. Chamundeshwari Sugar Ltd. (supra) is misplaced as it has no applicability to the facts of this case in as much as in the said case, the Assessee sought depreciation to the extent of the value of the machinery installed. The Assessing Officer found that the machinery that was installed was found to be defective during the trial runs, therefore held that the machinery was not used for the purpose of business as required under Section 32 of the Act. But, this Court has in paragraph No.6 of the said judgment, on a finding that when the Assessee bonafide installs any machinery and to his misfortune, it becomes defective and non-functional, it cannot be said that it is not put into use for the purpose of business. No such case has been set-up by the Assessee in this case. In any case, in view of the finding of fact that the respondent-Assessee has started generating power right from 20.03.2013 which is in the financial year 2012-13, we are of the view that the appeal filed by the appellant-Revenue on the above substantial questions of law is without merit and the appeal, as such, is dismissedagainst the Revenue and in favour of the Assessee. No costs. Sd/- (V KAMESWAR RAO) JUDGE Sd/- (S RACHAIAH) JUDGE PA List No.: 1 Sl No.: 49