The Commissioner Of Income-Tax, Patiala v. Punjab State Electricity Board, Patiala

ITA No. 293 of 2009 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH The Commissioner of Income-tax, Patiala Versus Punjab State Electricity Board, Patiala ITA No. 293 of 2009 Date of Decision: 9.5.2011 ....Appellant. ...Respondent. CORAM:-HON'BLE MR. JUSTICE ADARSH KUMAR GOEL,ACTING CHIEF JUSTICE. HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Mr. Tejender Joshi, Standing Counsel for the appellant.Mr. Amol Rattan Singh, Advocate for the respondent. AJAY KUMAR MITTAL, J. 1.This appeal has been preferred by the revenue underSection 260A of the Income Tax Act, 1961 (in short “the Act”) againstthe order dated 31.10.2008 passed by the Income Tax AppellateTribunal, Chandigarh Bench “A” (hereinafter referred to as “theTribunal”) in ITA No. 555/Chandi/2008, for the assessment year 1995-96, claiming the following substantial question of law:- “Whether on the facts and in the circumstances of thecase, the ITAT is legally correct in holding that eachitem below Rs.5000/- is a self unit and, therefore, thedepreciation @ 100% is allowable in place of 25%, ignoring the fact that these items are parts of a biggercomposite unit where all expenditure to bring theassets into working conditions is to be included indetermining the actual cost of fixed asset for thepurpose of grant of depreciation as held by theHon'ble Bombay High Court in the case of CIT Vs.Hindustan Polymers Ltd. (1985) 156 ITR 860(Bombay)?” 2.Briefly stated, the facts necessary for adjudication asnarrated in the appeal are that the return for the assessment year 1995-96 was filed by the assessee on 29.11.1995 declaring an income ofRs.61,57,45,071/- and after adjustment of brought forward losses theresulted income declared was nil. The assessment was completedunder Section 143(3) of the Act on 19.3.1998 at an income ofRs.52,47,72,077/- and after adjustment of brought forward losses, theincome was assessed at nil. The assessee had claimed depreciation atthe rate of 100% on the entire cost of switch gears including cableconnections etc. at Rs.39,68,74,587/-. The Assessing Officer initiatedproceedings under Section 147 of the Act holding that each assetwould not by itself constitute a unit but was a part of bigger unit and thedepreciation should have been allowed at normal rate of 25% asapplicable to the plant and machinery, and not at the rate of 100% asclaimed by the assessee. Accordingly, the assessment was againcompleted at an income of Rs.86,87,76,780/- and after adjusting thebrought forward losses, the income was assessed at nil. Feelingaggrieved, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [in short “the CIT(A)”]. The CIT (A) vide orderdated 7.4.2008 dismissed the appeal upholding the order of theAssessing Officer. On further appeal by the assessee, the Tribunal videorder dated 31.10.2008 accepted the appeal holding that each unitwas a self unit and being a part of the bigger unit, the depreciation atthe rate of 100% was to be allowed instead of 25%, as allowed by theAssessing Officer and upheld by the CIT(A). Hence, the present appealby the revenue. 3.We have heard learned counsel for the parties. 4.The point for consideration in this appeal is regarding theallowability of rate of depreciation to the assessee-Board. 5.The claim of the assessee was that the items on which thedepreciation was claimed valued less than Rs.5000/- each and,therefore, under the proviso to Section 32 of the Act, 100% depreciationwas allowable. 6.On the other hand, the revenue had allowed 25%depreciation holding that the total value of the plant and machinery onwhich depreciation was claimed exceeded Rs.5000/-. The revenue hadplaced reliance on a Bombay High Court judgment in Commissioner ofIncome Tax v. Hindustan Polymers Ltd. [1985] 156 ITR 860 (Bom). 3.We have heard learned counsel for the parties. 4.The point for consideration in this appeal is regarding theallowability of rate of depreciation to the assessee-Board. 5.The claim of the assessee was that the items on which thedepreciation was claimed valued less than Rs.5000/- each and,therefore, under the proviso to Section 32 of the Act, 100% depreciationwas allowable. 6.On the other hand, the revenue had allowed 25%depreciation holding that the total value of the plant and machinery onwhich depreciation was claimed exceeded Rs.5000/-. The revenue hadplaced reliance on a Bombay High Court judgment in Commissioner ofIncome Tax v. Hindustan Polymers Ltd. [1985] 156 ITR 860 (Bom). 7.We have given our thoughtful consideration to therespective submissions of the learned counsel for the parties and do notfind any merit in the submission made by the learned counsel for therevenue. 8.The Tribunal while accepting the plea of the assessee hadheld that the electricity connections constitute various components like switch gears including cable connections, installation of electric meter,electric wires and overhead wires etc. and each unit was a self unit/independent unit and was part of bigger unit and, thus, had to be takenas a separate unit for the purposes of determining the value of eachitem which was below Rs.5000/-. In such circumstances, 100%depreciation was held to be allowable in place of 25%. The relevantfindings recorded by the Tribunal are as under:- “Brief facts are that the assessee purchased certainitems which were debited to plant and machineryaccount as the cost of which was less than Rs.5000/-each. This claim of the assessee was allowed whileframing original assessment. Since the case waslater reopened on the ground that the claim waswrongly allowed, therefore, the Ld. Assessing Officerdisallowed the depreciation on such items on theground that it is the composite value of all items is tobe taken which will be determinative of the cost ofassets and not the item wise cost of these items. Wehave perused the material and the assessment orderwherein at page-2 of the assessment order even theLd. Assessing Officer has mentioned that theassessee filed the details of the additions to the plantand machinery as these are below Rs.5000/-. Thereis specific finding in the assessment order that as perthe table shown in the (A) & (B) in the assessmentorder, the assessee is entitled to depreciation at 100%.” 9.The aforesaid finding has not been shown to be perverse inany manner by the learned counsel for the revenue. Further, thejudgment of Bombay High Court in Hindustan Polymers Ltd's case(supra) on which reliance had been placed by the revenue was a casewhere the assessee had sought to include all expenditure incurred forbringing the asset into working condition in the actual cost of the assetfor determining depreciation thereon. The claim of the assessee hadnot been accepted by the Assessing Officer therein. However, the HighCourt affirming the order of the Tribunal had upheld the claim of theassessee by accepting the accountancy rule for determining the cost offixed asset. Such is not the position in the present case. 10.In view of the above, the substantial question of law isanswered against the revenue. The appeal is dismissed. (AJAY KUMAR MITTAL) JUDGE May 9, 2011gbs (ADARSH KUMAR GOEL) ACTING CHIEF JUSTICE