The Commissioner Of Income Tax, Trichy v. M/S.sangu Chakra Hotels (P) Ltd., Collector Office Road, Cantonment, Trichy 620 001

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 23.08.2016 THE HONOURABLE MR.JUSTICE S.MANIKUMARandTHE HONOURABLE MR.JUSTICE D.KRISHNA KUMAR T.C.A.No.591 of 2016 The Commissioner of Income Tax,Trichy .. Appellant/Appellantversus M/s.Sangu Chakra Hotels (P) Ltd.,Collector Office Road,Cantonment, Trichy 620 001... Respondent/Respondent Prayer: Tax Case Appeal filed under Section 260A of the IncomeTax Act, 1961, against the order of the Income Tax AppellateTribunal Madras 'D' Bench, made in I.T.A.No.1351/Mds/2014, dated14.10.2015,against the Order of The Commissioner of Income Tax(Appeals) Trichy, made in ITA No.1881/2010-11/CIT(A)/TRY dated29/1/14 against the order of the Deputy Commissioner of IncomeTax, Company Circle-I(I/C) Trichy, made in PAN/GIR No.AADCM2094Gdated 30/12/2010 for the Assessment Year 2008-09. For Petitioner :Mr.J.Narayanasamy Sr.Standing Counsel for ITJUDGMENT Challenge in this Tax Case Appeal, is to an order made bythe Income Tax Appellate Tribunal in I.T.A.No.1351/Mds/2014,dated 14.10.2015, by which, the Tribunal has dismissed theappeal preferred by the revenue, against the order of theCommissioner of Income-Tax(A) in I.T.A.No.188/2010-11/CIT(A)/TRY, dated 29.01.2014. 2.Short facts leading to the appeal are that the assesseeis a private limited company, engaged in the business of runninga Tourist Hotel. The assessee filed its return of income on21.09.2008, admitting total income as Rs.70,10,580/-. Return wastaken for scrutiny and assessment under Section 143(3) of theIncome Tax Act (Hereinafter referred to as, "the Act") was https://hcservices.ecourts.gov.in/hcservices/ completed on 30.12.2010, wherein the Assessing Officerdisallowed the claim of depreciation of Rs.3,78,00,000/-, on thecost of Wind Mill of Rs.9,45,00,000/-, because the wind mill wasnot acquired during the relevant previous year. Reasons forarriving at the abovesaid conclusion were that, (a) The invoice for sale of the windmill was dated31.03.2008 i.e. the last date of the relevant previousyear. (b) The assessee had paid only Rs.1,86,00,000/-out of the total cost of the windmill Rs.9,45,00,000/-as on 31.03.2008. (c) The balance amount of Rs.7,79,00,000/- waspaid during the month of May & June 2008 as follows:-Sl.No.Date of PaymentAmount (Rs.)106.05.200859,00,000/-230.06.20087,00,00,000/-Total7,59,00,000/- (d) The agreement with TNEB for sale of power wasdated 29.03.2008 and the approval of the same wascommunicated by the S.E Tirunelveli/TNEB on22.04.2008. (e) The office of S.E. TNEB has not responded tothe query raised by the Ld. Assessing Officer toclarify as to how sale agreement of power could beentered with the assessee by the TNEB on 29.03.2008when the assessee has purchased the windmill videinvoice dated 31.03.2008. (f) No specific evidence was produced either bythe seller or by the buyer of the windmill that theproperty has passed hands before 31.03.2008.(g) By the test of preponderance of probabilities,it could be construed that the windmill would havepassed hands only during the Financial Year 2008-09relevant to the assessment year 2009-10." 3.Being aggrieved by the same, the respondent-assesseefiled I.T.A.No.188/2010-11/CIT(A)/TRY, before the Commissionerof Income-Tax (Appeals). Before the appellate authority, therespondent-assessee filed supporting evidence. Going through theevidence and after hearing both sides, vide order inI.T.A.No.188/2010-11/CIT(A)/TRY, dated 29.01.2014, the appellateauthority has allowed the appeal of the respondent-assessee anddirected the assessing officer to delete the addition made onaccount of disallowance of depreciation of Rs.3,78,00,000/-. 4.Not satisfied with the order, the Deputy Commissionerof Income Tax, Trichy, has filed I.T.A.No.1351/Mds/2014, beforethe Tribunal. After hearing the department's representative andthe learned counsel for the respondent-assessee, the Tribunal 3.Being aggrieved by the same, the respondent-assesseefiled I.T.A.No.188/2010-11/CIT(A)/TRY, before the Commissionerof Income-Tax (Appeals). Before the appellate authority, therespondent-assessee filed supporting evidence. Going through theevidence and after hearing both sides, vide order inI.T.A.No.188/2010-11/CIT(A)/TRY, dated 29.01.2014, the appellateauthority has allowed the appeal of the respondent-assessee anddirected the assessing officer to delete the addition made onaccount of disallowance of depreciation of Rs.3,78,00,000/-. 4.Not satisfied with the order, the Deputy Commissionerof Income Tax, Trichy, has filed I.T.A.No.1351/Mds/2014, beforethe Tribunal. After hearing the department's representative andthe learned counsel for the respondent-assessee, the Tribunal https://hcservices.ecourts.gov.in/hcservices/ confirmed the decision of the Commissioner of Income-Tax(Appeals), Trichy. Being aggrieved by the same, the instant TaxCase Appeal is filed, on the following substantial questions oflaw, "(i) Whether on the facts and in the circumstancesof the case, the Tribunal was right in holding thatthe assessee is entitled for depreciation on the windmill generator purchased from M/s.Simran Wing Project(P) Ltd., eventhough no evidence was produced beforethe assessing officer to show that the asset wastransferred to the assessee as on 31.03.2008?(ii) Whether on the facts and in the circumstancesof the case, the Tribunal was right in holding thatthere was no violation of Rule 46A, even though theCIT(A) had admitted the evidences that were notproduced before the assessing officer?" 5.Supporting the substantial questions of law,Mr.J.Narayanasamy, learned standing counsel for the Income-TaxDepartment submitted that the Tribunal has erred in holding thatthe assessee is entitled for depreciation on the second handwind mill generator, even through the assessee had only paidpartial monies towards the asset and had not become the owner ofthe asset. He further submitted that the Tribunal ought to haveappreciated that the assessee itself had admitted payment ofRs.7.59 Crores, in the instalments in the months of May' 2008and June' 2008, after the end of the financial year andtherefore, the asset was not transferred to the assessee. 6.Learned counsel for the appellant further submittedthat the Tribunal ought to have appreciated the fact that thepurchase invoice was dated 31.03.2008 and approval of theSuperintending Engineer, Tamil Nadu Electricity Board, wascommunicated only on 22.04.2008. It is also his submission thatthe documents relied on by the respondent-assessee to concludethat they are entitled for depreciation, were not placed beforethe assessing officer. 7.Learned counsel for the appellant further submittedthat the Tribunal ought to have appreciated that the wind millgenerator was not ready to use and operational, as on the lastday of the financial year and therefore, the assessee is notentitled for depreciation, on the asset. On the abovesubmissions, he took this Court through the orders of theauthorities and that of the Tribunal and thus, prayed for ananswer in favour of the revenue, on the first substantialquestion of law. 8.As regards the second substantial question of law,learned counsel for the appellant further submitted that theTribunal in holding that no opportunity was given to theappellant to revert the documents, filed at the appellate stage.According to him, the Commissioner of Income-Tax (Appeals), hasconsidered the said documents and there is no violation ofprinciples of natural justice. According to him, the Tribunalhas not addressed the said issue, in proper perspective. For theabovesaid reasons, he prayed that the second substantialquestion of law, also deserves to be considered and answered infavour of the revenue. 8.As regards the second substantial question of law,learned counsel for the appellant further submitted that theTribunal in holding that no opportunity was given to theappellant to revert the documents, filed at the appellate stage.According to him, the Commissioner of Income-Tax (Appeals), hasconsidered the said documents and there is no violation ofprinciples of natural justice. According to him, the Tribunalhas not addressed the said issue, in proper perspective. For theabovesaid reasons, he prayed that the second substantialquestion of law, also deserves to be considered and answered infavour of the revenue. Heard the learned counsel for the appellant and perused thematerials available on record. 9.Sequence of events deduced from the order of theCommissioner of Income-Tax (Appeals) in I.T.A.No.188/2010-11/CIT(A)/TRY, dated 29.01.2014, are as follows: "One of the assets acquired during the previousyear ended 31.03.2008, consists of a wind mill ofcapacity 1500 KW, from M/s.Simran Wind Project (P)Ltd., at a cost of Rs.9,45,00,000/- and the facts, inregard to the said acquisition was narrated in detailby the appellant are summarized in the followingformat:DateSequence of Events 10.Considering the evidence adduced at the appellate stageand the arguments, the Commissioner of Income-Tax (Appeals), inI.T.A.No.188/2010-11/CIT(A)/TRY, dated 29.01.2014, has orderedhereunder: “I have carefully considered the facts of thecase; the arguments relied upon by the AssessingOfficer for the disallowance and also the argumentsadvanced by the appellant. The appellant hasestablished the fact that the order for theacquisition of the Wind Mill started as early as on02.02.2008. The appellant has also established thepassing of consideration by its own resources to theextent of Rs. 186.00 Lakhs before 31.03.2008. The sameis verifiable from the copy of the Bank account of theappellant with SBI. It is also seen from the Term LoanAccount copy furnished by the appellant that the saidbank has debited the appellant a sum of Rs. 700.00Lakhs on 24.03.2008, by way of disbursement of TermLoan and has even charged interest of Rs.1,68,767/-for the period 24.03.2008 to 31.03.2008, on suchdisbursement. The document conveying the land to theappellant vide sale deed dt. 07.03.2008 also confirmsthat the physical possession was handed over on thesaid date. The Assessing Officer has not produced anymaterial to controvert the following facts:1) The letter dt. 29.03.2008 approving thetransfer of the Wind Mill in favour of the appellant.2) The payment of name transfer fee by theappellant vide the receipt issued by TNEB No- 137846dt. 28.03.2008.3) The entering of the Energy Purchase Agreementwith TNEB on 29.03.2008. 4) The generation of Electricity from such WindMill w.e.f. 29.03.2008 and adjustment of suchgeneration in the Bill issued by TNEB for the month ofApril 2008.The fact that the Wind Mill was installed and commissioned at the site is also established by theseevidences produced and as argued by the appellant theissue of Invoice on 31.03.2008 cannot vitiate allthese evidences. The Appellant placed his reliance insupport of its claim for depreciation on the ratiosheld in the case of Mysore Minerals Ltd Vs CIT 239 ITR775 and CIT Vs Kences Construction (P) Ltd 236 ITR503. On Analyzing the case laws mentioned wherein itwas held that when the assessee even if he has madeonly part payment of the sale consideration and alsoeven the actual deed of conveyance was not executed inits favor the assessee was entitled to depreciation onthe assets which form part of block of assets at theend of the year as shown in depreciation schedule inthe balance sheet as well as in his books of accountsthis view was held in the case of Mysore Minerals LtdVs CIT as mentioned supra. Similarly the HonorableMadras Jurisdictional High Court also held a viewwhich is in favor of the Assessee that the Assesseehaving taken over possession of the wind mill and theincome from the wind mill having been assessed in theAssessee’s hands, the Assessee’s claim of depreciationon wind mill is allowable notwithstanding the factthat the wind mill are still under hypothecation withthe bank in the name of Transferor Company. In thesecond case referred above wherein the Assesseeclaimed that it had purchased the windmills from itssister company and it had been duly recorded in theAssessee’s books of accounts and the entireconsideration has also been paid by the Assessee. Theentire bank loan which was taken by the sister companywas also discharged by the Assessee. Therefore theAssessee is the owner for the purpose of the IT Actand the Assessee is entitled to claim depreciation.This was rejected by the Assessing Officer on theground that the windmills are still underhypothecation with the bank and the Application to theTamil Nadu Electricity Board was made only by thesister company and the loan taken from the bankcontinue to appear as liability in the books of thesister company. There was no evidence to show thatthere was a transfer of the windmills and that for thesame property i.e., windmills, depreciation has beenclaimed both by the sister company and by theAssessee. Hence the Assessing Officer disallowed theclaim of depreciation. On appeal it was found thatpossession had been handed over to the Assessee by thesister company which is the transferor and an invoicehad been raised by the transferor company on theAssessee. A board resolution had also been passed bythe Assessee for the purpose of windmills. The windmills had been used for the business of theAppellant and the income generated on such businesswas admitted for assessment by the Assessee. TheAppellate Authority also found that the Assessee is alegal owner of the windmills and the possession of theproperty was also handed over to the Assessee and thefact that the windmills are still hypothecated withthe bank in the name of the transferor company, or thefact that the agreement with the TNEB was in the nameof the transferor company could not change theposition. The Appellate Authority in the referred casementioned also concluded that the entire bank loanavailed of by the transferor company was repaid by theAssessee and not the Transferor Company. Therefore theappeal was allowed. Even the tribunal dismissed therevenue’s appeal by holding that the Assessee as theowner of the windmill and held that when the incomefrom the windmill is assessed in the hands of theAssessee, all related expenses and depreciationthereon have to be allowed. The Honorable Madras HighCourt has also upheld the contention of the Assesseefor the claim of the Appellant for depreciation on theground that the possession of windmill is with theAssessee, the loan has been discharged by the Assesseeand the income from the property is assessed in thehands of the Assessee. The jurisdictional High Courton ascertaining the sister company has not claimed thedepreciation on the assets transferred to the AssesseeCompany and allowed the claim of the Assessee. The Standard Textiles, Karur vs Dy. Commissionerof Income Tax, Circle Tiruchirapalli Order dated22/06/2011, "In this appeal filed by the assessee, itsgrievance is that depreciation of Rs.76 lakhs claimedon Wind Mill was disallowed for the reason that onlytrial production was done and wind mill was notconnected to the power grid. The assessee engaged in the business of exportingcotton fabrics had in the Relevant previous yearclaimed depreciation on a wind mill. Assessee produceda letter issued by the Executive Engineer, Tamil naduElectricity Board (TNEB), which stated that the windmill was commissioned on 05.03.05. As per theassessee, the trial production was started and it wasnot necessary to produce electricity for the whole ofthe year for claiming depreciation. However, theAssessing Officer was of the opinion that as per theagreement entered into by the assessee with the Member(generation) TNEB,wind mill would be connected to thepower grid only on commissioning of 22 kv enerconFeeder. Therefore, as per the Assessing Officer, wind mill could not be considered connected to the gridtill the Transformer was commissioned. Assessee havingnot put the wind mill to actual use, depreciationcould not be allowed. mill could not be considered connected to the gridtill the Transformer was commissioned. Assessee havingnot put the wind mill to actual use, depreciationcould not be allowed. In the appeal before the commissioner of incomeTax(A), submission of the assessee was thatcommissioning certificate issued by the ExecutiveEngineer(TNEB) on 08.03.05 clearly mentioned that itwas tied up with the TNEB grid. As per the assessee,the said certificate also mentioned initial reading ason 05.03.05. Assessee argued that use of machine fortrial production was as much use of a machine thatwould entitle it to claim depreciation. According toit there was no requirement that wind Mill should keepon producing power every day of the year and even ifit had producing power only for a moment, it would beeligible for claim of depreciation. The AR of theappellant has objected the contention of the AssessingOfficer in disallowing the depreciation claimed on theground that the wind mill was not put in use. The AChas not considered the evidence produced before himestablishing the wind mill generation being connectedto the electricity grid before 31.03.2005 andgenerating the electricity and also receiving thepayment from the TamilNadu Electricity Board. The windmill Turbine generator (WTG) was connected to the gridfor commissioning of 22kv enercon feeder and thefeeder was commissioned before 31.03.2005."Admittedly the Executive Engineer Operation andMaintenance for TNEB vide its letter dt. 08.03.05 hadgiven the commissioning certificate to the assesseeand the said commissioning certificate also reflectedthere in the initial reading on 05.03.05. There is nocase for the Revenue such initial reading was Zero, itcannot be presumed that certificate issued by theExecutive Engineer stating that the wind mill was tiedup with TNEB grid was fabricated. The AR of theappellant further argued that the AO cannot presumethat there was no production of wind mill at all afterits commissioning on 05.03.05 up to 31.03.05. In ouropinion, assessee had clearly established use of thewind mill for production of electricity. Electricityas a product, unlike other tangible material, would bethe same whether it results out of a trial productionor of a commercial production. Nobody would attempt totouch a electrical wire carrying potential difference,just for a reason that the electricity charged therein, was from the trial production of a generator unitand not for commercial production. Electricity as acommodity remains the same whether in trial productionor commercial production. Rules relating to necessity of establishing commencement of commercial productioncannot be transported to a case where the commodityproduced is electricity. Assessee was clearly eligiblefor depreciation and it was unjustly denied by theAssessing Officer. On verifying the relevant records, the object ofallowing higher rate of depreciation on Wind Mill isto encourage the use of energy saving andnonconventional energy generator devices. The higherallowance of depreciation at 80 to 100% allowed by thelegislature is for the purpose of promoting andencouraging the use nonconventional device of energygeneration. Keeping in view of the following judicialprecedents wherein the depreciation claimed by theassessees have been allowed. 1. Tamil Nadu Cholride Vs.DCIT (2006) 98 lTD 1 (Chennai)2. Chettinadu Cement Corporation Ltd., in ITAI029/Mds/2005 3. Atlost Expoit Enterprises Vs. DCIT Trichy 4. M/s.Velathal Spinning Mills Private Ltd., Vs.ACIT, Salem ITA No.202 & 203/Mds/2010.5. Standard Textiles, Kaur Vs. DCIT, Trichy 6.P.MeenakshisundaramVs.DCIT1nITA ACIT, Salem ITA No.202 & 203/Mds/2010. No.26/Mds/2009 1. Tamil Nadu Cholride Vs.DCIT (2006) 98 lTD 1 (Chennai)2. Chettinadu Cement Corporation Ltd., in ITAI029/Mds/2005 3. Atlost Expoit Enterprises Vs. DCIT Trichy 4. M/s.Velathal Spinning Mills Private Ltd., Vs.ACIT, Salem ITA No.202 & 203/Mds/2010.5. Standard Textiles, Kaur Vs. DCIT, Trichy 6.P.MeenakshisundaramVs.DCIT1nITA ACIT, Salem ITA No.202 & 203/Mds/2010. No.26/Mds/2009 Several courts have held that as per the judicialprecedents as mentioned above wherein the depreciationclaimed by the assessee has been allowed in full asper law. The Appellant has argued that on similarlines the Assessing Officer may be directed to allowthe claim of the Appellant as genuine and do thejustice. On having gone through various case laws referredby the Appellant which are squarely applicable to thefacts of the case and the claim made by the Appellantof depreciation on the windmills which were shown asassets in the depreciation schedule in its block ofassets as on 3 1.03.2008, as well as varioussubmissions made in favor of the claim fordepreciation, it is amply made clear that theAppellant had paid an advance of Rs. 20,00,000/- forpurchase of windmill of 1500 KV capacity from MIsSimran Wind project P Ltd. at a cost ofRs.9,45,00,000/- were on 02.02.2008, subsequently on14.02.2008 a further amount of Rs.1,66,00,000/- hasbeen paid by the company to the supplier of windmill.Further there was a sanction of term loan of Rs.7,00,00,000/- by State Bank of India for acquisitionof windmill on 19.03.2008 which has been disbursed bythe State Bank of India on 24.03.2008. There was alsosubsequent payment of Rs.59,00,000/- on 25.03.2008 by the Appellant Company to the Supplier. On delivery aswell as installation of windmill and generation ofelectricity and entering of approval for transfer ofthe windmill to the Appellant Company by the TNEB on29.03.2008 itself proved that the windmill has beenkept on operation and started generating electricityduring the FY relevant to the AY 2008-09 has beencommenced and therefore the Appellant is eligible toclaim the depreciation on the windmill at Rs.3,78,00,000/-. Thus, the Assessing Officer is not justified indenying the depreciation without analyzing variousmaterials brought on record. Thus, the appellant hasnot only established the acquisition of the asset butalso the putting the windmill into use for generationof electricity from the asset acquired before31.03.2008. The fact that Section 32 of the Actnowhere stipulates that an assessee in order to claimdepreciation ought to have paid the full cost ofacquisition of depreciable asset. Taking into accountthe facts of the case, the materials placed on recordand also relying upon the decisions in the cases citedsupra, the Assessing Officer is not justified indenying the claim of the Appellant for depreciation.Therefore the Assessing Officer is directed to deletethe addition made on account of disallowance ofdepreciation claimed by the Appellant at Rs.3,78,00,000/-.” 11.The Deputy Commissioner of Income-Tax (Appeals),Trichy, filed an appeal before the Income-Tax AppellateTribunal, Chennai, contending inter alia, that the Commissionerof Income Tax (Appeals) has failed to appreciate that the saleinvoice was issued on 31.03.2008, whereas, agreement for sale ofpower with TNEB, was dated 29.03.2008 and the approval of thesame was communicated by the Superintending Engineer, ECD, TamilNadu Electricity Board, Tirunelveli, only on 22.04.2008. 11.The Deputy Commissioner of Income-Tax (Appeals),Trichy, filed an appeal before the Income-Tax AppellateTribunal, Chennai, contending inter alia, that the Commissionerof Income Tax (Appeals) has failed to appreciate that the saleinvoice was issued on 31.03.2008, whereas, agreement for sale ofpower with TNEB, was dated 29.03.2008 and the approval of thesame was communicated by the Superintending Engineer, ECD, TamilNadu Electricity Board, Tirunelveli, only on 22.04.2008. 12.The appellant has further contended that theCommissioner of Income-Tax (Appeals) has erred in notconsidering that TNEB has not replied to the clarificationsought by the assessing officer, as to how, the agreement couldbe entered on 29.03.2008, when the seller had issued invoice on31.03.2008. Further contention has been made that the appellateauthority has erred in accepting fresh evidence that the paymentof Rs.700 Lakhs was on 24.03.2008 and Rs.59 Lakhs on 25.03.2008,without giving opportunity to the assessing officer, under Rule46A of the Income Tax Rules, 1962 and therefore, the assessmentdeserved to be remitted back to the assessing officer for freshconsideration. 13.On the other hand, facts, such as, (a) placement oforder, as early as in February' 2008, (b) payment of Rs.1.86Crores, by 14.02.2008, (c) payment by State Bankof India of Rs.700 Lakhs by 24.03.2008, (d) payment of balanceconsideration of Rs.0.59 Crores on 25.03.2008, (e) approval oftransfer of windmill in favour of the respondent/assessee byTNEB, on 29.03.2008 and (f) generation of electricity and creditfor the value, favouring the appellant for the period between29.03.2008 and 31.03.2008, have been placed before the appellateauthority. 14.For disbursement of term loan of Rs.7 Crores on24.03.2008, the State Bank of India, has even charged interestof Rs.1,68,767/- for the period between 24.03.2008 and31.03.2008. The respondent/assessee has also submitted that thesale deed, dated 07.03.2008, confirmed the physical possession.When evidence adduced at the appellate stage, was within theknowledge of the revenue, no contra material was produced tocontrovert the above. 15.Going through the documentary evidence, the appellateauthority, has arrived at the conclusion that the wind mill hasbeen installed and commissioned at the site and was operationalbefore 31.03.2008. It started generating electricity during thefinancial year, relevant to the assessment year 2008-09 andtherefore, the appellate authority has held that therespondent/assessee is eligible to claim the depreciation on thewindmill at Rs.3,78,00,000/-. 16.Referring to Section 32 of the Income-Tax Act, 1961,the Commissioner of Income Tax (Appeals), Trichy, has alsoobserved that the section does not stipulate any condition thatan assessee, in order to claim depreciation, ought to have paidthe full cost of acquisition of depreciable asset. Addedfurther, the Commissioner has considered the followingdecisions, (i) Mysore Minerals Ltd v. CIT reported in 239 ITR 775 (ii) CIT v. Kences Construction (P) Ltd., reportedin 236 ITR 503 (iii) Tamil Nadu Cholride v. DCIT reported in(2006) 98 ITD 1 (Chennai)(iv) Chettinadu Cement Corporation Ltd., [ITAI029/Mds/2005] https://hcservices.ecourts.gov.in/hcservices/ Ultimately, for the reasons recorded, the Commissioner ofIncome-Tax (Appeals), allowed the respondent/assessee's appeal,with a direction to the assessing officer to delete the additionmade, on account of disallowance of depreciation claimed by therespondent/assessee at Rs.3,78,00,000/-. 17.When the Deputy Commissioner of Income-Tax (Appeals),Trichy, filed an appeal before the Income Tax AppellateTribunal, "D" Bench, Chennai, going through the evidenceconsidered by the appellate authority, the Tribunal, hasrecorded as hereunder: (iii) Tamil Nadu Cholride v. DCIT reported in(2006) 98 ITD 1 (Chennai)(iv) Chettinadu Cement Corporation Ltd., [ITAI029/Mds/2005] https://hcservices.ecourts.gov.in/hcservices/ Ultimately, for the reasons recorded, the Commissioner ofIncome-Tax (Appeals), allowed the respondent/assessee's appeal,with a direction to the assessing officer to delete the additionmade, on account of disallowance of depreciation claimed by therespondent/assessee at Rs.3,78,00,000/-. 17.When the Deputy Commissioner of Income-Tax (Appeals),Trichy, filed an appeal before the Income Tax AppellateTribunal, "D" Bench, Chennai, going through the evidenceconsidered by the appellate authority, the Tribunal, hasrecorded as hereunder: "9. On perusing the paper book field by theassessee, we find that sufficient evidence were beforethe Revenue based on which the Ld. CIT (A) had come toa conclusion that the windmill has been purchasedbefore 31.03.2008 and commissioned. Paper book pageNo.2 – Receipt for Rs.20/- lakhs dated 14.02.2008mentioning that the amount was received on 02.02.2008from M/s. Simran Wind project Pvt. Ltd., Paper bookpage No.3 – Receipt for Rs.20/- lakhs from M/s.SimranWind Project P Ltd., dated 02.02.2008, page Nos.4 & 5extract of the Minutes of the Meeting of the Board ofDirectors dated 08.02.2008 for purchasing the windmillfrom M/s.Simran Wind project P Ltd., paper book pageNos.6 to 10 – purchase order for procuring thewindmill from M/s. Simran Wind project P Ltd., dated14.02.2008, paper book page Nos.11 & 12 receipt fromM/s.Simran Wind project P Ltd., for Rs.1,66,00,000/-dated 17.03.2008, paper book page Nos.13 to 26 saledeed for the purchase of the land dated 07.03.2008 onwhich windmill is erected, paper book page Nos.32 to41 sanction letter and proof for disbursement of loanfrom State Bank of India dated 19.03.2008 amounting toRs.7/- crores, page Nos.44 to page 53 - documentsissued by Tamil Nadu Electricity Board for purchase ofpower generated by the windmill from the assessee andproof for having purchased the power from the assesseebefore 31.03.2008, Page No.61 – invoice dated31.03.2008 from M/s. Simran Wind project P Ltd., onthe name of the assessee for purchase of the windmill.The genuineness of these documents could not besatisfactorily confronted by the Revenue. Moreover wedo not find Rule 46A being violated by the Ld.CIT(A)because the Ld A.R has certified that all the abovedocuments were before the both the Revenue Authoritiesand the same could not be proved otherwise by theLd.D.R by producing the assessment records. Further itis apparent from the order of the Ld.A.O that he hadplaced more reliance on the theory of preponderance ofprobabilities because many of the material events hadoccurred during the fag end of the previous year which arise some suspicion. In these circumstances, we donot find it necessary to interfere with the order ofthe Ld. CIT (A) who had arrived at his decision basedon the above mentioned documents and certain Judgmentsof the higher judiciary which are in support of thecase of the assessee considering the facts of thecase. Hence we hereby uphold the order of the Ld. CIT(A).10. In the result, the appeal of Revenue isdismissed." 18.A substantial question of law does not arise on thefindings of fact, unless it is substantiated that there isperversity. In Bhagat Construction Co. (P) Ltd., v. CITreported in (2001) 250 ITR 291 (Del.), the Delhi High Court heldthat a question of fact, becomes a question of law, if thefinding is either without any evidence or material or, if thefinding is contrary to the evidence, or is perverse or there isno direct nexus between the conclusion of fact and the primaryfact upon which that conclusion is based. But it is not possibleto turn a mere question of fact into a question of law by askingwhether as a matter of law the authority came to the correctconclusion on a matter of fact. 18.A substantial question of law does not arise on thefindings of fact, unless it is substantiated that there isperversity. In Bhagat Construction Co. (P) Ltd., v. CITreported in (2001) 250 ITR 291 (Del.), the Delhi High Court heldthat a question of fact, becomes a question of law, if thefinding is either without any evidence or material or, if thefinding is contrary to the evidence, or is perverse or there isno direct nexus between the conclusion of fact and the primaryfact upon which that conclusion is based. But it is not possibleto turn a mere question of fact into a question of law by askingwhether as a matter of law the authority came to the correctconclusion on a matter of fact. 19.In M.Janardhana Rao v. Joint CIT reported in (2005) 273ITR 50 (SC), the Hon'ble Supreme Court held that in the exerciseof the powers under Section 260A, the findings of fact of theTribunal cannot be disturbed. In the said judgment, the ApexCourt further held that the tests for determining whether asubstantial questions of law, is involved in an appeal are, (a) whether directly or indirectly it affectssubstantial rights of the parties, or(b) the question is of general public importance,or(c) whether it is an open question in the sensethat the issue is not settled by a pronouncement ofthe Supreme Court or Privy Council or by the FederalCourt, or(d) the issue is not free from difficulty, or(e) it calls for a discussion for alternativeview. 20.Though Mr.J.Narayanasamy, learned Standing Counsel forthe Income-Tax Department reiterated the very same grounds,before us, going through the material on record, we are of theconsidered view that the whole issue revolves only on thefinding of fact recorded by the Commissioner of Income-Tax(Appeals), Trichy and confirmed by the Tribunal. Eligibility ofthe assessee, for allowance, with reference to Section 32 of the https://hcservices.ecourts.gov.in/hcservices/ Income Tax Act, 1962, has been considered, in the light of thedecisions, referred to above, with a categorical finding on allthe issues raised, by the revenue. 21.On the facts and circumstances of the case, we are ofthe view that the Tribunal was right in holding that theassessee is entitled to depreciation, as the assessee had takenover the possession of the wind mill, and that the same was putto use and started generating electricity, before 31.03.2008,during the financial year, relevant to the assessment year 2008-09. Hence, the first substantial question of law raised, isanswered against the revenue. 22.On the 2nd substantial question of law, this Courtdeems it fit to extract Rule 46A of the Income Tax Rules, 1962,which deals with production of additional evidence before theDeputy Commissioner (Appeals) and Commissioner (Appeals), asfollows: "(1) The appellant shall not be entitled toproduce before the Deputy Commissioner (Appeals)or, as the case may be, the Commissioner (Appeals),any evidence, whether oral or documentary, otherthan the evidence produced by him during the courseof proceedings before the Assessing Officer, exceptin the following circumstances, namely :-(a) where the Assessing Officer has refused toadmit evidence which ought to have been admitted ;or(b) where the appellant was prevented bysufficient cause from producing the evidence whichhe was called upon to produce by the AssessingOfficer ; or (c) where the appellant was prevented bysufficient cause from producing before theAssessing Officer any evidence which is relevant toany ground of appeal ; or(d) where the Assessing Officer has made theorder appealed against without giving sufficientopportunity to the appellant to adduce evidencerelevant to any ground of appeal. (2) No evidence shall be admitted under sub-rule (1) unless the Deputy Commissioner (Appeals)or, as the case may be, the Commissioner (Appeals)]records in writing the reasons for its admission. (c) where the appellant was prevented bysufficient cause from producing before theAssessing Officer any evidence which is relevant toany ground of appeal ; or(d) where the Assessing Officer has made theorder appealed against without giving sufficientopportunity to the appellant to adduce evidencerelevant to any ground of appeal. (2) No evidence shall be admitted under sub-rule (1) unless the Deputy Commissioner (Appeals)or, as the case may be, the Commissioner (Appeals)]records in writing the reasons for its admission. (3) The Deputy Commissioner (Appeals) or, asthe case may be, the Commissioner (Appeals) shallnot take into account any evidence produced undersub-rule (1) unless the Assessing Officer has beenallowed a reasonable opportunity- (a) to examine the evidence or document or tocross-examine the witness produced by theappellant, or(b) to produce any evidence or document or anywitness in rebuttal of the additional evidenceproduced by the appellant.(4) Nothing contained in this rule shall affectthe power of the Deputy Commissioner (Appeals) or,as the case may be, the Commissioner (Appeals) todirect the production of any document, or theexamination of any witness, to enable him todispose of the appeal, or for any other substantialcause including the enhancement of the assessmentor penalty (whether on his own motion or on therequest of the Assessing Officer) under clause (a)of sub-section (1) of section 251 or the impositionof penalty under section 271." 23.Facts that the respondent/assessee has filed documents,in respect of sequence of events, set out in the foregoingparagraphs of this judgment, have not been denied. Knowledge ofthe revenue to the documentary evidence adduced at the appellatestage, is per se apparent on the face of the record. The onlygrievance of the revenue is that a remand report to have beenobtained. 24.Paper Book Page Nos.32 to 41, produced before theTribunal are sanction letter and proof for disbursement of loanfrom State Bank of India, dated 19.03.2008, amounting to Rs.7/-crores. Among the other documents produced by therespondent/assessee, Paper Book Page Nos.44 to 53 are stated tobe documents issued by the Tamil Nadu Electricity Board forpurchase of power generated by the windmill from the assesseeand proof for having purchased power from the assessee before31.03.2008. 25.Going through the documents issued by the State Bank ofIndia and the Tamil Nadu Electricity Board and other evidences,extracted supra, the Tribunal has observed that the genuinenessof the documents has not been confronted by the Revenue. Samewas the case before the Commissioner of Income Tax (Appeals).When production of evidence at the appellate stage, ispermissible under the Income-Tax Act, 1961 and the Rules madethereunder, nothing prevented the Revenue from raisingobjections or to question the genuineness of the documents. 26.What is contemplated under the rules is examination ofevidence or to cross examine the witness produced by theappellant. Revenue is also entitled to produce any evidence or https://hcservices.ecourts.gov.in/hcservices/ witness, rebutting the additional evidence produced by theappellant. When all the above was open to the revenue, it is thecategorical finding of both the appellate authority and theTribunal that the revenue has not confronted the evidenceadduced by the assessee, in which event, it would not be correctto contend that the Commissioner of Income-Tax (Appeals), oughtto have sought for a remand report. There was no challenge tothe documentary evidence. 26.What is contemplated under the rules is examination ofevidence or to cross examine the witness produced by theappellant. Revenue is also entitled to produce any evidence or https://hcservices.ecourts.gov.in/hcservices/ witness, rebutting the additional evidence produced by theappellant. When all the above was open to the revenue, it is thecategorical finding of both the appellate authority and theTribunal that the revenue has not confronted the evidenceadduced by the assessee, in which event, it would not be correctto contend that the Commissioner of Income-Tax (Appeals), oughtto have sought for a remand report. There was no challenge tothe documentary evidence. 27.The question now posed before us, is whether, theCommissioner of Income-Tax (Appeals), has properly exercised thepowers, under Rule 46A of the Income Tax Rules, 1963. It is thecase of the revenue that a remand report ought to have beenobtained. Exercise of power by the Commissioner of Income-Tax(Appeals, is to enable the appellate authority to pass orders,for substantial cause, while entertaining additional evidence,the appellate authority is empowered to allow additionalevidence to do substantial justice, between the parties. Theappellate authority may admit the evidence and decide theappeal. The appellate authority may keep the appeal pending anddirect the assessing officer to ascertain the facts, essentialfor the purpose of deciding the appeal and then, on the basis ofthe remand report, decide the appeal. Where additional evidenceis adduced, the other side has to be given an opportunity toexplain or rebut such additional evidence. It is also wellsettled that if evidence has been allowed to be let in, withoutobjection, it will not be open to the party aggrieved to raiseany objection, as to its admissibility, at a subsequent stage.When all the materials were available before the appellateauthority and not objected by the revenue, the contention that areport ought to have been obtained, cannot be countenanced.Exercise of jurisdiction by the appellate authority, cannot besaid to be contrary to the provisions of the Income Tax Rules,1963. 28.When the State Bank of India, a schedule bank/PublicSector Undertaking has issued documentary proof for disbursementof the loan on 19.03.2008, amounting to Rs.7,00,00,000/- and theTamil Nadu Electricity Board, controlled by the State, haveissued documents to prove the purchase of power generated by thewindmill from the assessee, they were not objected by thedepartment and in such circumstances, it would not beappropriate to contend that the Tribunal went wrong in holdingthat there is no violation of Rule 46-A of the Income-Tax Rules,1962. Thus, both before the Commissioner of Income-Tax(Appeals), Trichy and the Tribunal, the revenue has not onlyfailed to controvert the contents of the documents nor producedthe assessment records, to disprove the same. 29.Thus, after considering the credence of the documentaryevidence, produced by the respondent/assessee and on the facts and circumstances of the case, the Tribunal, by observing thatthe assessing officer had placed reliance only on the theory ofpreponderance of probability, and thus, disallowed depreciation,has confirmed the order of the Commissioner of Income-Tax(Appeals), Trichy. The Tribunal has also found that thedecisionsreliedon,supportedthecaseoftherespondent/assessee. 30.In the light of the above discussion and the decisions,we are of the view that the appellant has not made out a casefor an answer in its favour, on the substantial question of lawNo.2, raised in the instant appeal. Hence, the same is answeredagainst the revenue. 31.There are no valid grounds to reverse the order of theTribunal. Both the questions of law raised are answered againstthe revenue and in favour of the assessee. and circumstances of the case, the Tribunal, by observing thatthe assessing officer had placed reliance only on the theory ofpreponderance of probability, and thus, disallowed depreciation,has confirmed the order of the Commissioner of Income-Tax(Appeals), Trichy. The Tribunal has also found that thedecisionsreliedon,supportedthecaseoftherespondent/assessee. 30.In the light of the above discussion and the decisions,we are of the view that the appellant has not made out a casefor an answer in its favour, on the substantial question of lawNo.2, raised in the instant appeal. Hence, the same is answeredagainst the revenue. 31.There are no valid grounds to reverse the order of theTribunal. Both the questions of law raised are answered againstthe revenue and in favour of the assessee. 32.In the result, the Tax Case Appeal is dismissed. Nocosts. Consequently, connected Miscellaneous Petition is alsoclosed. Sd/- Assistant Registrar(CS II) //True Copy// To Sub Assistant Registrar 1.The Income Tax Appellate Tribunal, “D” Bench, Chennai. “D” Bench, Chennai. 2.The Commissioner of Income Tax, Trichy. 3.The Commissioner of Income Tax(Appeals), Trichy. Trichy. 4.The Deputy Commissioner of Income Tax, Company Circle-I, Trichy. ca[co]srg 28/09/2016