2015 (3) TMI 263 - AT - Income Tax

Depreciation on plant and machinery used for generation of the power - belated return filed - Held that - It is apparent that Rule 5(1A) has not prescribed any particular form or procedure in the second proviso in relation to exercising of the option by the Assessee. The second proviso to Rule 5(1A) only lays down that the option has to be exercised before the due date of furnishing of return of income u/s 139(1) for A.Y 1998-99 in respect of power generating undertaking then existing and for the first assessment year in which a new undertaking begins to generate power. The Assessee claimed depreciation in its return, even though filed belatedly, but within the date as prescribed u/s 139(4) in accordance with sub-rule (1) read with Appendix-1. Rule cannot supersede the Act. U/s 32 there is no specific provision of exercising of the option within a particular time, therefore, to that extent the condition imposed under Rule 5(1A) proviso (ii), in our opinion, is invalid. We, therefore, set aside the order of CIT(A) on this issue and direct the AO to allow the depreciation to the Assessee in accordance with Appendix-1 on the items which are mentioned under column 8(ix)(d) as per the rate specified therein. - Decided in favour of assessee. Claim of deduction u/s 43B in respect of Purchase Tax payable - Held that - In the present case even though the Assessee has filed abstract of the Industrial Policy but has not adduced any evidence or material which may prove that the purchase tax payable by the Assessee has been converted into loan and therefore the liability towards the purchase tax stand discharged before the due date of filing of the return. In the interest of justice and fair play to both the parties, we set aside the order of CIT(A) and restore this issue to the file of the AO with the direction that the AO shall look into the evidence filed by the Assessee whether the said purchase tax payable by the Assessee got converted into loan as per the Industrial Policy before the date of filing of the return by the Assessee for the impugned assessment year. In case the AO finds that the purchase tax payable by the Assessee was converted into loan under the Karnataka Government scheme before the due date of filing of the return, the deduction be allowed to the Assessee, otherwise not.- Decided in favour of assessee for statistical purposes.

Issues Involved:
1. Claim of Depreciation on Plant and Machinery used for Power Generation
2. Disallowance of Purchase Tax under Section 43B
3. Levy of Interest under Sections 234B and 234C

Issue-wise Detailed Analysis:

1. Claim of Depreciation on Plant and Machinery used for Power Generation:
The primary issue in both appeals pertains to the Assessee's claim for depreciation on plant and machinery used for power generation. The Assessee argued that the machinery used for power generation should be considered part of their sugar manufacturing business, and thus, they should be allowed depreciation under Rule 5(1) of the Income Tax Rules, 1962, rather than Rule 5(1A). The Assessee contended that the higher depreciation rate under item III(8)(ix)D for co-generation systems should apply. The AO disallowed this claim, stating that the Assessee did not exercise the option for claiming depreciation under Rule 5(1A) before the due date of filing the return. The CIT(A) upheld the AO's decision.

The Tribunal noted that Section 32(1)(i) allows an Assessee engaged in power generation to claim depreciation on the actual cost at prescribed rates. The Tribunal found that the rule-making authority exceeded its jurisdiction by imposing a condition that the option must be exercised before the due date of filing the return, which is not stipulated in the Act. The Tribunal referenced several judicial precedents, including decisions from the Karnataka High Court and the Chennai Bench of the Tribunal, which supported the view that the claim in the return itself suffices for exercising the option. Consequently, the Tribunal directed the AO to allow the depreciation as per Appendix-1 for the items listed under column 8(ix)(d).

2. Disallowance of Purchase Tax under Section 43B:
For A.Y 2010-11, the Assessee challenged the disallowance of Rs. 4,62,04,825/- under Section 43B, arguing that the purchase tax payable was converted into an interest-free loan under the Karnataka Government's Industrial Policy. The AO disallowed the claim due to the absence of a clear order, and the CIT(A) upheld this disallowance.

The Tribunal examined the Industrial Policy, which allowed conversion of purchase tax into interest-free loans for new and expanding sugar factories with co-generation plants. However, the Tribunal noted that the Assessee did not provide sufficient evidence to prove the conversion of purchase tax into a loan before the due date of filing the return. Therefore, the Tribunal remanded the issue back to the AO to verify the Assessee's claim and allow the deduction if the conversion was indeed completed before the due date.

3. Levy of Interest under Sections 234B and 234C:
The Assessee contested the levy of interest under Sections 234B and 234C for A.Y 2010-11. Both parties agreed that this issue was consequential in nature. The Tribunal directed the AO to recompute the interest after giving effect to the Tribunal's order on the other issues.

Conclusion:
The appeal for A.Y 2009-10 was allowed, granting the Assessee's claim for higher depreciation. The appeal for A.Y 2010-11 was partly allowed for statistical purposes, with the purchase tax issue remanded to the AO for further verification and the interest issue to be recomputed accordingly.

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