2005 (7) TMI 97 - HC - Income Tax

High efficiency boiler AO held that the assessee had used bagasse as fuel instead of coal and the boiler did not have an efficiency of 75 per cent. with economizer and with coal as fuel and, therefore, the assessee was not entitled to 100 % depreciation assessee s own claim that boiler efficiency was ranging from 72.5 to 77.5 %, gives possibility of efficiency less than 75 % - in view of entry given in Appendix I to ITR, assessee is not entitled to depreciation @ of 100 %

Summary

Issues:
1. Entitlement to 100% depreciation on a high efficiency boiler used in a factory.

Analysis:

Issue 1: Entitlement to 100% Depreciation
The case involved a dispute regarding the entitlement of the assessee, a cooperative society running a sugar factory and a distillery unit, to claim 100% depreciation on a high efficiency boiler installed and used in their factory. The Assessing Officer initially denied the claim, stating that the boiler's efficiency did not meet the required criteria when using bagasse as fuel instead of coal. The Commissioner of Income-tax (Appeals) provided the assessee with an opportunity to prove the boiler's efficiency with coal. However, upon reevaluation, the Assessing Officer again concluded that the boiler's efficiency did not meet the necessary threshold for 100% depreciation. The Commissioner of Income-tax (Appeals) upheld this decision, prompting the assessee to appeal to the Tribunal.

The Tribunal, after reviewing the specifications of the boiler and the relevant facts, ruled in favor of the assessee. The Tribunal noted that the boiler's efficiency, as per the specifications provided, ranged between 72.5% to 77.5% with economizer, meeting the criteria for 100% depreciation on high efficiency boilers. The Tribunal emphasized that the use of bagasse as fuel did not disqualify the assessee from claiming 100% depreciation, as the boiler's efficiency was within the specified range even with economizer. The Tribunal also highlighted the need for adjusting subsequent years' depreciation if granted at the normal rate due to the initial denial of 100% depreciation.

However, the Revenue challenged the Tribunal's decision, arguing that the boiler's efficiency, as claimed by the assessee, fell within the range of 72.5% to 77.5%, which did not exceed the required 75% threshold for 100% depreciation on high efficiency boilers. The Revenue cited the relevant entry in the Income-tax Rules, which clearly stated the requirement of thermal efficiency higher than 75% for such depreciation. The Revenue contended that the Tribunal erred in allowing 100% depreciation based on the boiler's efficiency falling below the specified threshold.

Ultimately, the High Court ruled in favor of the Revenue, stating that the Tribunal had erred in granting 100% depreciation on the boiler with an efficiency range of 72.5% to 77.5%. The Court emphasized that the specific requirement for 100% depreciation was a thermal efficiency higher than 75%, which the boiler in question did not meet. Therefore, the Court answered the question in the negative, favoring the Revenue and against the assessee, with no order as to costs.