2017 (3) TMI 971 - AT - Income Tax

Additional depreciation - Held that - First one is assessee s agreement with the Gujarat Mineral Development Corporation. Page 2 specifically states that assessee s scope of work includes mining of lignite and loading of consumer trucks there with after employing hydrolic excavator and other equipments. It is further supposed to remove over burden arising from the said activity. The assessee admittedly is reimbursed on tonnage basis. The fact however remains that this payment structure is not relevant s we are dealing with nature of assessee s activity. This former agreement makes it clear that the assessee itself is engaged in mining activity so as to be called a producer of the ore in question. It is further revealed from assessee s latter agreement with the Rajasthan Mines & Minerals that the situation is no different since the assessee has to excavate lignite ore after deploying all of its machinery. We therefore take into account all these contractual terms to observe that the assessee is itself engaged in mining activity rather than to be a labour contractor or a mere machines provider. Assessee is itself engaged in mining activity. We thus accept assessee s former substantive ground to delete the impugned disallowance of additional depreciation claim. - Decided in favour of assessee Adhoc allocation of expenses between windmill and mining business - Held that - We proceed in this backdrop to notice that the assessee has been maintaining separate books of its two businesses throughout as duly audited as per this statutory provisions. It has further entered into annual maintenance contract with the windmill installment companies so far as its former business is concerned. There is no evidence in the case file indicating that the assessee has either way diverted expenditure of one business towards the other one i.e. from windmill to mining and vice versa. The Assessing Officer rather appears to have adopted prorate turnover figures to arrive at the impugned allocation. We notice that such a course of action already stands reversed by various tribunal s decisions. For instance, ACIT vs. P I Industries 2011 (12) TMI 604 - ITAT JODHPUR deleting similar allocation / apportionment of expenses made by the Assessing Officer in case of an entity having two businesses and one of them eligible for Section 80IA deduction. We adopt the same reasoning herein as well to reverse the impugned allocation in absence of any specific material.

Summary

Issues Involved:
1. Additional depreciation disallowance under Section 32(1)(iia) of the Income Tax Act, 1961.
2. Allocation of expenses between windmill and mining businesses resulting in corresponding disallowance/addition.

Detailed Analysis:

1. Additional Depreciation Disallowance:

The assessee, an excavation work contractor, claimed additional depreciation of ?67,20,175/- on new plant and machinery used in mining operations at GMDC and RSMM. The Assessing Officer disallowed this claim, arguing that the assessee was merely a contractor and not a manufacturer or producer of lignite, as required under Section 32(1)(iia) of the Act. The CIT(A) upheld this disallowance, noting that the assessee was not the owner of the mines and was only performing job work of extraction.

The Tribunal examined the statutory provision, Section 32(1)(iia), which allows additional depreciation for businesses engaged in manufacturing or production. The Tribunal noted that the assessee's role involved significant mining activities using heavy machinery and agreements with GMDC and RSMM, indicating that the assessee was indeed engaged in the production of lignite. The Tribunal distinguished this case from the Supreme Court's decision in General Contracts Company, where the assessee was merely a labour contractor. Consequently, the Tribunal allowed the assessee's claim for additional depreciation of ?67,20,175/-.

2. Allocation of Expenses Between Windmill and Mining Businesses:

The assessee installed windmill units and claimed Section 80IA deduction on the income derived from wind power. The Assessing Officer allocated common expenses between the windmill and mining businesses based on their respective turnovers, resulting in a disallowance of ?47,17,803/-. The CIT(A) upheld the allocation of common expenses and directed the Assessing Officer to verify the interest expenses.

The Tribunal noted that the assessee maintained separate books for both businesses and had an annual maintenance contract for the windmill. There was no evidence of expense diversion between the two businesses. The Tribunal referred to previous decisions, such as ACIT vs. P I Industries, which rejected similar prorate allocation of expenses. Therefore, the Tribunal reversed the allocation of common expenses, except for the issues of depreciation and interest, which were not contested by the assessee. The Tribunal partly allowed the appeal, deleting the disallowance of ?47,17,803/-.

3. Appeal for Assessment Year 2010-11:

The assessee's appeal for the assessment year 2010-11 raised a similar issue of expense allocation resulting in a disallowance of ?60,05,017/-. The Tribunal applied its findings from the previous assessment year, allowing the appeal on similar grounds and deleting the disallowance.

Conclusion:

The Tribunal partly allowed both appeals, granting the additional depreciation claim and reversing the allocation of common expenses between the windmill and mining businesses, except for depreciation and interest expenses, which were not contested. The judgments emphasized the importance of the nature of activities performed and the maintenance of separate books for different business segments.