2018 (12) TMI 628 - AT - Income Tax

Disallowance of excess depreciation and additional depreciation - Held that - Expenses have been incurred on power charges paid to Gujarat electricity board, engineering design and labour cost for electrical work. On perusal of page 39 to 40 of the paper book, we find that assessee has paid ₹ 5,59,899/- for false ceiling, ₹ 5,54,490/- paid for electricity cost during plant commissioning and trial, ₹ 45,486/- for boundary and leveling of electric post etc. Thus, from these details, it cannot be ascertained that expenses have been incurred specific to any plant and machinery and the electric installation is integral part of the Plant and Machinery. In view of the above facts and circumstances and considering the alternative prayer of the assessee, we feel it appropriate to restore this issue to the file of the Ld. Assessing Officer, to verify each item of expenditure claimed under the category of electrical installation along with bills and vouchers and if required, commission may be issued to an Electrical Engineer for verifying whether the items of electrical installation constitute integral part of plant and machinery, and then the issue in dispute may be decided in accordance with law. It is needless to mention that the assessee shall be afforded adequate opportunity of being heard. The sole ground of the appeal of the assessee is accordingly allowed for statistical purposes. Disallowance of seed development or agronomic expenditure - revenue or capital expenditure - Held that - As decided in assessee s own case for assessment year 2007-08 second question relates to seed development/agronomy expenditure which was treated as capital in nature by the AO. The CIT(A) took a contrary position; that was endorsed by the ITAT being pure finding of fact. Disallowance of depreciation on building by relying on the additional evidences submitted by the assessee - admission of additional evidence - Held that - The matter required to be restored to the file of the Ld. CIT(A) for complying the requirements of Rule 46A(3) and provide opportunity to the Assessing Officer. However, while dealing with the earlier ground, we have restored the issue in dispute involved in that ground to the file of the Assessing Officer. Thus, to avoid simultaneous proceedings at multiple levels, we feel it appropriate to restore this issue also to the file of the Assessing Officer along with direction to the assessee to produce all evidences on the issue in dispute before the Assessing Officer. AO, thereafter may decide the issue in dispute in accordance with law after providing adequate opportunity of being heard to the assessee. The ground No. 2 of the appeal of the Revenue

Issues Involved:
1. Disallowance of excess depreciation and additional depreciation on electrical fittings/installation.
2. Disallowance of seed development/agronomy expenditure.
3. Disallowance of depreciation on building based on additional evidences.

Detailed Analysis:

1. Disallowance of Excess Depreciation and Additional Depreciation on Electrical Fittings/Installation:
The primary issue raised by the assessee was the disallowance of ?27,28,319/- as excess depreciation and ?1,09,13,279/- as additional depreciation on electrical fittings, totaling ?1,36,41,598/-. The Assessing Officer argued that electrical installations should be classified under "furniture and fixtures," which are eligible for a lower depreciation rate of 10%, rather than "plant and machinery," which qualifies for a 15% rate. The assessee contended that the electrical installations were integral to the plant and machinery, thus deserving the higher depreciation rate. The Tribunal, after reviewing the submissions and evidences, restored the issue to the Assessing Officer to verify whether the electrical installations were indeed integral to the plant and machinery, potentially involving an Electrical Engineer for verification.

2. Disallowance of Seed Development/Agronomy Expenditure:
The Revenue challenged the deletion of ?27,75,932/- disallowed by the Assessing Officer, who classified the seed development/agronomy expenditure as capital in nature. The assessee argued that these expenses were directly related to its business operations and should be considered as revenue expenditure. The CIT(A) and the Tribunal found in favor of the assessee, referencing previous Tribunal decisions and a Delhi High Court ruling that affirmed the expenditure as revenue in nature. The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeal on this ground.

3. Disallowance of Depreciation on Building Based on Additional Evidences:
The Revenue contended that the CIT(A) erred in deleting the disallowance of ?1,84,37,305/- for depreciation on the building by relying on additional evidences without providing the Assessing Officer an opportunity to examine these evidences, as required under Rule 46A. The CIT(A) admitted the additional evidences, which included electricity bills, letters, and certificates from engineers, but did not seek comments from the Assessing Officer on their merits. The Tribunal, referencing the Delhi High Court's decision in CIT Vs Manish Buildwell Private Limited, restored the issue to the Assessing Officer to comply with Rule 46A(3) and provide an opportunity for examination and rebuttal of the additional evidences.

4. Identical Issue in Subsequent Assessment Year:
For the assessment year 2009-10, the assessee raised a similar issue regarding the disallowance of ?4,19,478/- in excess depreciation on electrical fittings. The Tribunal restored this issue to the Assessing Officer, directing the assessee to produce necessary details and evidences, and instructed the Assessing Officer to decide the issue in accordance with the law.

Conclusion:
Both appeals of the assessee were allowed for statistical purposes, and the appeal of the Revenue was partly allowed for statistical purposes. The Tribunal directed the Assessing Officer to re-examine the issues with adequate opportunity for the assessee to present their case. The judgment emphasized compliance with procedural rules and thorough examination of evidences to ensure just and fair assessment.

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