2014 (2) TMI 792 - HC - Income Tax

Power of the Tribunal u/s 254(2) of the Act Held that - The decision in Honda Siel Power Products Ltd Versus Commissioner of Income Tax, Delhi 2007 (11) TMI 8 - Supreme Court of India followed - the purpose behind the enactment of Section 254 (2) is based on the fundamental principle that no party appearing before the Tribunal, be it the assessee or the department, should suffer on account of any mistake committed by the Tribunal the fundamental principle has nothing to do with the inherent power of the Tribunal - if prejudice had resulted to the party, which prejudice is attributable to the Tribunal s mistake, error or omission and which error is a manifest error, then the Tribunal would be justified in rectifying its mistake which was not done in the case - the Tribunal was satisfied that the assessee s claim was reasonable, nevertheless, rejected their claim thus, the order dated 17.08.2005 passed by the Tribunal under Section 254 (2) of the Act is wholly within jurisdiction and perfectly justified. Allowability of depreciation @ 100% u/s 32 of the Act - block of assets u/s 2(11) - Assets used for the purpose of other than engineering products Held that - The findings of the Tribunal is justified in respect of the wind energy generators used in the process of manufacture of wind mills - So far as other machineries, viz., drilling machines, boring machines, boring machine for foundation work and lathe machine, are concerned, the Assessing Officer, on verification of the Written Down Value (WDV) of 100% depreciation block, found that the entire plant and machinery is included in the block - The generator sets being one such block of asset falling for consideration under Clause 10A of the depreciation table, this alone would qualify for the rate as prescribed under renewal energy devices , i.e., 100% depreciation - As far as other machineries are concerned, as rightly pointed out by the Assessing Officer, the same would qualify for depreciation at 25% and not at 100% as claimed by the assessee - the Assessing Officer is directed to re-work the relief on the grant of depreciation treating generator sets as the block of assets used in the manufacture of wind mills and the other machineries would not fall within that head of block of asset, but would entitle to the relief of depreciation at such rate as has been fixed by him Decided partly in favor of revenue.

Issues Involved:
1. Whether the Tribunal was justified in exercising its power under Section 254(2) of the Income-tax Act to recall its previous order and rehear the appeal regarding the claim for depreciation.
2. Whether the Tribunal was right in allowing 100% depreciation on assets not exclusively used for the manufacture of wind energy generators but also used for other engineering products.

Detailed Analysis:

1. Justification of Tribunal's Power under Section 254(2):

The first issue to be considered is whether the Tribunal was justified in exercising its power under Section 254(2) of the Act and allowing the Miscellaneous Petition by setting aside the final order and restoring the appeal to its file to decide the question of claim for depreciation afresh. Sub-section (2) of Section 254 of the Act gives power to the Appellate Tribunal at any time within four years from the date of the order, with a view to rectify any mistake apparent from the record, amend any order passed by it under sub-section (1) and shall make such amendment for the mistakes brought to its notice by the assessee or the Assessing Officer.

The scope of sub-section (2) of Section 254 was considered by the Hon'ble Supreme Court in Honda Siel Power Products Ltd. (2007) 295 ITR 466 (SC). The Supreme Court pointed out that the purpose behind the enactment of Section 254(2) is based on the fundamental principle that no party appearing before the Tribunal should suffer on account of any mistake committed by the Tribunal. It was further pointed out that when prejudice results from an order attributable to the Tribunal's mistake, error, or omission, then it is the duty of the Tribunal to set it right.

In the present case, the Tribunal, while considering the question of depreciation in its earlier order dated 29.11.2001, pointed out that the machineries were used by the assessee for various engineering work including the activity of manufacture of wind mills. The Tribunal initially opined that the assessee's claim was reasonable but later relied on the decision of the Karnataka High Court in the case of Amco Batteries Ltd. (1993) 203 ITR 614, which was not applicable to the facts of the assessee's case.

The Tribunal, on going through the Miscellaneous Petition filed under Section 254(2) of the Act, was satisfied that the decision of the Karnataka High Court would not apply and therefore, recalled the order and restored the appeal to be heard afresh on the said point alone. The Tribunal's action was justified as it aimed to correct a mistake that had caused prejudice to the assessee, attributable to the Tribunal's error.

2. Allowing 100% Depreciation on Assets:

The second issue is whether the Tribunal was right in allowing 100% depreciation on the assets that were not exclusively used for the purpose of manufacture of wind energy generators but used for other engineering products also.

The Tribunal initially satisfied that in the absence of the expression "exclusively used," the claim made by the assessee was reasonable. However, the Tribunal did not point out whether the assessee was entitled to the entire 100% depreciation as per the table annexed to the Act. The Tribunal recorded a factual finding that the machineries must have been used mainly for the purpose of manufacturing wind energy generators and therefore, held that the assessee was entitled to 100% depreciation as per the table annexed to the Act.

However, the Assessing Officer found that the entire plant and machinery were included in the block and during 1994-95; the total turnover was Rs.48.10 crores, which included the sale of 24 wind mills. The assessee claimed depreciation of plant and machinery at 25% only up to the Assessment Year 1994-95 and grouped the block of assets along with the addition to fixed assets made during the Assessment Year 1995-96, claiming 100% depreciation thereafter. The Assessing Officer allowed depreciation at 25% because the machineries were not "exclusively used" for the manufacture of wind mills and disallowed the depreciation to the tune of Rs.164.72 lakhs.

The Tribunal did not specifically address other machineries other than the generator sets. It is noted that the assessee claimed depreciation of plant and machinery at the rate of 25% up to the Assessment Year 1994-95 and grouped the same as block of assets from the Assessment Year 1995-96. In the absence of any material produced before the Assessing Officer to show that all the other machineries were also used in the manufacture of wind mills, the Assessing Officer was justified in restricting the depreciation claim to 25%.

The Tribunal pointed out that some of the turnover was generated by selling spares, services, laying of tower foundation in turnkey projects, etc., which would not require the use of machinery. Therefore, it cannot be said that the machine was used for the purpose of manufacturing other components. The Tribunal allowed the assessee's claim holding that for the purposes of grant of depreciation, exclusivity was not the test.

Considering the above facts, the generator sets being one such block of asset falling for consideration under Clause 10A of the depreciation table, would qualify for 100% depreciation. As far as other machineries are concerned, they would qualify for depreciation at 25% as rightly pointed out by the Assessing Officer.

Conclusion:

The Assessing Officer is directed to re-work the relief on the grant of depreciation treating generator sets as the block of assets used in the manufacture of wind mills and the other machineries would not fall within that head of block of asset but would entitle to the relief of depreciation at such rate as has been fixed by him. With the above direction and observation, T.C. (A) No.367 of 2006 is dismissed and T.C.(A) Nos.1553 and 1554 of 2008 are disposed of. No costs.

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