2016 (5) TMI 789 - AT - Income Tax

Disallowance of depreciation in respect of Effluent Treatment Plant (E.T.P) - date of installation and put to use for the first time - Held that - There is nothing on record which could positively establish the use of the ETP from 01.10.2005 as in the form of commissioning report; ETP power consumption (which is separately metered); consumption of chemicals for use in ETP et. as. The EAR contains specific reference to the ETP records. The EAR is also silent in this regard being as afore-noted only for the period January 2007 onwards. We are at the same time conscious that there has been no verification qua this aspect of the matter by the Revenue who has proceeded by accepting the assessee s claim. The assessee therefore has not got an opportunity to properly represent its case in the matter. We accordingly restrain from issuing any final finding in the matter and consider it only proper to restore this aspect of the matter back to the file of the A.O. The assessing authority where not satisfied with the assessee s explanation or if the assessee itself concedes not to press this aspect shall in giving effect to this order allow deprecation at 50% of the cost for the current and the following year in-as-much as we have confirmed it to be eligible for deprecation @ 100%. This it would be appreciated is even otherwise incumbent on him in-as-much as he has to while allowing additional depreciation for the current and/or the following year withdraw the depreciation for the subsequent years; the issue at hand concerning the rate of depreciation so that the issue in essence involves timing difference.

Summary

Issues:
Validity of claim for depreciation on Effluent Treatment Plant (ETP).

Analysis:
The appeal concerns the validity of the assessee's claim for depreciation on an Effluent Treatment Plant (ETP) costing ?29,13,344. The Revenue allowed depreciation at a normal rate of 15% plus additional depreciation at 20%, totaling 35%. However, the assessee contended for 100% depreciation under specific clauses of the Income Tax Rules. The CIT(A) upheld the disallowance of 100% depreciation due to lack of evidence regarding expenditure, equipment, and assembly cost. The assessee submitted a Chartered Engineer's certificate and an Environmental Audit Report, but the A.O. found the claim unsubstantiated. The CIT(A) affirmed the disallowance due to insufficient evidence. The Tribunal considered bills, audited accounts, and certificates provided by the assessee and concluded that the ETP qualified as Water Pollution Control (WPC) Equipment under relevant clauses, making it eligible for 100% depreciation.

The Tribunal questioned the date of installation and first-time use of the ETP. Despite being allowed full depreciation, bills indicated work continued post the claimed installation date. The Tribunal noted discrepancies in bill dates and lack of conclusive evidence on the ETP's actual first-time use date. Consequently, the Tribunal decided to restore this aspect to the A.O. for further examination. The Tribunal clarified its competence to address factual issues not considered by the Revenue, citing relevant legal precedents.

In conclusion, the Tribunal partly allowed the assessee's appeal, confirming eligibility for 100% depreciation on the ETP but directing further assessment on the installation and first-time use date. The Tribunal emphasized the need for proper verification and adjustment of depreciation rates for subsequent years based on the final findings on the ETP's installation date.