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TMI Blog2014 (2) TMI 234X X X X Extracts X X X X X X X X Extracts X X X X ..... ERALA High Court] – The "green house" is an essential part for a company engaged in the business of Tissue Culture - It cannot be considered as a simple "building" but has to be considered as a plant - the Assessee was right in considering the "green house" as part of "plant and machinery" and claiming depreciation of 25% - Decided partly in favour of Assessee. - ITA Nos.3270 to 3273/AHD/2010 - - - Dated:- 2-8-2013 - D K Tyagi And Anil Ghaturvedi, JJ. For the Appellant : Shri Milin Mehta For the Respondent : Shri P L Kureel, Sr. DR. ORDER:- PER : Anil Chaturvedi These four appeals are filed by the Assessee against the order of CIT(A)- I, Baroda for A.Ys. 2004-05 to 2007-08. 2. Before us, at the outset, the learned A.R. submitted that in all the four appeals, the facts and issue are identical except for the amount and therefore all the four appeals can be disposed off together. We therefore proceed to dispose of all the appeals by a consolidated order. We first take up ITA No. 3270/Ahd/2010 for A.Y. 2004-05. 3. The facts as culled out from the order of lower authorities are as under. 4. Assessee is a company engaged in the business of Tissue Culture Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as not pressed. Ground no. 2 and 3 are interconnected and are with respect to expenses incurred on preliminary survey for Aqua and Agro Project. 6. During the course of assessment proceedings, Assessing Officer noticed that the Assessee had incurred expenditure of Rs. 10,71,565/- for preliminary survey and other related technical matters of Aqua Agro Project. The Assessee was asked to justify its claim. The Assessee interalia submitted that Management had taken a decision to defer the implementation of this project and was exploring the possibility of undertaking the same under separately constituted company. Since the implementation of the project and the possibility of undertaking it in under a separate company was not possible and therefore the Assessee had decided to write off the expenditure. The submissions made by the Assessee was not found acceptable to the Assessing Officer as he was of the view that the expenses incurred on the project which was abandoned was of capital in nature. He was further of the view that the capital expenditure even on abandoned project remains capital expenditure. He accordingly disallowed the claim of the assessee. Aggrieved by the orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o existence and therefore no benefit accrued to the assessee. He further placed reliance on the decisions in the case of CIT Vs. Jyoti Electric Motors Ltd. 255 ITR 345 Gujarat, CIT Vs. Priya Village Roadshows Ltd. 228 CTR 271, Indorama Synthetics India Ltd. Vs. CIT 228 CTR 278 (Delhi) and DCIT Vs. Assam Asbestos Ltd. 263 ITR 357 Guwahati. He thus urged that the expenses written off be allowed to the Assessee. 9. The learned D.R. on the other hand relied on the order of Assessing Officer and CIT(A). 10. We have heard the rival submissions and perused the material on record. It is an undisputed fact that the Assessee is engaged in the business of Tissue Culture Activities and Open Fill Activities relating to agriculture projects. The Assessee has stated to have incurred the expenditure in A.Y. 2001-02 towards preliminary survey and other related technical matters for Aqua and Agro Project. Since the Assessee could not proceed with the Aqua and Agro Project, the entire expenditure was claimed as a Revenue expenditure. It is also a fact that no capital asset come into existence. The Assessee has stated that the new proposed business was an expansion of the existing business. In the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the facts in the present ground is similar to Ground no. 2 for A.Y. 2005-06, Ground no. 1 for A.Y. 2006-07 and Ground no. 1 for A.Y. 2007-08 except for the amounts and therefore all can be considered together. We therefore proceed with the facts of A.Y. 2004-05. 14. During the course of assessment proceedings, Assessing Officer noticed that the Assessee has claimed depreciation @ 25% on green houses. The Assessee was asked to justify its claim of higher depreciation. The Assessee interalia submitted that the green houses were required to carry out the hardening process of Tissue Culture Plant under the controlled condition to enable the plant to have value addition in the same manner as done in the manufacturing process. It was further submitted that the green houses was not a simple structure to be called a "building" but was part and parcel of various machinery and therefore the Assessee has rightly claimed depreciation at 25%. Assessing Officer did not accept the contention of the assessee. He was of the view that the "green houses" are in the nature of "factory building" and are part of the "building" block and they cannot be considered as plant and machinery. He accordingly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion and further processed for multiplication purpose in the laboratory itself under special environment. After the tissues attains the specified growth they are transferred to Green Houses, first to primary green house and then to secondary green house for hardening process. He further submitted that green houses are developed with special technology by technically qualified person so as to adhere to the exact requirement of hardening process. The hardening process increases the value of the product in same way as manufacturing process in case of manufacturing company and this hardening process is done by green houses. Green houses are not simple structures fit to be called building. Green houses perform a manufacturing process that is hardening which is an integral part of the manufacturing activity of the assessee. It is an apparatus with which the process of hardening is carried out. He further submitted that all functional test for treating the green houses are satisfied. He further placed reliance on the decision in the case of CIT vs. Karnataka Power Corporation 247 ITR 268 (SC) Ramdeo Tiles vs. CIT 227 ITR 463 (MP) Nowrangroy Metals Pvt. Ltd. vs. JCIT 262 ITR 231 Guwahati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a building simpliciter. 20. In the case of CIT vs. Victory Aqua Farms Ltd. (2004) 271 ITR 530 (Ker) the issue before the Hon. High Court was that the Assessee was a company doing business in aqua culture. Prawns are grown in specially designed ponds. According to the assessee, prawn ponds were tools to the business of the assessee and hence the same constitute "plant" eligible for depreciation at the rates applicable to plant and machinery. The Assessing Officer disallowed the claim of the assessee. Hon. High Court after relying on the decision in the case of CIT vs. Anand theatre (2000) 244 ITR 192, CIT vs. Karnataka Power Corp. (2001) 247 ITR 268 (SC) noted as under:- The question that arises is whether the pond is a plant. In CIT v. Anand Theatres [2000] 244 ITR 192, the Supreme Court held as follows (headnote) : "Section 32 provides different rates of depreciation for building, machinery, plant or furniture, ships, buildings used for hotels, aeroplanes and other items mentioned therein. The word 'plant' is given an inclusive meaning under section 43(3) which nowhere includes buildings. The Rules prescribing the rates of depreciation specifically provide for grant of d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee's special technical requirements, it will qualify to be treated as a plant for the purposes of investment allowance. Held accordingly, that there was a finding by the fact-finding authority that the assessee's generating station building was so constructed as to be an integral part of its generating system. It was 'plant' entitled to investment allowance." In CIT v. Victory Acqa Farm Ltd. [2004] 271 ITR 528, a Division bench of this court held that pond cannot be treated as plant and is not eligible for depreciation at the rate applicable to plant and machinery. This was stated following the decision in CIT v. Anand Theatres [2000] 244 ITR 192 (SC). Page No: 0533 In order to keep the water at the required level for the purpose of breeding shrimps or prawns the pond is a must. The breeding of fish cannot be carried on within the ponds. As referred to by the Tribunal, water plays the role of a machine just like a timber merchant. If the timber merchant requires a sawing machine to cut and shape the log such sawing machine constitutes a plant for him. Water in the case of the assessee plays same role. Water has to be stored within the ponds. Therefore, the ponds a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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