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TMI Blog2010 (9) TMI 1122X X X X Extracts X X X X X X X X Extracts X X X X ..... regarding direction of the CIT(Appeals) to the A.O. to allow 100% depreciation on what was claimed by the assessee as pollution control equipments. According to Revenue, assessee never filed any certificate from the suppliers that what was supplied by them were pollution control equipment. Further, according to it, the bills from suppliers produced by the assessee as evidence for purchase of pollution equipments, came to ₹ 49,00,658/- only and the balance items were not all in the category of pollution control equipment. Further grievance is that the CIT(Appeals) considered a certificate dated 31.1.2007 given by a former employee of the assessee, namely, Shri P. Krishnamurthi for coming to a conclusion that the entire claim of the assessee on account of depreciation on pollution control equipments was correct. Revenue is also aggrieved that the CIT(Appeals) had not appreciated that all these machinery were acquired prior to 1.4.2002 and the claim of the assessee included civil construction expenses of ₹ 8,53,49,491/- incurred for installation of pollution control equipment, which assessee itself had classified under the general head of "Plant and Machinery". 3. Short ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egory of electrostatic precipitation system and dust collector equipment. Nevertheless, the AO also noted that Shri P. Krishnamurthi was a former employee of the assesseecompany and assessee could not produce any certificate from a competent Government agency. Assessee in his reply submitted before the CIT(Appeals) that the report of Shri P. Krishnamurthi was clear regarding the nature of equipment installed by the assessee. Further submission of the assessee was that it was necessary to install pollution control equipment without which a cement plant could not operate. Assessee mentioned that Reverse air fan bag house, which constituted a major part of the expenses on civil construction, was essential for de-dusting the exhaust gases from kiln and raw mill and bag filters were essential for coal mill and cement mill. CIT(Appeals) after considering the submissions of the assessee and also considering the remand report of the A.O., came to a conclusion that assessee was able to explain with the help of the report of the Technical Consultant Shri P. Krishnamurthi that nature of the equipment and the expenses claimed by the assessee would fall within the ambit of air pollution control ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... veyer systems and at the point of each of such transfer, proper civil structure was required for housing the filters, without which dust particles could not be trapped. According to him, neither the A.O. nor the learned D.R. could point out any lacuna in the report of the expert Shri P. Krishnamurthi, who was examined on summons under section 131 of the Act. 7. We have perused the orders and heard the rival contentions. Claim of the assessee was for 100% depreciation on a sum of ₹ 15,98,11,599/- which according to assessee, represented cost of pollution control equipment. Out of this a sum of ₹ 7,44,62,108/- represented items of plant and machinery purchased from three companies and on this there is no dispute. The dispute is whether such plant and machinery of ₹ 7,44,62,108/- was indeed air pollution control equipment. Second dispute is whether the balance of expenditure of ₹ 8,53,49,491/- which was for civil works could be considered as falling within the realms of pollution control equipment. Case of the A.O. is that the equipment and machinery obtained from M/s Larson and Tubro were for pyro processing and cement mill systems and therefore, not for any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion equipment in a cement factory. We are thus of the opinion that, in so far as purchase of equipment from three companies were concerned, the report of Shri P. Krishnamurthi placed at assessee's paper-book Vol.II page 2 to 15 would be sufficient to justify the claim for depreciation as air pollution control equipment. In fact, he was examined by the A.O. on 5.5.2008. In answer to question No.7 (assesee's paper book Vol.II page 17), it was specifically mentioned that the equipment shown by the assessee in its depreciation table as per Income-tax Rules, 1962, had to be classified as electrostatic precipitator and dust collector systems which are all nothing but pollution equipment. Learned D.R. had doubted the report of Shri P. Krishnamurthi. No doubt, Shri P. Krishnamurthi worked as Production Manager during the period 1977- 1982 with the assessee. The Revenue never questioned his technical qualifications as such but only his impartiality. Just because Shri P. Krishnamurthi worked about 20 years back in the assesseecompany, we cannot say that his report would be biased. Revenue never made any effort to engage its own expert, which it could have done if it doubted the veracity of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion equipment'. It would include every item needed for satisfying the particular purpose for which a system is designed and which would result in control of air pollution. Hence, just because assessee had incurred a sum of ₹ 8,53,49,491/- for construction work necessary for housing its air pollution equipment, we cannot say that assessee would not be eligible for depreciation of higher rate available for air pollution control equipment. Nevertheless, there is nothing on record to show that the sum of ₹ 8,53,49,491/- was incurred by the assessee for construction of civil works like air bag houses. No doubt, bills for civil construction will be essentially for materials and labour and this by itself will not show that the constructions made out of such materials were for housing any air pollution equipment and systems. We find that neither the A.O. nor the CIT(Appeals) have gone into the aspect whether the sum of ₹ 8,53,49,491/- was incurred by the assessee for civil works relatable to housing of air pollution control systems. In our opinion, if the assessee is able to produce a report from technical expert on air pollution in this regard, it would be very well elig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A.O. noted from schedules to the balance sheet that assessee had already made addition to plant and machinery of ₹ 31,37,30,027/- in the relevant assessment year and the above claim on building was in addition thereto. Therefore, according to him, assessee's claim could not be allowed. He disallowed the excess depreciation of ₹ 26,94,594/- claimed by the assessee. 13. In its appeal before CIT(Appeals), claim of the assessee was that treatment given in books of accounts was not decisive. According to the assessee functional test had to be applied. The Civil construction in a thermal power plant was specially designed for a specific function of withstanding abnormally high temperature that would arise in such power plant. Reliance was also placed on the decision of Hon'ble Apex Court in the case of CIT vs. Karnataka Power Corporation (247 ITR 268) for supporting its contention that power generating building constructed with special technical criteria would qualify as plant. CIT(Appeals) was appreciative of these contentions. According to him, construction done by the assessee was not a separate one but only for housing thermal power plant and the functional test was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d not be given depreciation on the basis that it was a plant. We must add that the Court said, "To differentiate a building for grant of additional depreciation by holding it to be a plant in one case where a building is specially designed and constructed with some special features to attract the customers and the building not so constructed but used for the same purpose, namely, as a hotel or theatre would be unreasonable." This observation is, in our view, limited to buildings that are used for the purposes of hotels or cinema theatres and will not always apply otherwise. The question, basically, is a question of fact, and where it is found as a fact that a building has been so planned and constructed as to serve an assessee's special technical requirements, it will qualify to be treated as a plant for the purposes of investment allowance." 17. We are, therefore, of the opinion that CIT(Appeals) was justified in following the decision of Hon'ble Apex Court in the case of Karnataka Power Corporation (supra). No interference is called for and ground No.2 of the Revenue stands dismissed. 18. Vide ground No.3 Revenue, assails the deletion of disallowance towards p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 115JB, with retrospective effect from first April 2001, whereby amounts set aside as provision for diminution in value of any asset had to be added back. 23. Per contra, the learned A.R. submitted that the question is provision but only on bad debts. 24. We have perused the orders and heard the rival contentions. As mentioned by the learned D.R., on account of insertion of clause (i) to Explanation (1) to sub-section (2) of section 115JB of the Act by Finance (No.2) Act 2009 with retrospective effect from 01.04.2001, provision made for bad and doubtful debts has to be added back while computing book profits for the purpose of calculating the MAT liability. This is in view of the decision of Hon'ble Apex Court in the case of Apollo Tyres Ltd. v. CIT (255 ITR 273), wherein it was held that provision for bad debts was a provision for diminution in value of assets. Now provision for diminution of value of assets is covered by retrospective amendment mentioned above. No doubt, learned counsel for the assessee has argued that these were ascertained liabilities and actual bad debts. If that were so, nothing stopped the assessee from writing it off as bad debts. Essential differ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned D.R. supported the order of the CIT(Appeals). 31. We have perused the orders and heard the rival contentions. In our opinion, the decisions of Hon'ble jurisdictional High Court in the case of Hi Tech Arai Ltd. and VTM Limited (supra) relied on by the learned A.R. are squarely applicable to the facts of the case. Here assessee had erected a new thermal power plant. In the case of Hi Tech Arai Ltd. (supra), it was a windmill that was generating electricity. But, here it was on thermal power plant. In both the cases, assesses concerned were already in the line of manufacturing though of a different article. However, Hon'ble jurisdictional High Court held that even in such case, additional depreciation should be allowed on the new installation under section 32(1)(iia) of the Act. Hence, we are of the opinion that ld. CIT(Appeals) fell in error in confirming the disallowance of additional depreciation. We set aside the orders of the lower authorities and direct the A.O. to grant the additional depreciation claimed by the assessee on the thermal power plant. 32. Ground 2 to 7 of the assessee are, therefore, allowed. 33. Vide its ground No.8, the grievance of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich assessee had claimed depreciation under the head "plant and machinery" include street light fittings, junction box, steel rod, media converter, cable-Dfash silo elec, etc. There are two ways of viewing these items. It can be considered as electrical fittings which are a part of plant and machinery. Or else it can be considered only as electrical fittings. Assessee's case is that these were installed in its captive thermal power plant and hence, was part of the plant. According to Revenue, these were nothing but electrical fittings. There is no dispute that all these items were installed in thermal power plant. Lighting of the streets inside thermal power plant and installing of poles for such lights and connecting it by cables, in our opinion, though electrical items, would also be a part of plant and machinery. These items could be considered as tools which were essential for working of the thermal power plant and hence, could not have been viewed, divorced from the surroundings in which these were installed. Hence, we are of the opinion that such items were eligible for claiming of depreciation under the head "plant and machinery". Therefore, disallowance made by the lower au ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equipments, we have remitted the issue back to the A.O. for a fresh consideration after obtaining a certificate from the technical expert in this regard. Similar directions as mentioned in para seven above, are given here also. Thus, ground taken by the Revenue stands partly allowed for statistical purpose. 50. In the result, appeal of the Revenue for assessment year 2002- 03 is allowed for statistical purpose. 51. Coming to C.O. No. 127/Mds/2009 of the assessee, grounds No.1 and 9 are general in nature and need no adjudication. Vide its grounds 2 to 7, assessee is aggrieved that the CIT(Appeals) confirmed the action of the Assessing Officer in recomputing the short term capital gains in respect of sale of a ship. 52. Short facts apropos are that assessee had in its return of income shown capital gains of ₹ 14,82,83,098/- on account of sale of a ship to a group concern for a sum of ₹ 29 Crores. While computing its short term capital gains, assessee aggregated along with the written down value ₹ 13,91,87,362/- of the ship, a further sum of ₹ 25,29,540/- which was the foreign exchange fluctuation loss. Such foreign exchange loss arose on account of increas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aptioned as "Special provisions consequential to changes in rate of exchange of currency" may not support the case of the assessee. Section 43A reads as under:- Special provisions consequential to changes in rate of exchange of currency. 43A: "Notwithstanding anything contained in any other provision of this Act, where an assessee has acquired any asset in any previous year from a country outside India for the purposes of his business or profession and, in consequence of a change in the rate of exchange during any previous year after the acquisition of such asset, there is an increase or reduction in the liability of the assessee as expressed in Indian currency (as compared to the liability existing at the time of acquisition of the asset) at the time of making payment - (a) towards the whole or a part of the cost of the asset; or (b) towards repayment of the whole or a part of the moneys borrowed by him from any person, directly or indirectly, in any foreign currency specifically for the purpose of acquiring the asset along with interest, if any, the amount by which the liability as aforesaid is so increased or reduced during such previous year and which is taken into accou ..... 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