9911796707
TMI Blog2016 (7) TMI 1179X X X X Extracts X X X X X X X X Extracts X X X X ..... vind Agarwal, Advocate ORDER Per N. V. Vasudevan, JM This is an appeal by the Revenue against the order dated 26.2.2013 of CIT(A)- IV, Kolkata, relating to AY 2007-08. 2. The only issue raised by the revenue in this appeal is as to whether the CIT(A) was justified in deleting the addition of ₹ 70,99,318/- made by the AO by disallowing depreciation claimed by the Assessee. The grounds of appeal raised by the revenue read thus: "1. That on the facts and circumstances of the case the Ld. CIT(A) has erred in law in directing the A.O. to delete the addition of ₹ 7099318/- on account of depreciation by accepting assessee's submission based on electricity bills, although no such bill were furnished before the AO, without allowing any opportunity to the AO for verification of the same in violation of Rule - 46A. 2. That on the facts and circumstances of the case the Ld. CIT(A) has erred in law in directing the A.O. to delete the addition of ₹ 7099318/- on account of depreciation though the assessee could not explain properly the issues raised by the AO." 3. The Assessee is a company. It is engaged in the business of manufacturing of ductile iron. During the pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... zed and production was carried out therein. The Assessee further explained that since factory building was not completed as a whole, the same was not capitalized in the books of accounts of AY 2007-08. 6. The AO however was of the view that the opening value of the factory building as on 1.4.2006 was ₹ 59.61 lakhs and the addition during the previous year was ₹ 308.17 lakhs. The claim of the Assessee was that after construction, Plant and machinery was installed and job work was done from June, 2006. This in the opinion of the AO was impossible. The AO also observed that there was no electricity expenses of the factory claimed in the profit and loss account. Power and fuel expenses alone were claimed by the Assessee which was a very low sum of ₹ 1,75,340/-. According to the AO the fuel and power charges would have been paid only for running generator to supply electricity to carry out work of construction of factory building and erection of plant and machinery. The AO was of the view that without putting the machinery and plant the Assessee ought not to have capitalized their value in the books of accounts and claimed depreciation therein. The AO therefore disall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der the head Plant & Machinery, during the asst year 2007-08, the assessee has capitalized ₹ 7,79,63,887/-, the assessee has claimed depreciation amounting to ₹ 64.,07,754/- on plant and machinery of ₹ 1,92,19,931/- only which were installed and used by the assessee in its machine shop and other plant and machinery such as weighing machine, generator, pumps etc. used by the assessee for carrying out the activities in its machine shop. The AO also has failed to appreciate the fact that a part of the factory building was operational by June 2006 and the fact that the area required by the machine shop is much less as compared to the total area required for manufacturing of castings. 9. It was further submitted that the observations of the AO that there was no electric expense for the factory and that means no power connection has been given yet are not correct. On this observations the Assessee submitted that it had paid ₹ 5,01,470/- to Tamilnadu Electricity Board as electricity charges. The ledger copy of electricity charges together with copies of electricity bills issued by Tamilnadu Electricity Board were produced before the AO for his verification. It was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essories 143886 7560 Mobiles 43990 2801 Office Premises 1068492 75000 TOTAL DEPRECIATION 691565 12. It was submitted that the Assessee does not derives any tax advantage by claiming depreciation in the asst. year 2007-08. The returned loss position of the assessee for the asst. year 2007-08, 2008-09 and 2009-10 was as under: Asst. Year Returned loss for the year 2007-08 ₹ 7415443/- 2008-09 ₹ 39895993/- 2009-10 ₹ 19855883/- It was thus argued that it was very likely that the assessee would be in a disadvantageous position as far as tax outflow is concerned in the future years when the assessee makes profit since the assessee would have to pay tax u/s 115J8 as because out of the above loss of ₹ 671.67 lakh depreciation loss constitutes ₹ 564.49 lakh. It was therefore contended that the disallowance of depreciation of ₹ 70,99,318/- was arbitrary and based on surmises which are contrary to the facts of the case. 13. The CIT(A) agreed with the submissions of the Assessee and deleted the disallowance of depreciation as made by the AO. The following were his observations: "3.2. I have examined the rival submissions. It is a fact t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... end of the manufacturing process for finishing of the product. This machinery can be installed and put to use almost immediately upon their receipt. Two months time before job work began in June,2006 i.e. April and May, 2006 are held to be sufficient time for installation of simple machinery if' the machine room. To sum up, when the purchase of machinery is not doubted and neither is the resultant job work doubted, there is no ground to doubt the installation of machinery in the machine room as these are simple machinery. The electric power expenses incurred by the appellant to run the simple machinery justify the usage of machinery for doing job work. As the machinery was put to use, the depreciation claimed of the appellant disallowed to the extent of ₹ 70,99,318/- should now be allowed by the A.O." 14. Aggrieved by the order of the CIT(A), the revenue has preferred the present appeal before the Tribunal. The learned DR reiterated the stand of the Revenue that the conclusions of the CIT(A) that the assets on which depreciation was claimed were in fact put to use by the Assessee for the purpose of its business during the previous year, was based on additional evidence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A) that the aforesaid electricity charges was not claimed as deduction in the profit and loss account. There is no evidence on record to show that the electricity bills placed at pages 14-46 of the Assessee's paper book were in fact produced before the AO for verification in the course of assessment proceedings. The factual position with regard to electricity charges, power and fuel charges as it emanates from the record is that a sum of ₹ 2,23,403 incurred as expenditure on power and fuel and another sum of ₹ 5,01,470 was incurred as electricity charges for the factory in Tamil Nadu were treated as part of the pre operative expenses incurred during the previous year ended 31.3.2006 pending allocation as at 31.3.2006 allocated to machine shop fixed assets during the year ended 31.3.2007. The Assessee had claimed as deduction in the profit & loss account a sum of ₹ 1,75,340 in the profit and loss account which comprised of ₹ 2,896/- electricity charges for office, ₹ 97,977/- comprised of electricity charges for running of machine shop and ₹ 74,446 incurred for purchase of diesel used for running generator. The CIT(A) in coming to the conclusio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e opportunity- (a) to examine the evidence or document or to cross-examine the witness produced by the appellant; or (b) to produce any evidence or document or any witness in rebuttal of the additional evidence produced by the appellant. (4) Nothing contained in this rule shall affect the power of the Deputy Commissioner (Appeals) or, as the case may be, the Commissioner (Appeals) to direct the production of any document, or the examination of any witness, to enable him to dispose of the appeal, or for any other substantial cause including the enhancement of the assessment or penalty (whether on his own motion or on the request of the Assessing Officer) under clause (a) of sub-section (1) of section 251 or the imposition of penalty under section 271. 17. A reading of Rule 46-A(2) & (3) of the Rules shows that it was mandatory on the part of the CIT(A) before admitting additional evidence as well as before taking into account any additional evidence produced before CIT(A) to afford opportunity to examine the evidence so produced and to allow opportunity to produce any evidence in rebuttal of such evidence. We are of the view that there was violation of the aforesaid rules ..... X X X X Extracts X X X X X X X X Extracts X X X X
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