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Asstt. Commissioner Of Income Tax v. Gangaur Export Pvt. Ltd. .
Concise, Structured Summary of the Provided Opinion
Factual and Procedural Background
This appeal by the revenue challenges the order of the learned CIT (Appeals)-2, Jaipur dated 20.09.2016 for assessment year 2012-13. The case was selected for scrutiny and assessment was completed under section 143(3) of the Income Tax Act, 1961 by order dated 17.03.2015. The Assessing Officer (AO) made additions inter alia for:
- Disallowance of depreciation claimed (addition of Rs. 93,48,826/-).
- Addition for delayed deposit of employees' contributions to PF and ESI (addition of Rs. 15,29,425/-) for not making payment within prescribed dates under respective Acts.
The assessee appealed to the learned CIT(A), who partly allowed the appeal: he allowed the claim in respect of PF & ESI by following judgments of the Rajasthan High Court and ITAT Jaipur, and partly allowed the depreciation claim after considering submissions and following an earlier order in the assessee's own case for the immediately preceding year. The revenue then filed the present appeal before the Tribunal.
Legal Issues Presented
- Whether the learned CIT(A) was justified in deleting the addition of Rs. 93,48,826/- made by the AO by disallowing depreciation claimed, given the AO's position that civil structures and internal/external power lines do not constitute plant and machinery.
- Whether the learned CIT(A) was justified in deleting the addition of Rs. 15,29,425/- made by the AO for delayed deposit of employees' contribution to PF & ESI beyond prescribed time limits.
- Whether the Tribunal was justified in holding that employees' contributions to PF & ESI are governed by the provisions of section 43BG and not by section 36(1)(va) read with section 2(24)(x) of the Income Tax Act, 1961. (This question is raised in the grounds of appeal.)
Arguments of the Parties
Departmental Representative (Revenue)
- The learned D/R submitted that the learned CIT(A) was not justified in deleting the additions and supported the order of the AO.
Assessee
- The assessee's counsel reiterated that both issues are covered in favour of the assessee by various judgments of the Hon'ble High Courts and decisions of the ITAT Jaipur; the learned CIT(A) had followed those authorities.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Jaipur Vidhyut Vithran Nigam Ltd., 265 CTR 62 (Raj.) | Authority of the Rajasthan High Court relied upon for the treatment of delayed payment of PF & ESI (supporting the assessee's position taken by CIT(A)). | The Tribunal observed the issue of delayed payment of PF & ESI is squarely covered by this judgment and, following it, affirmed the CIT(A)'s deletion of the addition. |
| CIT v. State Bank of Bikaner & Jaipur (2014) 99 DTR 131 (Raj.) | Another Rajasthan High Court authority relied upon on the PF & ESI delayed payment issue (used by CIT(A) to allow assessee's claim). | The Tribunal followed this High Court judgment as directly supporting the CIT(A)'s decision to delete the addition relating to delayed PF & ESI deposits. |
| DCIT v. Aminity Developers and Builders - ITA No. 1505/PN/2008-09 A.Y. 2008-09 (ITA T-Pune) | Used on the question whether foundation (civil work) and related civil construction/works in relation to windmills can be treated as integral to plant and eligible for higher depreciation. | The CIT(A) relied on this decision (as cited in his order) to support the view that foundation and certain civil works integral to windmill erection are eligible for higher (plant) depreciation; the Tribunal noted and adopted the CIT(A)'s reliance. |
| Poonawala Finvest & Agro (P) Ltd. v. ACIT - ITA No. 188 of 2006 dated 26.06.2008 (ITA T-Pune) | Established the need for a functional test to determine whether civil construction is an integral part of plant and machinery; addressed transformer/up to DP structure and electrical items used for transmission. | The CIT(A) applied the functional-test principle from Poonawala to hold that electrical items and transmission elements integral to windmill function qualify as plant; the Tribunal accepted and followed the CIT(A)'s factual application. |
| CIT-III, Ahmedabad v. Parry Engineering and Electronics Pvt. Ltd. - Tax Appeal No. 604 of 2012 dated 29.01.2013 (High Court, Gujarat) | Holds that specially designed civil structures and electric fittings that are solely for the functioning of windmills are part of the common plant and qualify for higher depreciation. | The CIT(A) cited Parry Engineering to support that civil structures and electric fittings integral to windmills form part of the plant; the Tribunal noted this reasoning and found the CIT(A)'s factual conclusions persuasive. |
| Order(s) of ITAT Jaipur (including the Coordinate Bench decision dated 17.06.2016 in the assessee's own case for AY 2011-12) | Tribunal precedents on both the depreciation classification of windmill-related civil/electrical works and on the PF/ESI timing issue in the assessee's own prior year. | The Tribunal relied on its Coordinate Bench's earlier order for the immediately preceding year and on other Jaipur ITAT decisions as supporting the CIT(A)'s conclusions; the revenue did not controvert the factual findings and the Tribunal upheld the CIT(A)'s order. |
Court's Reasoning and Analysis
The Tribunal undertook a focused analysis of the two principal grounds advanced by the revenue:
-
Depreciation (Ground No. 1): The Tribunal observed that the identical issue had been decided in the assessee's immediately preceding year by the Coordinate Bench (order dated 17.06.2016). The Tribunal reproduced and relied on the learned CIT(A)'s detailed factual findings and legal reasoning which:
- Identified and applied several authorities (DCIT v. Aminity Developers; Poonawala Finvest; Parry Engineering) concerning when civil construction and electrical works must be treated as integral to plant and machinery (applying a functional test).
- Concluded that foundation, electrical items, and internal/external lines are so closely interconnected with windmills as to form a common plant and therefore attract depreciation at the rate applicable to the windmill.
- Distinguished control room, plinth platform and crane platform civil works where, on the facts (absence of specialized design evidence), depreciation was to be allowed at the rate applicable to a building rather than at the higher plant rate.
- PF & ESI delayed deposit (Ground Nos. 2 and 3 / 2(a) and 2(b) in the grounds): The Tribunal found the issue "squarely covered" by authoritative decisions of the Rajasthan High Court (Jaipur Vidhyut Vithran Nigam Ltd.; CIT v. State Bank of Bikaner & Jaipur) and by the Coordinate Bench of the Tribunal in the assessee's own case. On that basis, the Tribunal respectfully followed those High Court and Tribunal decisions and affirmed the CIT(A)'s deletion of the addition relating to delayed deposit of employees' contributions.
In sum, the Tribunal's reasoning rested on (i) precedential authority from the jurisdiction (High Court and earlier Tribunal orders), (ii) factual findings adopted from the learned CIT(A) which were not challenged by the revenue, and (iii) application of the functional test and prior decisions to distinguish items eligible for higher plant depreciation from those to be treated as building.
Holding and Implications
Holding: The Tribunal DISMISSED the appeal of the revenue and UPHELD the order of the learned CIT(A)-2, Jaipur dated 20.09.2016 for assessment year 2012-13.
Implications:
- The direct effect is that the additions made by the AO in respect of (a) disallowance of depreciation amounting to Rs. 93,48,826/- and (b) delayed deposit of employees' PF & ESI amounting to Rs. 15,29,425/- remain deleted as per the CIT(A)'s order; the assessee's positions on these issues stand sustained by the Tribunal.
- The Tribunal expressly followed binding/intervening decisions of the jurisdictional High Court and its own Coordinate Bench in applying legal principles; the opinion does not announce any new legal principle beyond applying those precedents and affirming the CIT(A)'s factual findings.
End of summary. This summary is prepared strictly on the basis of the information contained in the provided opinion and does not add or infer facts beyond that text.
Kul Bharat, J.M.:— This appeal by the revenue is directed against the order of ld. CIT (A)-2, Jaipur dated 20.09.2016 pertaining to assessment year 2012-13. The revenue has raised the following grounds of appeal:—
1. Whether on the facts and in the circumstances of the case and in law, ld. CIT (Appeals) was justified in deleting the addition of Rs. 93,48,826/- made by the AO on account of disallowance of depreciation claimed ignoring the fact that civil structures and internal/external power lines do not constitute the plants.
2. (a) Whether on the facts and in the circumstances of the case and in law, ld. CIT (Appeals) was justified in deleting the addition of Rs. 15,29,425/- made by the AO for depositing the employee's contribution to PF & ESI beyond the prescribed time limit provided in the respective Acts.
(b) Whether on the facts and in the circumstances of the case and in law, the Hon'ble ITAT was justified in holding that the employee's contribution to PF & ESI are governed by the provisions of Section 43BG and not by section 36(1)(va) r.w. s. 2(24)(x) of the Income Tax Act, 1961.
2. Briefly stated the facts are that the case of the assessee was picked up for scrutiny assessment and the assessment was completed under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the Act) vide order dated 17.03.2015. The AO while assessing the income, made additions on account of PF and ESI for not making the payment within the prescribed dates as prescribed in the respective Act and also made disallowance of excess depreciation claimed, apart from other disallowances. Aggrieved by this, the assessee preferred an appeal before ld. CIT (A), who after considering the submissions, partly allowed the appeal. While allowing the appeal, the ld. CIT (A) allowed the claim of the assessee in respect of PF & ESI by following the judgments of the Hon'ble Jurisdictional High Court in the cases of Jaipur Didhyut Vithran Nigam Ltd. 265 CTR 62 (Raj.), CIT v. State Bank of Bikaner & Jaipur (2014) 99 DTR 131 (Raj.) and the order of ITAT Jaipur. The ld. CIT (A) also partly allowed the claim of depreciation after considering the submissions and following his earlier order for the A.Y. 2011-12 in the assessee's own case. Aggrieved, the revenue has filed the present appeal before this Tribunal.
3. The ld. D/R submitted that the ld. CIT (A) was not justified in deleting the additions. He supported the order of the A.O.
3.1. On the contrary, the ld. Counsel for the assessee reiterated that both the issues are covered in favour of the assessee by the various judgments of Hon'ble High Courts and the decisions of ITAT Jaipur.
3.2. We have heard rival contentions, perused the material available on record and gone through the orders of the authorities below. In respect of Ground No. 1, we find that the similar issue has been decided by the Coordinate Bench of the Tribunal vide its order dated 17.06.2016 for the immediately preceding year2011-12 by observing in para 4.3 as under:—
“4.3. We have heard rival contentions and perused the material available on record. The ld. CIT (A) has decided this issue in para 3.4.1 to 3.4.6 of her order by observing as under:—
“3.4.1. I have considered the facts of the case, assessment order and the written submissions of the appellant. The facts of this issue are similar to the facts in the preceding year (Assessment Year 2010-11). In Assessment Year 2020-11, the CIT (A)-II, Jaipur (Appeal No. 02/13-14) has also decided the matter by holding as under:—
“The issue in question is whether the foundation, plinth structure, crane platform, control room for windmill can be considered as ‘building’ or is an integral part of windmill. So also, whether electrical items and internal/external lines fall under the head plant and machinery distinct from a windmill. I have perused the case laws cited by the appellant and the Assessing Officer. The case laws which directly deal with the issue athandare:
1. DCIT v. Aminity Developers and builders - ITA No. 1505/PN/2008-09A.Y. 2008-09 (ITA T-Pune).
2. Poonawala Finvest & Agro (P) Ltd. v. ACIT- ITA No. 188 of 2006 dated 26.06.2008 (ITA T-Pune)
3. CIT-III, Ahemdabad v. Parry Engineering and Electronics Pvt. Ltd. - Tax Appeal No. 604 of 2012 dated 29.01.2013 (High Court, Gujarat).
3.4.2. It has been held in the case of Poonawala Finvest (supra)- “the emphasis for granting higher rate of depreciation as far as civil construction work is concerned, the necessity was to examine the functional test of the said structure. A categorical evidence has to be placed that the structure is not a building but it is an integral part of plant and machinery… As far as the question of depreciation in respect of ‘transformer up to DP structure’ was concerned, the appellant has paid certain amount for the purpose of supplying of electrical items like transformer up to DP structure, internal line up to metering. This gadget was for transmission of electrical power generated up to sub-station of MSEB at site. The electrical energy so produced by the windmill was a waste if it was not transmitted to MSEB sub-stations. The function ofsuch unit was that the electricity so generated was required to be transferred and transmitted to cable line up to substation, where the actual units so generated were stored and metered. Since this was the function of transformer up to DP structure, hence it ought to be held as an integral part ofthe wind mi I.”
3.4.3. In the case of Aminity Builders And Developers (supra) it has been held that - “there should not be quarrel that civil work is involved in the “erection of the foundation, but every civil work cannot be treated as civil work as required for bringing construction. In our opinion, cost on the foundation of the wind mill is eligible for the depreciation at the rate 80% or the rate which is applicable to the wind mil as it is integral part ofcost of wind mil erection.
3.4.4. It has been held in the case of Parry Engineering & Electronics Ltd. (supra) that - “Windmill would require a scientifically designed machinery in order to harness the wind energy to the maximum potential. Such device has to be fitted and mounted on a civii construction, equipped with electric fittings in order to transmit the electricity so generated. Such civil structure and electric fittings, therefore, it can be well imagined, would be highly specialized. Thus, such civil construction and electric fitting would have no use other than for the purpose of functioning of the windmill. On the other hand, it can be easily imagined that windmill cannot function without appropriate installation and electrification. In other words, the installation of windmill and the civil structure and the electric fittings are so closely interconnected and linked as to form the common plant. As already noted, the legislature has provided for higher rate of depreciation of 80 per cent on renewable energy devises including windmill and any specially designed devise, which runs on windmill. The civil structure and the electric fitting, equipments are part and parcel of the windmill and cannot be separated from the same. The assessee claim of higher depreciation on such investment was, therefore, rightly allowed”.
3.4.5. In view of the above judgments, it is held that foundation, electrical items internal/external lines are an integral part of the windmill and are so closely interconnected and linked with the windmill so as to form a common ‘plant’ as windmill. Therefore, depreciation of the above items has to be allowed at the same rate as windmill.
3.4.6. In respect to the civil work for the control room etc. it has been held in the case of Poonawala Finvest (supra) - “In the instant appeal nothing was on record to establish that on the touchstone of functional test the control room or site development expenditure or even internal roads, were so designed that they could only be used for power generation as done by the windmill and meant for no other use. There was nothing on record, such as a report from a qualified person to establish that the site construction of control room, internal road, etc, was designed in such a manner to facilitate the power generation and distribution of windmill.” In this case also, the appellant has not been able to establish that the civil work for the control room, plinth platform or the crane platform is an integral part of the plant and machinery of windmill. The civil work for the control room is a mere structure to house the equipment of the control room since the civil work of the control room has not been specially designed for a windmill. Therefore, depreciation on the civil work for the control room, plinth platform and crane platform, shall be allowable at the rate applicable to a ‘building’”.
Following the above judgment of my predecessor CIT (A)-II, in the assessee's own case for the Assessment Year 2010-11. The depreciation on foundation, electrical items, internal/external lines are an integral part of the windmill and depreciation is allowed at the same rate as windmill, and depreciation on the civil work for the control room, plinth platform and crane platform, shall be allowable at the rate applicable to a ‘building’. The ground of appeal is partly allowed.”
The ld. CIT (A) has given a detailed finding of fact. The revenue has not controverted these findings. We, therefore, find no infirmity in the order of ld. CIT (A), which is hereby upheld. The ground of the revenue is rejected.”
In view of the above discussion, we find no merit in the ground of the revenue. The same is hereby rejected. The order of the ld. CIT (A) is upheld.
3.3. In respect of Ground No. 2 relating to delayed payment of PF & ESI, we find that the issue is squarely covered by the judgments of the Hon'ble Rajasthan High Court in the case of Jaipur Vidhyut Vithran Nigam Ltd. 265 CTR 62 (Raj.) and CIT v. State Bank of Bikaner & Jaipur (2014) 99 DTR 131 (Raj.) and also by the Coordinate Bench of the Tribunal, Jaipur in the assessee's own case. Therefore, respectfully following the judgments of the Hon'ble Jurisdictional High Court and the Coordinate Bench, we affirm the order of ld. CIT (A). The ground of the revenue is rejected.
4. In the result, appeal of the revenue is dismissed.
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