Pudumjee Pulp & Paper Mills Ltd.,, Pune v. ITO, Ward 10(1), Pune

ITA 2003/PUN/2012 | 2008-2009
Pronouncement Date: 21-04-2014 | Result: Partly Allowed

Appeal Details

RSA Number 200324514 RSA 2012
Assessee PAN AABCP0310Q
Bench Pune
Appeal Number ITA 2003/PUN/2012
Duration Of Justice 1 year(s) 6 month(s) 5 day(s)
Appellant Pudumjee Pulp & Paper Mills Ltd.,, Pune
Respondent ITO, Ward 10(1), Pune
Appeal Type Income Tax Appeal
Pronouncement Date 21-04-2014
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted B
Tribunal Order Date 21-04-2014
Assessment Year 2008-2009
Appeal Filed On 16-10-2012
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV JUDICIAL MEMBER AND SHRI R.K. PANDA ACCOUNTANT MEMBER ITA NOS.2002 & 2003/PN/2012 A.Y. 2007-08 & 2008-09 M/S. PUDUMJEE PULP & PAPER MILLS LTD. THERGAON PUNE 411033 PAN: AABCP0310Q APPELLANT VS. ASST. CIT CIRCLE-10 PUNE RESPONDENT APPELLANT BY : SHRI VIJAY MEHTA & SHRI KUNAL BESWAL RESPONDENT BY : SHRI ADA RSH KUMAR MODI DATE OF HEARING: 05.02.2014 DATE OF ORDER : 21.04.2014 ORDER PER SHAILENDRA KUMAR YADAV JM THESE APPEALS HAVE BEEN FILED BY THE ASSESSEE AGAI NST THE ORDERS OF COMMISSIONER OF INCOME TAX (APPEALS)-V [( IN SHORT CIT(A)- V] PUNE BOTH DATED 10-08-2012 FOR A.YS. 2007-08 A ND 2008-09 ON SIMILAR ISSUE SO THESE ARE BEING DISPOSED OFF BY C OMMON ORDER. IN A.Y. 2007-08 THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: 1. DISALLOWANCE OF ADDITIONAL DEPRECIATION: 471 98 962 ( 476 82 947 LESS 483 985 ALLOWED BY CIT(A) 2 (A) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) LEGALL Y ERRED IN DISALLOWING THE ADDITIONAL DEPRECIATION OF 4 71 98 962 ON ACCOUNT OF THE ADDITION MADE TO THE PLANT AND MACHINERY TOTALING TO 23.60 CRORES. WHEREAS ON THE NEW MACHINERY INSTALLED AT THE PLAN T THE ASSESSING OFFICER ALLOWED NORMAL DEPRECIATION THE CIT(APPEALS) ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN DENYING THE ADDITIONAL DEPRECIATION. (B) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE CIT(APPEALS) FURTHER ERRED IN DISMISSING THE ALTERNATIVE SUBMISSION MADE BY THE APPELLANT THAT I N THE EVENT OF THE CLAIM OF ADDITIONAL DEPRECIATION I S DISALLOWED THE ENTIRE COST OF MODERNIZATION OF THE PLANT AND MACHINERY AMOUNTING TO 23.60 CRORES MAY BE ALLOWED AS REPAIRS AND REPLACEMENT OF MACHINERY AS A REVENUE EXPENDITURE. 2. DIS-ALLOWANCE OF 549 61 454 OF THE CONTRIBUTION PAID TO THE STATE GOVT. FOR CONSTRUCTION OF DAM AND WEIR ET C. (A) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE CIT(APPEALS) ERRED IN ALLOWING PARTIALLY (ONE SIXTH) OF THE CLAIM OF 549 61 454 BEING THE CONTRIBUTION MADE TO THE STATE GOVERNMENT FOR CONSTRUCTION OF THE DAM AND WEIR REQUIRED FOR THE MANUFACTURING PROCESS OF THE PLANT OF THE APPELLANT (B) THE CIT(APPEALS) FAILED TO APPRECIATE THAT THE PAYMENT/CONTRIBUTION TO THE STATE GOVERNMENT IS REVENUE EXPENDITURE AND ERRED IN FOLLOWING THE ESTABLISHED LAW ON THE SUBJECT. (C) THE CIT(APPEALS) FURTHER ERRED IN NOT APPRECIATING THE FACT THAT A REVENUE EXPENDITURE PER SE IS REVENUE IN NATURE IN THE YEAR OF PAYMENT AND IT CANNOT BE DEFERRED OR ALLOWED IN THE FUTURE YEAR. (D) THE CIT(APPEALS) ERRED IN ALLOWING ONLY ONE SIXTH O F 549 61 454 WITHOUT APPRECIATING THE FACTS AND CIRCUMSTANCES OF THE CASE. 3. YOUR APPELLANT CRAVES LEAVE TO ADD ALTER OR AMEND THE GROUNDS OF APPEAL ON OR BEFORE THE HEARING OF THIS APPEAL. 3 2. GROUNDS OF APPEAL IN ITA NO.2003/PN/2012 FOR A. Y. 2008-09: 1. DIS-ALLOWANCE OF 30 93 311 OF THE CONTRIBUTION PAID TO THE STATE GOVT. FOR CONSTRUCTION OF DAM AND WEIR ETC. (A) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN ALLOWING PARTIALLY (ONE-SIXTH) OF THE CLAIM OF 30 93 311 BEING CONTRIBUTION MADE TO THE STATE GOVT. FOR CONSTRUCTION OF THE DAM AND WEIR REQUIRED FOR THE MANUFACTURING PROCESS OF THE PLANT OF THE APPELLANT . (B) THE CIT(APPEALS) FAILED TO APPRECIATE THAT THE PAYM ENT/ CONTRIBUTION TO THE STATE GOVT. IS REVENUE EXPENDIT URE AND ERRED IN FOLLOWING THE ESTABLISHED LAW ON THE S UBJECT. (C) THE CIT (APPEALS) FURTHER ERRED IN NOT APPRECIATING THE FACT THAT A REVENUE EXPENDITURE PER SE IS REVENUE I N NATURE IN THE YEAR OF PAYMENT AND IT CANNOT BE DEFE RRED OR ALLOWED IN THE FUTURE YEAR. (D) THE CIT (APPEALS) ERRED IN ALLOWING ONLY ONE SIXTH OF 30 93 311 WITHOUT APPRECIATING THE FACTS AND CIRCUMSTANCES OF THE CASE. 2 DIS-ALLOWANCE OF ADDITIONAL DEPRECIATION : 22 23 512 ( 22 86 939 LESS 63 427 ALLOWED BY CIT(A) (A) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE CIT (APPEALS) LEGALLY ERRED IN DISALLOWING THE ADDI TIONAL DEPRECIATION OF 22 23 512 ON ACCOUNT OF THE ADDITION MADE TO THE PLANT AND MACHINERY TOTALING TO 2.09 CRORES. WHEREAS ON THE NEW MACHINERY INSTALLED AT THE PLANT THE ASSESSING OFFICER ALLOWED NORMAL DEPRECI ATION THE CIT (APPEALS) ERRED IN CONFIRMING THE ACTION OF ASSESSING OFFICER IN DENYING THE ADDITIONAL DEPRECI ATION. (B) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE CIT (APPEALS) FURTHER ERRED IN DISMISSING THE ALTERNATIVE SUBMISSION MADE BY THE APPELLANT THAT I N THE EVENT OF THE CLAIM OF ADDITIONAL DEPRECIATION IS DI SALLOWED THE ENTIRE COST OF MODERNIZATION OF THE PLANT AND MACHINERY AMOUNTING TO 2.16 CRORES MAY BE ALLOWED AS REPAIRS AND REPLACEMENT OF MACHINERY AS A REVENUE EXPENDITURE. 3. YOUR APPELLANT CRAVES LEAVE TO ADD ALTER OR AME ND THE GROUNDS OF APPEAL ON OR BEFORE THE HEARING OF THIS APPEAL. 4 3. THE ASSESSEE COMPANY IS ENGAGED IN MANUFACTURE A ND SALE OF SPECIALTY PAPERS. IN THIS CASE THE ORIGINAL RETUR N OF INCOME WAS FILED ON 29.10.2007 DECLARING TOTAL INCOME AT NIL BUSINESS LOSS AT 3 93 37 969/- AND BOOK PROFIT OF 4 61 66 330/-. THEREAFTER REVISED RETURN OF INCOME WAS FILED ON 21.02.2008 D ECLARING NIL INCOME AS PER NORMAL COMPUTATION BUSINESS LOSS AT 3 73 37 969/- AND BOOK PROFIT OF 4 61 66 330/- U/S.115JB OF INCOME-TAX ACT. THE ASSESSMENT WAS COMPLETED ON 30.12.2009 U/S.143( 3) R.W.S 144A OF INCOME-TAX ACT. 4. REGARDING THE DISALLOWANCE OF ADDITIONAL DEPRECI ATION OF 4 76 82 947/- THE ASSESSING OFFICER NOTICED THAT TH E APPELLANT COMPANY HAD CLAIMED ADDITIONAL DEPRECIATION U/S 32( 1)(IIA) OF INCOME-TAX @ 20% ON ACCOUNT OF MODERNIZATION OF ITS PAPER MILL CALLED AS PAPER MAKING MACHINE AT 23.60 CRORES. THE ASSESSING OFFICER TESTED THE CLAIM OF ADMISSIBILITY U/S. 32(1 )(IIA) OF INCOME-TAX ACT VIS--VIS LANGUAGE USED IN THE SECTION WHEREIN SPECIFIC WORDING BEING NEW MACHINERY OR PLANT ACQUIRED AFTER 31 ST MARCH 2005 WAS USED. THE ASSESSING OFFICER CONFRONTED THE APPELLA NT ON THE ISSUE. THE APPELLANT FILED NOTE IN THIS REGARD WHICH IS AN NEXED TO ASSESSMENT ORDER AS ANNEXURE-M INTER ALIA STATED T HAT IN ORDER TO UPGRADE THE FACILITY THE ENQUIRIES WERE MADE WITH CONCERNED PARTIES. IT WAS FOUND THAT NEW PAPER MACHINE WITH MODERN TECHNOLOGY WAS MUCH MORE EXPENSIVE IN THE RANGE OF 50 TO 70 CRORES AS IT WOULD HAVE REQUIRED NEW FOUNDATION TO SUIT THE NEW MACHINE. THEREFORE MODERNIZATION OF THE EXISTING MACHINE WAS PREFERRED WHICH WAS CARRIED OUT WITH THE EXPENDITUR E OF 23.60 CRORES INCURRED DURING THE YEAR. AS PER THE APPELL ANT DUE TO THIS MODERNIZATION THE PRODUCTION CAPACITY OF THE MACHIN E INCREASED FROM 12 000 MT TO 16 000 MT PER ANNUM. 4.1. THE BOARD FEATURES OF THE MODERNIZATION WERE C LAIMED TO BE AS UNDER: 5 (I) A NEW HEADBOX WHICH IS A CRITICAL EQUIPMENT OF PAPER MACHINE FOR QUALITY FORMATION OF THE PAPER (II) THE WIRE SECTION OF THE PAPER MACHINE WAS UPGR ADED USING MODERN CERAMIC FOILS ETC. (III) A NEW PRESS SECTION WAS BUILT IN TO IMPROVE T HE DEWATERING OF THE WET PAPERS SHEET TO A HIGHER DRYNERS LEVEL W HICH HELPED TO INCREASE THE MACHINE SPEED. (IV) ADDITIONAL DRYING CYLINDERS WERE BUILT IN TO A CHIEVE THE DESIRED OUTPUT. 4.2 AS PER THE ABOVE NOTE THE REBUILD/MODERNIZATIO N OF THE PAPER MAKING MACHINE WAS CARRIED OUT DURING THE MONTHS OF MAY TO AUGUST 2006 WHEN THE MACHINE REMAINED SHUT FOR 110 DAYS AND WAS RESTARTED ON 25 TH AUG. 2006. THE APPELLANT FURTHER EXPLAINED THE FACTS VIDE FURTHER NOTE ON THE ISSUE WHICH IS M ARKED AS ANNEXURE-N AND HAS BEEN MADE PART OF THE ASSESSMEN T ORDER BY THE ASSESSING OFFICER. AS PER THIS NOTE THE APPELLA NT SUBMITTED THAT THE PAPER MAKING MACHINE WHICH WAS SUBJECTED TO MOD ERNIZATION IS A VERY BIG AND HUGE AND COMPRISES OF VARIOUS SECTIO NS WHICH IN TURN COMPRISES OF MANY MACHINES. EACH OF THESE IS A MACHINERY WITHIN THE MACHINE OF SEC.32(1)(IIA) . IT WAS FURT HER SUBMITTED WHILE MODERNIZING THE PAPER MAKING MACHINE SOME OF THE S ECTIONS OF MACHINERY WERE REPLACED AFTER 31.03.2005. ACCORDIN G TO ASSESSEE THE ADDITIONAL DEPRECIATION ON THE TOTAL COST OF MA CHINERY INSTALLED AFTER 31.03.2005 @ 20% ON 23 59 94 808/- BEING 4 71 98 962/- WAS IN CONFORMITY WITH THE PROVISIONS OF SEC.32(1)( IIA) OF INCOME-TAX ACT SO THE SAME SHOULD BE ALLOWED. 4.3 ASSESSING OFFICER HOWEVER DID NOT ACCEPT THE CONTENTION OF THE APPELLANT ON THE FOLLOWING GROUNDS. (I) SINCE DURING THE MODERNIZATION OF PAPER MAKING MACHINE WAS CARRIED OUT FOR 110 DAYS DURING THE MONTHS OF M AY TO AUG 2006 WHEN THE MACHINES WERE SHUT DOWN; AND RESTARTED ON 25.08.2006 THE MACHINE COULD BE SAID TO 6 HAVE BEEN INSTALLED MUCH BEFORE THE QUALIFYING DATE ON 31.03.2005. (II) THE SUBMISSION FILED IN ANNEXURE-N WAS QUITE CONTRARY TO THE NOTE FILED IN ANNEXURE M WHEREIN IT WAS STAT ED THAT REBUILT MACHINE WAS A SINGLE INTEGRAL UNIT CALLED T APER MAKING MACHINE'. ACCORDINGLY THE ASSESSING OFFICER HELD THAT TH E CLAIM OF ADDITIONAL DEPRECIATION AMOUNTING TO 4 76 82 947/- WAS NOT ADMISSIBLE IN RESPECT OF REBUILT PAPER MAKING MACHI NE. 5. IN APPEAL THE CIT(A) GRANTED PART RELIEF BY OBS ERVING AS UNDER: 9. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CA SE AS WELL AS REPLY OF THE APPELLANT. IN THIS CASE THERE IS NO DI SPUTE THAT THE AMOUNT OF 23 59 94 8087- WAS INCURRED FOR MODERNIZING THE EXISTING PAPER MAKING MACHINE WHICH WAS CAPITAL EX PENDITURE AS IT PROVIDED ENDURING BENEFIT TO THE APPELLANT. A S PER PARA 6 OF THE STATEMENT OF FACTS FILED IN THE PAPER IT HAS BE EN ACCEPTED BY THE APPELLANT THAT NORMAL DEPRECIATION ON EXPENDITU RE (INCLUDING RENOVATION COST) OF 23.59 CRORES WAS CLAIMED. IT IS THAT NORMAL DEPRECIATION HAS BEEN ALLOWED BY THE ASSESSING OFFI CER. THEREFORE THERE IS NO DISPUTE THAT THE AMOUNT OF 23 59 94 808/- WAS CAPITAL EXPENDITURE. 10. NOW THE ONLY ISSUE TO BE EXAMINED IS THAT WHE THER THE AMOUNT OF 23.60 CRORES SPENT ON MODERNIZING THE PAPER MAKING MACHINE BY WAY OF EXTENSIVE RENOVATION AT TH E COST OF ALMOST L/3 RD OF THE COST OF NEW MACHINERY CAN BE SAID TO BE ACQUISITION OF NEW MACHINERY IN ORDER TO ENABLE THE APPELLANT TO CLAIM ADDITIONAL DEPRECIATION @ 20% U/S. 32(1)(IIA) OF INCOME-TAX ACT. FROM THE PERUSAL OF SECTION 32(1)(IIA) OF INCO ME-TAX ACT IT IS CLEAR THAT ADDITIONAL DEPRECIATION @ 20% IS ALLOWAB LE TO THE APPELLANT ON FULFILLING OF INTERALIA FOLLOWING COND ITIONS : (I) IN THE CASE OF ANY NEW MACHINERY OR PLANT(OTHER THA N SHIPS AND AIRCRAFTS) (II) IT SHOULD BE ACQUIRED AND INSTALLED AFTER 31.03.2005. (III) THE CLAIM IS ALLOWABLE IN RESPECT OF THE ASS ESSEE ENGAGED IN THE BUSINESS OF MANUFACTURE OR PRODUCTION OF ANY AR TICLE OR THING. 7 11. THEREFORE THE APPELLANT'S CLAIM OF ADDITIONAL DEPRECIATION IS TO BE PRIMARILY TESTED ON THE FACT THAT WHETHER MODERNIZATION OF THE PAPER MAKING MACHINE CAN BE SAID TO BE ACQUI RING OF NEW MACHINERY OR PLANT. THE ASSESSING OFFICER HAS ALREA DY - HIGHLIGHTED THE CONTRADICTIONS IN THE SUBMISSIONS O F THE APPELLANT WHEREIN INITIALLY THE APPELLANT STATED TH AT REBUILT MACHINE WAS A SINGLE INTEGRATED UNIT CALLED PAPER M AKING MACHINE(ANNEXURE M) WHILE IN THE SUBSEQUENT SUBMISSION(ANNEXURE N OF THE ASSESSMENT ORDER) IT W AS SUBMITTED THAT PAPER MACHINE SUBJECTED TO MODERNIZA TION) WAS A BIG AND HUGE AND COMPRISED OF VARIOUS SECTIONS WH ICH IN TURN COMPRISES OF MANY MACHINES EACH OF WHICH IS A MACH INERY WITHIN THE MEANING OF SEC. 32(1)(IIA) OF INCOME-TAX ACT. APART FROM THE CONTRADICTIONS BROUGHT OUT BY THE ASSESSIN G OFFICER AS ABOVE IT IS ALSO SEEN THAT THE APPELLANT HAS NOT B EEN ABLE TO PROVE THAT INSTALLED ITEM IN ITSELF WERE A MACHINER Y. IN FACT FROM THE ANALYSIS OF THE DEPRECIATION CHART II AS COPY O F BILLS FILED BY THE APPELLANT IT IS QUITE CLEAR THAT PARTS OF THE E XISTING MACHINERY WERE REPLACED EXTENSIVELY BY NEW PARTS ON THE EXISTING PLATFORM. FROM THE PERUSAL OF THE BILLS A LSO IT IS SEEN THAT THE SAME PERTAINS TO DANDY ROLLS SPARES BRAC KET ASSEMBLY SLAT CONVEYER FOR WASTE PAPER FEEDING CON VEYOR ROTOR AND BASE PLATE SS WIELDED PIPES PULPER TUB DISC FILTER MS PLATE PUMP SUCTION BUFFER TANK ROCKWOOL MATTR ESS MSCTD BARS CHAMBER FLAT SUCTION BUTTERFLY VALVE STEEL WIRE ETC NONE OF WHICH CAN BE INDEPENDENTLY SAID TO BE M ACHINERY IN ITSELF. THE APPELLANT HAS ALSO FAILED TO PROVE THAT THESE ITEMS ARE MACHINERY IN ITSELF. IN FACT THE APPELLANT HAS TRIE D TO SHOW BY WAY OF PAPER PRODUCTION PROCESS SYSTEM THROUGH WHIC H FOLLOWING ITEMS HAVE BEEN CLAIMED AS NEW MACHINERY; ITEM NO. NATURE OF WORK PULPER 1 DRY PULP BALES ARE CONVERTED INTO PUMPABLE FIBER SLURRY REFINER 1 CUTTING OF THE FIBER COTICAL BOTTLES 9 REMOVAL OF SAND GRIT SHIVES AND OTHER PARTICLES HEAD BOX - TO DISTRIBUTE THE MIX OF PULP AND WATER EVENLY WIRE PART - TO DEWATER AND IMPROVE THE FORMATION PRESS PART - WATER IS SEPARATED VACCUM PUMP 1 TO REMOVE WATER FROM WET WEB IN WIRE AND PRESS PART DRYER PART 4 TO EVAPORATE WATER FROM THE SHEET IN THE DRYER REWINDER 1 TO CUT PAPER IN THE REQUIRED SIZE 8 12. THUS FROM THE FUNCTIONAL ANALYSIS OF THE ABOVE ITEMS IT IS CLEAR THAT THE ABOVE ITEMS CANNOT BE SAID TO MACHIN ERY IN ITSELF. IN FACT THE SAME ARE PART OF THE INTEGRATED MACHIN ERY AND MODERNIZATION HAS BEEN DONE IN PARTS OF AND PIECES AS PER THE REQUIREMENT OF THE APPELLANT. THEREFORE IT CANNOT BE SAID THAT IN THIS MODERNIZATION OF PAPER MAKING MACHINE ANY NEW MACHINERY INDEPENDENTLY CAPABLE OF ANY PRODUCTION / PROCESSING HAS BEEN ACQUIRED BY THE APPELLANT. 13. THE APPELLANT HAS RELIED UPON MANY CASE LAWS BU T PRIMARILY THE RELIANCE IS ON HON'BLE CALCUTTA HIGH COURT'S JUDGMENT IN THE CASE OF CALCUTTA TRAMWAYS CO. LTD(6 9 ITR PAGE 799) IT IS SEEN THAT ISSUE IN THIS CASE WAS ALLOW ABILITY OF ADDITIONAL DEPRECIATION U/S. 10(2)(VIA) OF 1922 AC T WHEREIN IT WAS HELD THAT THE ASSESSEE WAS ENTITLED TO ADDITION AL DEPRECIATION IN RESPECT OF NEW TRAM CAR BODIES INST ALLED ON OLD CHASIS AS NEW TRAM CAR BODIES WERE MACHINERY OR PLA NT THEMSELVES. IN THE PRESENT CASE IT HAS BEEN ALREADY DISCUSSED IN THE ABOVE PARAS THAT THE ITEMS USED IN THE MODER NIZATION OF PAPER MAKING MACHINE WERE NOT THE MACHINERY OR PLAN T ITSELF BUT PART OF MACHINERY OR PLANT OF PAPER MAKING MACH INE WHERE THE PRODUCE WAS ONLY ONE I.E. PAPER AND THERE WAS N O INTERMEDIATE PRODUCT CAPABLE OF SALE IN THE INTEGRA TED PROCESS. THE APPELLANT HAS ALSO PLACED RELIANCE ON HON'BLE S UPREME COURT'S DECISIONS IN THE CASE OF CIT VS. SRI MANGAY AKARASI MILLS P. LTD. 315 ITR 114 (SC) AS WELL AS CIT VS. SARAVAN A SPINNING MILLS P. LTD. 293 ITR 201 (SC). IT IS SEEN THAT TH E ISSUE IN THE ABOVE TWO DECISIONS WERE QUITE DIFFERENT. IN THE AB OVE TWO DECISIONS OF HON'BLE SUPREME COURT THE ISSUE WAS W HETHER REPLACEMENT OF SPINDLES IN A TEXTILE MILLS IS REVEN UE EXPENDITURE OR CAPITAL EXPENDITURE. THE HON'BLE SUPREME COURT H ELD THAT THE SPINDLES IN A TEXTILE MILL IS A PLANT AND MACHINERY ITSELF AND THEREFORE THE SAME IS CAPITAL EXPENDITURE. IN THE PRESENT CASE THE ISSUE OF DISPUTE IS NOT OF CAPITAL OR REVENUE E XPENDITURE AS ASSESSING OFFICER HAS NOT DISPUTED THE NATURE OF EX PENDITURE. IN FACT AS ADMITTED BY THE APPELLANT NORMAL DEPRECIATI ON ON THE SAME HAS BEEN CLAIMED AND ALLOWED. THE ONLY DISPUTE IN THIS CASE IS WHETHER SUCH CAPITAL EXPENDITURE CAN BE SAI D TO BE EXPENDITURE IN RESPECT OF NEW MACHINERY OR PLANT MA KING IT ELIGIBLE FOR CLAIM OF ADDITIONAL DEPRECIATION U/S. 32(1)(IIA) OF INCOME-TAX ACT. IN THE PROCEEDING PARAS IT HAS BEEN ALREADY HELD THAT REPLACEMENT EXPENDITURE IN MODERNIZATION OF EXISTING MACHINERY WAS NOT FOR THE NEW PLANT OR MACHINERY AS THE ITEMS INSTALLED CANNOT BE TREATED AS INDEPENDENT PLANT & MACHINERY. THEREFORE ACTION OF THE ASSESSING OFFICER IN DENYI NG ADDITIONAL DEPRECIATION IN RESPECT OF MODERNIZATION OF EXISTIN G PLANT IS UPHELD. 9 14. THE APPELLANT HOWEVER IN IT'S SUBMISSIONS HAS SUBMITTED THAT IT HAS PURCHASED NEW CONTROL SYSTEM AT A COST OF 11 62 878/- AND FORKLIFT COSTING 12 57 049/- ON WHICH ADDITIONAL DEPRECIATION AT 2 32 575/- ON THE CONTROL SYSTEM AND 2 51 4107- ON FORKLIFT MACHINE WAS ALLOWABLE AS BOT H WERE INDEPENDENT ITEMS OF MACHINERY. THESE SUBMISSI ONS OF THE APPELLANT APPEAR TO BE JUSTIFIED AND ACCORDINGLY AS SESSING OFFICER IS DIRECTED TO ALLOW ADDITIONAL DEPRECIATIO N OF 2 32 575/- ON CONTROL SYSTEM AND 4 83 985/- (2 32 575 + 2 51 410). BALANCE AMOUNT OF DISALLOWANCE I.E. 4 71 98 962/- (4 76 82 947 - 4 83 985) IS CONFIRMED. 15. IN AN ALTERNATIVE SUBMISSION THE APPELLANT HAS CLAIMED THAT IF IT'S MAIN SUBMISSIONS REGARDING CLAIM OF AD DITIONAL DEPRECIATION FAILS THE ENTIRE COST OF REPAIRS AND REPLACEMENT MAY BE ALLOWED AS REVENUE EXPENDITURE. I DO NOT FIN D ANY SUBSTANCE IN THE GROUND THAT THE EXPENDITURE HAS BE EN TREATED BY THE ASSESSING OFFICER ON WHICH NORMAL DEPRECIATI ON HAS BEEN CLAIMED AND ALLOWED. THE DISPUTE IS THEREFORE WITH REGARD TO THE APPELLANT'S CLAIM OF ADDITIONAL DEPRECIATION W HICH HAS BEEN DECIDED IN THE ABOVE PARA. THEREFORE I DO NOT FIN D ANY MERIT IN THE ALTERNATIVE SUBMISSION OF THE APPELLANT AND THE SAME IS DISMISSED. THUS THE GROUND IS PARTLY ALLOWED. 6. THE LEARNED AUTHORIZED REPRESENTATIVE ON BEHALF OF ASSESSEE SUBMITTED BEFORE US AS WELL AS AUTHORITIES BELOW TH AT THE ASSESSEE HAS CLAIMED ADDITIONAL DEPRECIATION OF 4 76 82 947/- ON PLANT AND MACHINERY (P&M) 'ADDED DURING THE YEAR @ 20%. IT W AS CLAIMED AS A RE-BUILT OF PAPER MAKING MACHINE WHICH WAS ADDED TO P&M DURING THE YEAR. A NOTE ON REBUILDING/MODERNISATIO N OF PAPER MAKING MACHINE WAS GIVEN BEFORE ASSESSING OFFICER. XEROX COPY OF THIS PAGE IS ENCLOSED HEREWITH AS ANNEXURE-M OF T HE ASSESSMENT ORDER. THE SUM AND SUBSTANCE OF SAME IS THAT SINCE A NEW PAPER MACHINE WITH MODERN TECHNOLOGY WAS FOUND MUCH MORE EXPENSIVE I.E. IN THE REGION OF 50 TO 70 CRORES (BECAUSE THIS WOULD ALSO INVOLVE NEW BUILDING FOUNDATION ETC. TO SUIT THE NE W MACHINE) THE MODERNIZATION OF THIS MACHINE BECAME THE PREFERRED INVESTMENT PLAN. THE MODERNIZATION OF PAPER MAKING MACHINE WA S CARRIED OUT AT AN EXPENDITURE OF 23.60 CRORES INCURRED DURING THE YEAR. AT THE END OF THE NOTE THE LEARNED AUTHORIZED REPRESENTAT IVE INFORMED 10 THAT THE REBUILD/ MODERNISATION OF PAPER MAKING MAC HINE WAS CARRIED OUT DURING THE MONTHS OF MAY TO AUGUST 2006 WHEN THE MACHINE REMAINED SHUT FOR 110 DAYS AND WAS RESTARTE D ON 25 TH AUGUST 2006. 6.1 THE TWO MOST IMPORTANT CONDITIONS FOR CLAIMING ADDITIONAL DEPRECIATION UNDER SEC.32(1)(IIA) ARE A) THE PLANT OR MACHINERY MUST BE NEW AND B) IT MUST BE ACQUIRED AND INSTALLED AFTER 31 ST MARCH 2005. 6.2 THE STAND OF THE ASSESSEE HAS BEEN THAT EACH IN DIVIDUAL COMPONENT OF THIS PAPER MAKING MACHINE WHICH WAS RE PLACED AS A PART OF ITS MORDERNISATION EXERCISE AS A SEPARATE M ACHINE IN ITSELF AND ALLOW AN ADDITIONAL DEPRECIATION ON THE SAME. IT IS NOT THE CASE OF THE REVENUE THAT THE IMPUGNED ADDITION TO THE PL ANT AND MACHINERY WAS BY WAY OF OLD MACHINERY. THE PURCHAS ES WERE FROM LARSEN & TOUBRO AND OTHER REPUTED SUPPLIER MAINLY. BY ADDITION OF THIS MACHINERY FROM THE MODERNIZATION POINT OF VIE W IT WAS THE CONTENTION OF THE APPELLANT THAT IT IS REPLACEMENT/ MODERNIZATION OF THE EXISTING MACHINERY AND OF' BUYING AN ' INTEGRATED PLANT THE COMPANY HAS BUILT THE EXISTING PLANT AND MACHIN ERY AND TRANSFORMED THE SAME INTO NEW PLANT AND MACHINERY O N WHICH IT HAS ALSO CLAIMED ADDITIONAL DEPRECIATION U/S 32(IIA ) OF THE ACT. THE REQUIREMENT UNDER SEC. 32(IIA) OF THE ACT IS THAT A NY MACHINERY SHOULD BE NEW AND THEY SHOULD BE INSTALLED AFTER 31 ST MARCH 2005. THE PROVISION WAS BROUGHT INTO THE STATUTE TO GIVE BOOST TO THE INDUSTRIALIZATION IN INDIA AND ACCELERATE THE INDUS TRIAL GROWTH. THE APPELLANT HAD SATISFIED THE REQUIREMENT OF SEC. 32( IIA) OF THE ACT FOR CLAIMING ADDITIONAL DEPRECIATION INASMUCH AS IN THE PRESENT ASSESSMENT YEAR I.E. AY 2007-08 THE COMPANY PURCHAS ED THE MACHINERY WORTH 23.60 CRORES. BY MAKING AN ADDITION OF NEW PARTS OF THIS MUCH AMOUNT TO THE PLANT AND MACHINERY THE RE IS A NEW PLANT AND MACHINERY IN THE OFFING AND ASSEMBLING OF OR PUTTING OF 11 THE PARTS TOGETHER AS RESULTED INTO THE ADDITION OF NEW PLANT AND MACHINERY INSTEAD OF BUYING A COMPOSITE PLANT AND M ACHINERY WHICH COST BETWEEN 50 TO 70 CRORES. THEREFORE TECHNICALLY SPEAKING THE COMPANY HAS PURCHASED NEW PLANT AND M ACHINERY WORTH 23 60 CRORES WHICH ARE NEW AND THE ADDITION HAS BEE N MADE AFTER 31/3/2005. THE ASSESSEE ALSO RELIED ON CASE LAWS WHICH WILL BE DISCUSSED IN FOLLOWING PARA. IN THIS BACKGROUND THE LEARNED AUTHORIZED REPRESENTATIVE CONTENTED TO ALLOW THE CL AIM OF ASSESSEE. 7. ON THE OTHER HAND LEARNED DEPARTMENTAL REPRESEN TATIVE HAS STRONGLY SUPPORTED THE ORDER OF CIT(A) THE ORDER OF AUTHORITIES BELOW AND SUBMITTED THAT DURING THE MODERNIZATION OF PAPE R MAKING MACHINE THE MACHINE WAS SHUT FOR 110 DAYS DURING T HE MONTHS OF MAY TO AUGUST 2006 AND RESTARTED ON 25.08.2006. T HE MACHINE COULD NOT SAID TO HAVE BEEN INSTALLED MUCH BEFORE Q UALIFYING DATE 31.03.2005. THE ASSESSING OFFICER HAS FOUND CONTRA DICTION IN ANNEXURE A AND M ATTACHED TO ASSESSMENT ORDER WHER EIN IT WAS STATED REBUILDING MACHINE WAS SINGLE INTRINSIC UNIT CALLED TAPER MAKING MACHINE. SINCE THE REPLACEMENTS WERE NOT MA CHINE ITSELF THESE WERE NOT ELIGIBLE FOR ADDITIONAL DEPRECIATION AS CLAIMED. ACCORDINGLY THE ORDER OF AUTHORITIES BELOW ON THE ISSUE BE UPHELD SO AS TO ENTITLE FOR ADDITIONAL DEPRECIATION U/S.32 (1)(IIA) OF ACT. 8. AFTER GOING THROUGH THE RIVAL SUBMISSIONS AND MA TERIAL ON RECORD WE FIND THAT THE ASSESSEE HAS CARRIED OUT M ODERNIZATION IN ITS PAPER MILL CALLED AS PAPER MACHINERY AT 23.60 CRORES DURING THE YEAR UNDER CONSIDERATION. THE ASSESSEE HAD PUR CHASED MACHINES SUCH AS PULPA HEAD BOX REWINDER PRESS P ART DRY PART WIRE PART CONTROL PANEL ETC. COSTING IN ALL 23.60 CRORES ON WHICH NORMAL DEPRECIATION AND ADDITIONAL DEPRECIATION WER E CLAIMED. THESE MACHINES ARE COLLECTIVELY TERMS AS PAPER MARK ING MACHINES (PM-1). THE ASSESSING OFFICER WHILE ALLOWING NORMA L DEPRECIATION ON THE SAID ADDITION TO PM-1 DISALLOWED ADDITIONAL DEPRECIATION 12 INTER ALIA STATING THAT THE SAID ADDITION OF 23.60 CRORES WAS NOT OF MACHINERY WITHIN MEANING OF SECTION 32(1)(IIA) OF A CT THE SAME WAS UPHELD BY CIT(A). THE STAND OF THE ASSESSEE HAS BE EN THAT THE ADDITION MADE TO PM-1 WAS OF SEPARATE AND INDEPENDE NT MACHINERY SUCH AS PULPA HEAD BOX REWINDER PRESS PART DRY PART WIRE PART CONTROL PANEL. ALL THESE MACHINES WERE INDEPENDENT MACHINES WHICH HAVE INDEPENDENT FUNCTIONING FOR THE PURPOSE OF MANUFACTURING PAPER. THUS IT CLEARLY FALLS UNDER THE SCOPE OF MACHINERY AS PER SECTION 32(1)(IIA) OF ACT. IN THI S BACKGROUND LET US READ THE PROVISIONS OF SEC 32(1) (IIA) OF THE IT ACT WHICH PROVIDES FOR ADDITIONAL DEPRECIATION. THE PROVISION OF SEC. 32(1) (IIA) READS AS UNDER: 'SECTION 32. (1) IN RESPECT OF DEPRECIATION OF - (I) BUILDINGS MACHINERY PLANT OR FURNITURE BEIN G TANGIBLE ASSETS; (II) KNOW-HOW PATENTS COPYRIGHTS TRADEMARKS LICENSES FRANCHISEES OR ANY OTHER BUSINESS OR COMM ERCIAL RIGHTS OF SIMILAR NATURE BEING INTANGIBLE ASSETS ACQUIRED ON OR AFTER THE FIRST DAY OF APRIL 1998 OWNED WHOLLY OR PARTLY BY THE A SSESSEE AND USED FOR THE PURPOSE OF BUSINESS OR PROFESSION THE FOLL OWING DEDUCTION SHALL BE ALLOWED- (IIA) IN THE CASE OF ANY NEW MACHINERY OR PLANT (OT HER THAN SHIPS AND AIRCRAFT) WHICH HAS BEEN ACQUIRED AND IN STALLED AFTER THE 3 1 ST DAY OF MARCH 2005 BY AN ASSESSEE ENGAGED IN THE BUSINESS OF MANUFACTURE OR PRODUCTION OF ANY ARTICLE OR THING A FURTHER SUM EQUAL TO TWENTY PER CENT OF THE ACTUAL COST OF SUCH MACHINERY OR PLANT SHALL BE ALLOWED AS DEDUCTION UNDER CLAUSE (II) : PROVIDED THAT NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF- 13 (A) ANY MACHINERY OR PLANT WHICH BEFORE ITS INSTALLA TION BY THE ASSESSEE WAS USED EITHER WITHIN OR OUTSIDE INDI A BY ANY OTHER PERSON; OR (B) ANY MACHINERY OR PLANT INSTALLED IN ANY OFFICE PR EMISES OR ANY RESIDENTIAL ACCOMMODATION INCLUDING ACCOMMODAT ION IN THE NATURE A GUEST-HOUSE; OR (C) ANY OFFICE APPLIANCES OR ROAD TRANSPORT VEHICLES; OR ANY MACHINERY OR PLANT THE WHOLE OF THE ACTUAL COS T WHICH IS ALLOWED AS A DEDUCTION (WHETHER BY WAY OF DEPRECIAT ION OR OTHERWISE) IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION OF AN Y ONE PREVIOUS YEAR. 9. AS STATED ABOVE THE ASSESSEE HAS CLAIMED ADDITI ONAL DEPRECIATION OF 4 76 82 947/- ON PLANT & MACHINERY (P&M) ADDED DURING THE YEAR @ 20%. THE ASSESSEE FOUND THAT THE NEW PAPER MACHINERY WITH MODERN TECHNOLOGY WAS MUCH EXPENSIVE I.E. IN THE RANGE OF 50 TO 70 CRORES BECAUSE IT WOULD INVOLVE NEW BUILDING FOUNDATION ETC. TO SUIT THE NEW MACHINERY. SO TH E MODERNIZATION OF EXISTING MACHINERY WAS PREFERRED OVER REPLACEMEN T. THE MODERNIZATION OF PAPER MACHINERY WAS CARRIED OUT AT AN EXPENDITURE OF 23.60 CRORES DURING THE YEAR. THE I MPORTANT CONDITION FOR CLAIMING ADDITIONAL DEPRECIATION U/S. 32(1) ARE (A) PLANT & MACHINERY MUST BE NEW AND (B) IT MUST BE ACQUIRED AND INSTALLED AFTER 31.03.2 005. 10. IT IS ALSO NOT IN DISPUTE THAT PURCHASED MACHIN ERY WAS NEW ONE AND IT WAS NECESSARY FOR THE MODERNIZATION OF T HE EXISTING MACHINERY. THESE WERE AIMED FOR IMPROVING THE CAPA CITY OF EXISTING MACHINERIES. THE PROVISIONS HAVE BEEN BROUGHT INTO STATUTE TO BOOST THE INDUSTRIALIZATION IN INDIA AND ACCELERATE THE INDUSTRIAL GROWTH. NOW THE ISSUE BEFORE US IS WHETHER SUCH M ODERNIZATION OF 14 THE PAPER MAKING MACHINE COULD BE SAID TO BE ACQUIR ING OF NEW MACHINERY OR PLANT. FROM THE PERUSAL OF BILLS AS D EMONSTRATED ON BEHALF OF ASSESSEE IT IS SEEN THAT NEW PARTS / MAC HINES WERE ADDED/SUBSTITUTED BY ASSESSEE. THE BROAD FEATURE O F MODERNIZATION WAS AS UNDER: I. A NEW HEAD BOX WHICH IS A CRITICAL EQUIPMENT OF PA PER MACHINE FOR QUALIFY FORMATION OF PAPER (II) THE WIRE SECTION OF THE PAPER MACHINE WAS UPGRADE USING MODERN CERAMIC FOILS ETC. (III) A NEW PRESS SECTION WAS BUILT IN TO IMPROVE THE DEWATERING OF THE WET PAPERS SHEET TO A HIGHER DRYN ERS LEVEL WHICH HELPED TO INCREASE THE MACHINE SPEED. (IV) ADDITIONAL DRYING CYLINDERS WERE BUILT IN TO ACHIEV E THE DESIRED OUTPUT. 11. THE ONLY REQUIREMENT OF THE SECTION 32(1)(IIA) OF ACT IS THAT THE MACHINERY SHOULD BE NEW AND THAT SHOULD BE INSTALLE D AFTER 31.03.2005. AS STATED ABOVE THE PROVISIONS HAVE B EEN BROUGHT TO THE STATUTE TO BOOST INDUSTRIAL GROWTH. BY MAKING ADDITION OF THESE PARTS BY THIS AMOUNT TO THE PLANT & MACHINERY THER E WAS A NEW PLANT & MACHINERY IN OFFERING ASSEMBLING OF OR PUTT ING OF PARTS TOGETHER AS RESULTED INTO ADDITION OF NEW PLANT & M ACHINERY INSTEAD OF BUYING A COMPOSITE PLANT & MACHINERY WHICH WOULD HAVE COST BETWEEN 50 TO 70 CRORES. THEREFORE TECHNICALLY TH E COMPANY HAS PURCHASED NEW PLANT AND MACHINERY WORTH OF 23.60 CRORES WHICH WAS NEW AND ADDITION HAS BEEN MADE AFTER 31.03.2005 . AS DISCUSSED ABOVE ALL THESE MACHINES HAVE CAPACITY O F WORKING INDEPENDENTLY AND FUNCTIONALLY SEPARATE. THE CIT(A ) WAS NOT JUSTIFIED IN OBSERVING ADDITIONAL DEPRECIATION COUL D NOT BE ALLOWED BECAUSE THESE MACHINES DO NOT PRODUCE ANY PRODUCT C APABLE OF SALE. THIS IS NOT THE SPIRIT OF SECTION 32(1)(IIA) OF ACT. THE HON'BLE CALCUTTA HIGH COURT IN THE CASE OF CIT(A) VS. CALCU TTA TRAMWAYS CO. LTD. (1968) 69 ITR 799 (CAL) FOLLOWING THE DEC ISION OF HON'BLE 15 SUPREME COURT IN THE CASE OF CIT VS. MIR MOHAMMED A LI (1964) 53 ITR 165 (SC) HELD THAT THE SAME MEANING OUGHT TO B E GIVEN TO THE WORDS MACHINERY IN ALL THE CLAUSES NAMELY CLAUSES 4 5 6 6(A) AND 6B OF SECTION 10(1) OF I.T. ACT AND THAT IF MACHIN ERY WAS FOR THE PURPOSE OF GIVING AN ALLOWANCE IN RESPECT OF NORMAL DEPRECIATION IT MUST ALSO BE MACHINERY FOR THE PURPOSE OF CLAUSES 6 AND 6(A). THE RATIO OF ABOVE DECISION TAKES CARE OF WHOLE CONTROV ERSY BEFORE US AND ALSO MEET OUT THE STAND OF LEARNED DEPARTMENTAL REPRESENTATIVE TO THE FACT THAT FOR THE PURPOSE OF GRANTING NORMAL DEPRECIATION EXPENDITURE UNDER CONSIDERATION RESUL T INTO THE MACHINERY AND NOT FOR THE PURPOSE OF DEPRECIATION. IN VIEW OF ABOVE DISCUSSION THE ASSESSEE IS ENTITLED FOR ADDITIONAL DEPRECIATION ON PLANT & MACHINERY AS CLAIMED BY ASSESSEE. 12. A SIMILAR ISSUE AROSE IN A.Y. 2008-09. FACTS B EING SIMILAR SO FOLLOWING THE SAME REASONING THIS ISSUE IS DECIDED IN FAVOUR OF ASSESSEE AS IN EARLIER YEAR. THE ASSESSING OFFICER IS DIRECTED ACCORDINGLY. 13. GROUND NO.2 : DISALLOWANCE OF 5 49 61 454/- ON ACCOUNT OF DISALLOWANCE OF AMOUNT PAID TO STATE GOVT FOR THE C ONSTRUCTION OF PAWANA DAM & WEIR. THIS GROUND PERTAINS TO DISALLOWANCE OF 5 49 61 454/- PAID TO STATE GOVERNMENT (IRRIGATION DEPARTMENT) FOR THE CONSTRUCTION OF NEARBY PAWANA DAM FOR ASSURED SUPPLY OF WATER FOR S IX YEARS FOR A.Y. 2007-08. THE OWNERSHIP CONTROL AND MANAGEMEN T OF THE DAM REMAINED WITH THE STATE GOVERNMENT. THE ASSESSEE C LAIMED THE ENTIRE EXPENDITURE AS REVENUE EXPENDITURE. THE ASS ESSING OFFICER REFERRED THE ISSUE TO THE ADDL. COMMISSIONER OF INC OME TAX RANGE- 10 PUNE U/S.144A OF INCOME-TAX ACT WHO ISSUED NOT ICES TO THE ASSESSEE AND ASKED THE REPRESENTATIVE OF THE ASSESS EE TO SUBSTANTIATE THE CLAIM. THE ASSESSEE'S REPRESENTATI VE AGREED BEFORE 16 THE ASSESSING OFFICER THAT THE SAID EXPENDITURE CAN BE AMORTIZED FOR A PERIOD OF 5 YEARS THE ADDITIONAL COMMISSIONER OF INCOME-TAX RANGE -10 PUNE CONSIDERING THE RATE OF DEPRECIATI ON ON DAM BEING 10% DIRECTED THE ASSESSING OFFICER TO AMORTIZE THE SAME OVER A PERIOD OF 10 YEARS THE COPY OF RELEVANT ORDER SHEET NOTINGS ARE MADE PART OF THE ASSESSMENT ORDER BY THE ASSESSING OFFICER. ACCORDINGLY THE ASSESSING OFFICER ALLOWED THE CLAI M OFF 54 96 145/- BEING 10% OF 5 49 61 454/- AND DISALLOWED THE BALANCE AMOUNT OF 4 94 65 309/-. THE MATTER WAS CARRIED BEFORE CIT(A) WHO UPHELD THE ORDER OF ASSESSING OFFICER B Y OBSERVING AS UNDER: 18. I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE ASSESSEE AS WELL AS THE ISSUES DELIBERATED IN THE A SSESSMENT ORDER. FROM THE PERUSAL OF THE AGREEMENT BETWEEN TH E APPELLANT AND THE IRRIGATION DEPARTMENT OFFICIALS DATED 24 TH MAY 2006 I IS SEEN THAT: (I) THE COMPANY HAS PAID 5 29 61 454/- TO THE GOVERNMENT TOWARDS THE PROPORTIONATE COST OF CAPITAL OUTLAY OF THE DAM PROJECT. (II) IN CONSIDERATION OF THE SAID PAYMENT THE COMPA NY WAS ALLOWED TO DRAW 2.7375 MCUM WATER FOR THE PURPOSE O F COMPANY'S PLANT FOR SUPPLY TO RESIDENTIAL COLONIES AND AGRICULTURAL USE (NURSERY /GARDENING) FOR A TERM OF SIX YEARS FROM 1 ST APRIL 2004 WITH CERTAIN CONDITIONS STIPULATED IN T HE AGREEMENT WHICH ARE NOT NECESSARY TO DISCUSS AT THI S STAGE. 19. THUS FROM THE AGREEMENT ITSELF IT IS CLEAR THA T THE APPELLANT HAS INCURRED EXPENDITURE OF 5 29 61 454/- TOWARDS THE CAPITAL OUTLAY OF THE PROJECT ON PROPORTIONATE BASIS FOR CONTINUOUS SUPPLY OF WATER FOR SIX YEA R THIS SHOWS THAT THE EXPENDITURE HAS BEEN INCURRED TOWARDS CAPITAL EXPEN DITURE THOUGH NOT OWNED BY THE APPELLANT BUT SURELY FOR E NDURING BENEFIT WHICH IN THIS CASE IS FOR SIX YEAR THE APPE LLANT HAS CLAIMED THAT SINCE THE DAM IS UNDER MANAGEMENT & CO NTROL OF STATE IRRIGATION DEPARTMENT OF THE GOVERNMENT OF MA HARASHTRA IT CANNOT BE SAID THAT THE EXPENDITURE IS CAPITAL I N NATURE. THE ARGUMENT IS NOT ACCEPTABLE IN VIEW OF THE FACT THAT CAPITAL EXPENDITURE CAN BE INCURRED ON OBJECTS NOT NECESSAR ILY OWNED BY THE APPELLANT LIKE LEASED ASSETS OR RENTED 20. THE APPELLANT HAS HEAVILY RELIED UPON THE DECIS IONS OF HONBLE RAJASTHAN HIGH COURT IN THE CASE OF JCIT VS . HINDUSTAN 17 ZINC LTD REPORTED IN 322 ITR 478 (RAJ) WHEREIN THE AMOUNT PAID TO THE STATE GOVERNMENT FOR ALTERATION OF DAM TO SU IT SPECIFIC REQUIREMENT OF THE ASSESSES FOR SUPPLY OF WATER WAS TREATED AS REVENUE EXPENDITURE. WHEN IT WAS POINTED TO THE LEA RNED COUNSEL OF THE APPELLANT THAT THE ASSESSING OFFICER HAS NOT TREATED THE EXPENDITURE AS CAPITAL EXPENDITURE BUT AMORTIZED IT FOR 10 YEARS WHICH IS BASICALLY IN THE NATURE OF DE FERRED REVENUE EXPENDITURE. IT WAS SUBMITTED THAT THERE IS NO CON CEPT OF DEFERRED REVENUE EXPENDITURE IN THE INCOME-TAX ACT. THE APPELLANT'S CONTENTION MAY BE TRUE IN THE SENSE THA T THERE IS NO CONCEPT OF DEFERRED REVENUE EXPENDITURE IN THE INCO ME-TAX BUT VARIOUS COURTS HAVE ALLOWED THE SPREAD OVER OF EXPE NDITURE CONSIDERING THE LIFE SPAN OF ASSETS IN QUESTION. TH E HON'BLE SUPREME COURT IN THE CASE OF MADRAS INDUSTRIAL INVE STMENT CORPORATION LTD. VS. CIT 225 ITR 802(SC) AS ALLOWED THE SPREAD OVER OF EXPENDITURE OVER THE PERIOD OF DEBENTURE AS ALLOWING SAME WOULD GIVE DISTORTED PICTURE OF PROFITS OF A P ARTICULAR HE PRESENT CASE TOO PAYMENT OF 5 49 61 454/- HAS BEEN MADE TO STATE IRRIGATION DEPARTMENT TOWARDS THE PROPORTIONA TE COST OF PAWNA DAM PROJECT FOR CONTINUOUS SUPPLY OF 2.7375 M ILLION CUBIC METER OF WATER FOR SIX YEA R THEREFORE ALLOWING THE ENTIRE SUM OF 5 49 61 454/- IN THE PRESENT ASSESSMENT YEAR WILL G IVE A DISTORTED PICTURE OF PROFIT OF THE PRESENT ASSESS MENT YEAR I.E. 2007-08. THEREFORE ON THE FACTS AND CIRCUMSTANCES OF THE CASE IT IS HELD THAT THE ABOVE EXPENDITURE SHOULD BE SPR EAD OVER SIX YEARS DURING THE SPAN OF AGREEMENT. ACCORDINGLY L/ 6 TH OF 5 49 61 454/- WHICH COMES TO 91 60 242/- ALLOWED IN THIS YEAR AND THE BALANCE AMOUNT BEING 4 58 01 212/- (5 49 61 454 - 91 60 242) IS DISALLOWED WHICH WILL BE CONSIDERED IN THE RESPECTIVE YEA R THIS IS ALSO JUSTIFIED ON MATCHING PRINCIPLES. ACCORDINGLY THE RELIEF ALLOWE D IN THIS YEAR IS 36 64 097/-(4 94 65 309 - 4 58 01 212). THUS TH E GROUND IS PARTLY ALLOWED. 14. BEFORE US THE LEARNED AUTHORIZED REPRESENTATIV E REITERATED THE SUBMISSION MADE BEFORE AUTHORITIES BELOW AND MADE F URTHER FACTUAL AND LEGAL SUBMISSIONS AND REQUESTED TO ALLOW THIS G ROUND. ON THE OTHER HAND LEARNED DEPARTMENTAL REPRESENTATIVE HAS SUPPORTED THE ORDER OF AUTHORITIES BELOW. 15. AFTER GOING THROUGH THE RIVAL SUBMISSIONS AND M ATERIAL ON RECORD WE FIND THAT DURING THE YEAR UNDER CONSIDER ATION THE ASSESSEE COMPANY ENTERED INTO AN AGREEMENT AND ARRA NGEMENT WITH 18 IRRIGATION DEPARTMENT AT PUNE TO ALLOW PERENNIAL SU PPLY OF WATER FROM PAWANA RIVER AND UPSTREAM DAM. AS STATED IN TH E STATEMENT OF FACTS THE ARRANGEMENT WAS OPERATIONAL SINCE 196 8. THE COMPANY CONTRIBUTED A SUM OF 5 49 61 454/- TO THE IRRIGATION DEPARTMENT WHICH WAS CLAIMED AS REVENUE EXPENDITURE . THE LEARNED AO HOWEVER TREATED THE SAME AS DEFERRED REV ENUE EXPENDITURE AND SOUGHT TO ALLOW OVER THE PERIOD OF 10 YEARS IT IS NOT IN DISPUTE THAT IN THE MANUFACTURING PROCESS OF PAP ER PRODUCTION LARGE QUANTITY OF WATER IS CONSUMED. THEREFORE A P ERENNIAL AND UNINTERRUPTED SUPPLY OF WATER IS REQUIRED FOR THE P RODUCTION OF PAPER. THE COMPANY HAS CONTRIBUTED THE SAID SUM OF 5 49 61 454/- FOR SAME. IN APPEAL BEFORE US THE A SSESSEE RELIED ON THIS GROUND WHICH WAS MODIFIED AS DISCUSSED ABOVE. WE FIND THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V. EXC EL INDUSTRIES LTD. (122 ITR 995) WHEREIN THE COMPANY MADE A CON TRIBUTION FOR LARGE QUANTITY OF ELECTRICAL ENERGY TO THE STATE GO VERNMENT AND A SEPARATE OVERHEAD SERVICE LINE WAS INSTALLED. THE H ONBLE BOMBAY HIGH COURT HAS HELD THAT THE AMOUNT IS LIABLE TO BE ALLOWED AS REVENUE EXPENDITURE. SINCE THE SERVICE LINE REMAIN ED THE PROPERTY OF THE ELECTRICITY BOARD RESPONDENT DID NOT ACQUIR E ANY CAPITAL ASSET ON ENDURING BENEFIT OF ADVANTAGE AND THE OBJECT OF MAKING THE PAYMENT WAS PURELY ONE OF THE COMMERCIAL EXPEDIENCY . THEREFORE PAYMENT MADE TO THE ELECTRICITY BOARD TOWARDS THE C OST OF LAYING THE OVERHEAD SERVICE LINE CONSTITUTES REVENUE EXPENDITU RE AND WAS ALLOWABLE. FACTS BEING SIMILAR SO FOLLOWING THE S AME REASONING EXPENDITURE IN QUESTION IS HELD AS REVENUE EXPENDIT URE. THE ASSESSING OFFICER IS DIRECTED ACCORDINGLY. A SIMIL AR ISSUE AROSE IN A.Y. 2008-09. FACTS BEING SIMILAR SO FOLLOWING TH E SAME REASONING THE ASSESSING OFFICER IS ALSO DIRECTED TO ALLOW THI S EXPENDITURE AS REVENUE EXPENDITURE AS DISCUSSED ABOVE. 16. THE ASSESSEE HAS ALSO FILED AN ADDITIONAL GROUN D OF APPEAL BEFORE US FOR A.Y. 2008-09 INTER ALIA STATED THAT THE ADDITIONAL 19 GROUND RAISED IS PURELY A QUESTION OF LAW AND NO NE W FACTS ARE REQUIRED TO BE BROUGHT ON RECORD. ACCORDINGLY THE ASSESSEE REQUESTED TO ADMIT AND ADJUDICATE THE SAID ADDITION AL GROUND RAISED BY THE ASSESSEE WHICH IS AS UNDER: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CIT(A) OU GHT TO HAVE DIRECTED THE AO TO ALLOW THE BALANCE ADDITIONAL DE PRECIATION OF 10% U/S 32(1)(IIA) OF THE I.T. ACT BEING RS.5 16 83 5/- IN RESPECT OF THE ADDITIONS MADE TO MACHINERY IN ASST YEAR : 2 007-08. 2. THE APPELLANT CRAVES LEAVE TO ADDITION TO ALTER OR AMEND THE GROUNDS OF APPEAL ON OR BEFORE THE HEARING OF THIS APPEAL. 17. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT SINCE THE ASSESSEE HAD PURCHASED PLANT & MACHINERY WHICH WERE UTILIZED FOR A PERIOD OF LESS THAN 180 DAYS THE LEARNED CIT(A) HAS ALLOWED ADDITIONAL DEPRECIATION ON SUCH ASSETS @ 10% DURING THE ASSESSMENT YEAR 2007-08. HOWEVER HE HAS NOT DIREC TED THE ASSESSING OFFICER TO ALLOW THE BALANCE ADDITIONAL D EPRECIATION OF 10% DURING A.Y. 2008-09. REFERRING TO THE DECISION OF DELHI BENCH OF THE TRIBUNAL IN THE CASE OF DCIT VS. COSMO FILMS LTD AND VIS-- VIS REPORTED IN (2012) 13 ITR (TRIB) 340 (DELHI) H E DREW ATTENTION OF THE BENCH TO THE FOLLOWING OBSERVATIONS: WE HAVE HEARD BOTH SIDES ON THIS ISSUE. SECTION 32 (1) (IIA) INSERTED BY THE FINANCE (NO. 2) ACT 2002 WITH EFFE CT FROM APRIL 1 2003. IN SPEECH OF THE FINANCE MINISTER THIS CL AUSE WAS INSERTED TO PROVIDE INCENTIVES FOR FRESH INVESTMENT IN INDUSTRIAL SECTOR. THIS CLAUSE WAS INTENDED TO GIVE IMPETUS TO NEW INVESTMENT IN SETTING UP A NEW INDUSTRIAL UNIT OR F OR EXPANDING THE INSTALLED CAPACITY OF EXISTING UNITS BY AT LEAS T 25 PER CENT. THEREAFTER THESE PROVISIONS WERE AMENDED BY THE FIN ANCE (NO. 2) ACT OF 2004 WITH EFFECT FROM APRIL 1 2005 AND P ROVIDED THAT IN THE CASE OF ANY MACHINERY OR PLANT WHICH HAS BEE N ACQUIRED AFTER THE 31ST DAY OF MARCH 2005 BY AN ASSESSEE EN GAGED IN THE BUSINESS OF MANUFACTURE OR PRODUCTION OF ANY AR TICLE OR THING A FURTHER SUM EQUAL TO 15 PER CENT OF ACTUA L COST OF SUCH MACHINERY OR PLANT SHALL BE ALLOWED AS DEDUCTION UN DER CLAUSE (II) OF SECTION 32(1). THIS ADDITIONAL ALLOWANCE UN DER SECTION 32(1) (IIA) IS MADE AVAILABLE AS CERTAIN PERCENTAGE OF ACTUAL COST OF NEW MACHINERY AND PLANT ACQUIRED AND INSTALLED. THIS PROVISION HAS BEEN DIRECTED TOWARDS ENCOURAGING 20 INDUSTRIALIZATION BY ALLOWING ADDITIONAL BENEFIT TO THE SETTING UP OF NEW INDUSTRIAL UNDERTAKINGS MAKING OR FOR EXPANS ION OF THE INDUSTRIAL UNDERTAKING BY WAY OF MAKING MORE INVEST MENT IN CAPITAL GOODS. THUS THESE ARE INCENTIVES AIMED TO BOOST NEW INVESTMENTS IN SETTING UP AND EXPANDING THE UNITS. THE PROVISO TO SECTION 32(1) (IIA) RESTRICTS THE BENEFIT IN RES PECT OF FOLLOWING : 'PROVIDED THAT NO DEDUCTION SHALL BE ALLOWED IN RES PECT OF (A) ANY MACHINERY OR PLANT WHICH BEFORE ITS INSTALLATI ON BY THE ASSESSEE WAS USED EITHER WITHIN OR OUTSIDE IND IA BY ANY OTHER PERSON; OR (B) ANY MACHINERY OR PLANT INSTALLED IN ANY OFFICE PREM ISES OR ANY RESIDENTIAL ACCOMMODATION INCLUDING ACCOMMODATION IN THE NATURE OF A GUEST-HOUSE ; OR (C) ANY OFFICE APPLIANCES OR ROAD TRANSPORT VEHICLES ; OR (D) ANY MACHINERY OR PLANT THE WHOLE OF THE ACTUAL COS T OF WHICH IS ALLOWED AS A DEDUCTION (WHETHER BY WAY OF DEPRECIATION OR OTHER WISE) IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUS INESS OR PROFESSION' OF ANY ONE PREVIOUS YEAR;' THUS THIS INCENTIVE IN THE FORM OF ADDITIONAL SUM OF DEPRECIATION IS NOT AVAILABLE TO ANY PLANT OR MACHINERY WHICH HA S BEEN USED EITHER WITHIN INDIA OR OUTSIDE INDIA BY ANY OTHER P ERSON OR SUCH MACHINERY AND PLANT ARE INSTALLED IN ANY OFFICE PRE MISES OR ANY RESIDENTIAL ACCOMMODATION INCLUDING ACCOMMODATION IN THE NATURE OF A GUEST-HOUSE OR ANY OFFICE APPLIANCES OR ROAD TRANSPORT VEHICLES OR ANY MACHINERY OR PLANT THE WHOLE OF THE ACTUAL COST OF WHICH IS ALLOWABLE AS DEDUCTION (WHE RE BY WAY OF DEPRECIATION OR OTHERWISE) IN COMPUTING THE TOTAL I NCOME UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSI ON' OF ANY ONE PREVIOUS YEAR. THUS THE INTENTION WAS NOT TO D ENY THE BENEFIT TO THE ASSETS WHO HAVE ACQUIRED OR INSTALLE D NEW MACHINERY OR PLANT. THE SECOND PROVISO TO SECTION 3 2(1) (II) RESTRICTS THE ALLOWANCES ONLY TO 50 PER CENT WHERE THE ASSETS HAVE BEEN ACQUIRED AND PUT TO USE FOR A PERIOD LESS THAN 180 DAYS IN THE YEAR OF ACQUISITION. THIS RESTRICTION I S ONLY ON THE BASIS OF PERIOD OF USE. THERE IS NO RESTRICTION THA T BALANCE OF ONE TIME INCENTIVE IN THE FORM OF ADDITIONAL SUM OF DEP RECIATION SHALL NOT BE AVAILABLE IN THE SUBSEQUENT YEAR. SECTION 32 (2) PROVIDES FOR A CARRY FORWARD SET UP OF UNABSORBED DEPRECIATI ON. THIS ADDITIONAL BENEFIT IN THE FORM OF ADDITIONAL ALLOWA NCE UNDER SECTION 32(1) (IIA) IS ONE TIME BENEFIT TO ENCOURAG E THE INDUSTRIALISATION AND IN VIEW OF THE DECISION OF TH E HON'BLE SUPREME COURT IN THE CASE OF BAJAJ TEMPO LTD. V. CI T [1992] 196 ITR188 (SC) THE PROVISIONS RELATED TO IT HAVE TO B E CONSTRUCTED REASONABLY LIBERALLY AND PURPOSIVE TO MAKE THE PRO VISION 21 MEANINGFUL WHILE GRANTING THE ADDITIONAL ALLOWANCE. THIS ADDITIONAL BENEFIT IS TO GIVE IMPETUS TO INDUSTRIAL ISATION AND THE BASIC INTENTION AND PURPOSE OF THESE PROVISIONS CAN BE REASONABLY AND LIBERALLY HELD THAT THE ASSESSEE DES ERVES TO GET THE BENEFIT IN FULL WHEN THERE IS NO RESTRICTION IN THE STATUTE TO DENY THE BENEFIT OF BALANCE OF 50 PER CENT WHEN TH E NEW PLANT AND MACHINERY WERE ACQUIRED AND USE FOR LESS THAN 1 80 DAYS. ONE TIME BENEFIT EXTENDED TO THE ASSESSEE HAS BEEN EARNED IN THE YEAR OF ACQUISITION OF NEW PLANT AND MACHINERY. IT HAS BEEN CALCULATED AT 15 PER CENT BUT RESTRICTED TO 50 PER CENT ONLY ON ACCOUNT OF USAGE OF THESE PLANT AND MACHINERY IN TH E YEAR OF ACQUISITION. IN SECTION 32(L)(IIA) THE EXPRESSION USED IS 'SHALL BE ALLOWED'. THUS THE ASSESSEE HAD EARNED THE BENEFIT AS SOON AS HE HAD PURCHASED THE NEW PLANT AND MACHINERY IN FUL L BUT IT IS RESTRICTED TO 50 PER CENT IN THAT PARTICULAR YEAR ON ACCOUNT OF PERIOD OF USAGES. SUCH RESTRICTIONS CANNOT DIVEST T HE STATUTORY RIGHT. LAW DOES NOT PROHIBIT THAT BALANCE 50 PER CE NT WILL NOT BE ALLOWED IN SUCCEEDING YEAR. THE EXTRA DEPRECIATION ALLOWABLE UNDER SECTION 32(1) (IIA) IS AN EXTRA INCENTIVE WHI CH HAS BEEN EARNED AND CALCULATED IN THE YEAR OF ACQUISITION BU T RESTRICTED FOR THAT YEAR TO 50 PER CENT ON ACCOUNT OF USAGE. THE SO EARNED INCENTIVE MUST BE MADE AVAILABLE IN THE SUBSEQUENT YEAR. THE OVERALL DEDUCTION OF DEPRECIATION UNDER SECTION 32 SHALL DEFINITELY NOT EXCEED THE TOTAL COST OF PLANT AND M ACHINERY. IN VIEW OF THIS MATTER WE SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND DIRECT TO EXTEND THE BENEFIT. WE ALLOW GR OUND NO. 2 OF THE ASSESSEE'S APPEAL. SINCE WE HAVE DECIDED GROUND NO. 2 IN FAVOUR OF THE ASSESSEE THERE IS NO NEED TO DECIDE THE ALTERNATE CLAIM RAISED IN GROUND NO. 3. THE SAME IS DISMISSED . 18. HE ACCORDINGLY SUBMITTED THAT SINCE ALL THE FAC TS ARE ON RECORD AND NO NEW FACTS ARE REQUIRED TO BE BROUGHT ON RECO RD THEREFORE IN VIEW OF THE DECISIONS OF HONBLE SUPREME COURT IN T HE CASE OF NTPC VS. CIT REPORTED IN [(1998) 229 ITR 383(SC)] JUTE CORPORATION OF INDIA LTD. VS. CIT REPORTED IN [(1991) 187 ITR 688 (SC)] AND THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CA SE OF AHMEDABAD ELECTRICITY CO. LTD. VS. CIT REPORTED IN [(1993) ITR 351 (BOM) (FB)] THE ADDITIONAL GROUND SHOULD BE ADMITT ED. 19. AFTER HEARING BOTH THE SIDES AND IN VIEW OF THE DECISIONS OF THE HONBLE SUPREME COURT IN THE CASE OF NTPC LTD. (SUP RA) JUTE CORPORATION OF INDIA LTD. (SUPRA) THE ADDITIONAL G ROUND RAISED BY THE ASSESSEE IS ALLOWED FOR ADJUDICATION. 22 19.1 NOW COMING TO THE ALLOWABILITY OF THE ADDITI ONAL DEPRECIATION WE FIND IN THE ABSENCE OF CLAIM BY THE ASSESSEE BEF ORE CIT(A) ON THIS ISSUE HE HAS NOT ADJUDICATED THIS GROUND. WE THE REFORE IN THE INTEREST OF JUSTICE RESTORE THIS GROUND TO THE FIL E OF THE LEARNED CIT(A) WITH A DIRECTION TO ADJUDICATE THIS ISSUE IN THE LIGHT OF THE DECISION OF THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF COSMO FILMS LTD. (SUPRA) AND IN ACCORDANCE WITH THE LAW A FTER PROVIDING DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. WE HOLD AND DIRECT ACCORDINGLY. THE ADDITIONAL GROUND RAISED BY THE A SSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 20. IN THE RESULT THE APPEAL IS PARTLY ALLOWED AS INDICATED ABOVE. PRONOUNCED IN THE OPEN COURT ON THIS THE 21 ST DAY OF APRIL 2014. SD/- SD/- (R.K. PANDA) (SHAILENDRA KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE DATED: 21 ST APRIL 2014 GCVSR COPY TO:- 1) DEPARTMENT 2) ASSESSEE 3) THE CIT(A)-V PUNE 4) THE CIT-V PUNE 5) THE DR B BENCH I.T.A.T. PUNE. 6) GUARD FILE //TRUE COPY// BY ORDER SENIOR PRIVATE SECRETARY I.T.A.T. PUNE