ITA No. 15 of 2010 -1- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 15 of 2010 Date of Decision 17.03.2010 The Commissioner of Income-tax, Patiala ---Appellant Versus The Patiala Co-op. Sugar Mills Ltd., Rakhra, Patiala (Pb.) ---Respondent CORAM: HON'BLE MR. JUSTICE M.M. KUMAR HON'BLE MR. JUSTICE JITENDRA CHAUHAN Present: Ms. Urvashi Duggal, Advocate for the appellant. 1. To be referred to the Reporters or not? 2. Whether the judgment should be reported in the Digest? M.M. Kumar, J. The Revenue is in appeal by invoking Section 260-A of the Income Tax Act, 1961 (for brevity 'the Act') and has challenged order dated 29.06.2009 passed by the Income Tax Appellate Tribunal, Chandigarh Bench 'B' (for brevity 'the Tribunal) in I.T.A. No. 712/Chandi/2008 for assessment year 2005-06. It has been ITA No. 15 of 2010 -2- claimed that following substantial questions of law would arise for adjudication of this Court: (i) Whether in the facts and circumstances of the case, the ITAT was legally correct in allowing the electricity expenses in toto merely because such a bill had been raised by the Electricity Board, ignoring that the assessee itself had admitted that no manufacturing activity had been carried out during the year under assessment and that the assessee had failed to prove that the entire electricity expenses had wholly and exclusively been laid out for the purposes of its business. (ii) Whether in the facts and circumstances of the case, the ITAT was legally correct in taking adverse view against the Revenue on the ground that there was no material on record to say that expenditure in question was non- bonafide or extraneous, without appreciating that having claimed the expenditure, it was for the assessee to substantiate by leading evidence that it had in fact incurred the expenditure wholly and exclusively for the purposes of its business. Brief facts of the case are that the assessment was completed under Section 143(3) after affording proper opportunity to the ITA No. 15 of 2010 -3- assessee-respondent. During the assessment proceedings, the Assessing Officer asked the assessee-respondent to supply information which was not supplied by the assessee-respondent. The Assessing Officer had then completed assessment under Section 143(3) of the Act in order to avoid the bar of limitation. Accordingly, Assessing Officer allowed the depreciation only for a sum of Rs. 4,50,182/-. After noticing that the assessee-respondent did not carry on any manufacturing activities and the machinery had not been used during the assessment year. The balance depreciation allowance of Rs. 6,71,470/- was added back to the taxable income of the assessee-respondent. On the other question of incurring expenditure on electricity and power etc. assessee-respondent had claimed a sum of Rs. 21,62,334/-. However, Assessing Officer disallowed 75% of the expenditure which amounted to Rs. 16,21,750/- and the same was added back to the total income of assessee-respondent. On an appeal filed by the assessee-respondent, CIT(A) upheld disallowance on account of depreciation amounting to Rs. 6,71,470/-. However, on the question of disallowance of Rs. 16,21,750/- out of electricity and power expenses, CIT(A) held that expenses for running of office paid by the Assessing Officer should have been allowed by the Assessing Officer. Accordingly, direction was issued to Assessing Officer. On further appeal by the assessee to the Tribunal, it was held that claim of assessee with regard to depreciation of plant and ITA No. 15 of 2010 -4- machinery could not have been disallowed. In support of the aforesaid view, the Tribunal has placed reliance on the judgment of this Court rendered in CIT v. Nahar Exports Ltd., 296 ITR 419 (P&H). The Tribunal accepted the arguments of the assessee that once plant and machinery was kept ready for use which has to be used for manufacturing activity in the preceding assessment year then the claim of the assessee for depreciation could not have been rejected. The Tribunal noticed that the assessee had undertaken repair and maintenance of the plant and machinery and had claimed expenses in this regard. Those expenses had been allowed by the Assessing Officer and that the assessee was maintaining the office staff and sales were being executed. The Tribunal further found that that the electricity connection was maintained, which is also a proof of the fact that the plant and machinery was kept ready for use even during the assessment year under consideration. The view of the Tribunal is discernible from para 5 of its order which reads as under: "In our view, in principle, the stand of the assessee deserves to be upheld more so when it is in line with the law laid down by the Hon'ble Jurisdictional High Court in the case of Nahar Exports Ltd. (supra). So however, in order to appreciate the factual matrix we deem it fit and proper to restore the issue to the file of the Assessing Officer. Before the Assessing Officer, the assessee shall report its plea that ITA No. 15 of 2010 -5- the plant and machinery and other assets on which depreciation amounting to Rs. 6,71,470/- has been declined by the Assessing Officer was kept ready for use. Needless to say, if the Assessing Officer is satisfied that such assets have been kept ready for use and could not be put to use, the assessee would be entitled to depreciation. If the finding of the Assessing Officer is to the contrary, then the Assessing Officer shall be at liberty to deny the claim of the depreciation in accordance with law. While carrying out the aforesaid exercise, the Assessing Officer shall allow assessee the necessary opportunity of being heard and thereafter pass an order in accordance with law. Statistically speaking on this Ground, the assessee succeeds." On the other issue of disallowing the electricity expenses, the Tribunal held that there was no material on record to conclude that any of the expense in question was not bona fide or it was extraneous to the business of the assessee-respondent. The tribunal referred to the Manufacturing and Trading account of the assessee showing that it was undertaking sale of sugar and other bye- products during the assessment year under consideration. The assessee had undertaken sales of sugar amounting to Rs. ITA No. 15 of 2010 -6- 11,71,91,152/- and molasses at Rs. 31,94,078/- besides misc. sales of scrap, farm products, etc. The electricity and power expenses have been paid as per bills raised by the Electricity Board and charges paid are the minimum charges levied by the Electricity Board. Accordingly, it was held that expenses on account of electricity and power deserved to be allowed. The appeal of the assessee-respondent was accordingly allowed partly. Having heard learned counsel for the Revenue at some length, we are of the considered view that the question is covered by judgment of this Court rendered in CIT v. Nahar Exports Ltd. (supra). Therefore, for the purpose of the instant case it has to be taken as well settled that the plant and machinery if it has been kept ready for manufacturing activities during the assessment year under consideration then depreciation has to be allowed irrespective of the fact whether manufacturing activities were undertaken or not. It has come on record that the assessee-respondent has incurred expenses on repair and maintenance which have been allowed by the Assessing Officer. Therefore, we do not find any question of law much less a substantive question of law for determination of this Court on that count. The other question with regard to incurring of expenses including payment of bills of the Electricity Board, we find that necessarily it is a question of fact. The Tribunal after taking into account various factors, have concluded that the assessee- respondent has been carrying out its normal activity except that ITA No. 15 of 2010 -7- there was no manufacturing activities undertaken during the assessment year under consideration. Therefore, expenses on account of electricity and power have been rightly allowed, even otherwise payments in respect of electricity and power have been made in accordance with the electricity/ power bills raised by the Electricity Board. Consequently, no question of law would arise on that account. As a sequel to the aforesaid discussions, this appeal fails and same is dismissed. (M.M. KUMAR) JUDGE (JITENDRA CHAUHAN) JUDGE March 17, 2010 Atul