CIT vs Punjab State Electricity Board

Ajay Kumar Mittal, J.—This appeal has been preferred by the revenue u/s 260A of the Income Tax Act, 1961 (in short "the Act") against the order dated 31.10.2008 passed by the Income Tax Appellate Tribunal, Chandigarh Bench "A" (hereinafter referred to as "the Tribunal") in ITA No. 555/Chandi/2008, for the assessment year 1995-96, claiming the following substantial question of law:-

Whether on the facts and in the circumstances of the case, the ITAT is legally correct in holding that each item below Rs. 5000/- is a self unit and, therefore, the depreciation @ 100% is allowable in place of 25%, ignoring the fact that these items are parts of a bigger composite unit where all expenditure to bring the assets into working conditions is to be included in determining the actual cost of fixed asset for the purpose of grant of depreciation as held by the Hon''ble Bombay High Court in the case of Commissioner of Income Tax, Bombay City-IV, Bombay Vs. Hindustan Polymers Ltd.,

Briefly stated, the facts necessary for adjudication as narrated in the appeal are that the return for the assessment year 1995-96 was filed by the assessee on 29-11-1995 declaring an income of Rs. 61,57,45,071 and after adjustment of brought forward losses the resulted income declared was nil. The assessment was completed u/s 143(3) of the Act on 19-3-1998 at an income of Rs. 52,47,72,077 and after adjustment of brought forward losses, the income was assessed at nil. The assessee had claimed depreciation at the rate of 100% on the entire cost of switch gears including cable connections etc. at Rs. 39,68,74,587. The assessing officer initiated proceedings u/s 147 of the Act holding that each asset would not by itself constitute a unit but was a part of bigger unit and the depreciation should have been allowed at normal rate of 25% as applicable to the plant and machinery, and not at the rate of 100% as claimed by the assessee. Accordingly, the assessment was again completed at an income of Rs. 86,87,76,780 and after adjusting the brought forward losses, the income was assessed at nil. Feeling aggrieved, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) (in short "the CIT(A)"). The CIT (A) vide order dated 7-4-2008 dismissed the appeal upholding the order of the assessing officer. On further appeal by the assessee, the Tribunal vide order dated 31-10-2008 accepted the appeal holding that each unit was a self unit and being a part of the bigger unit, the depreciation at the rate of 100% was to be allowed instead of 25%, as allowed by the Assessing Officer and upheld by the CIT(A). Hence, the present appeal by the revenue.

We have heard learned counsel for the parties.

The point for consideration in this appeal is regarding the allowability of rate of depreciation to the assessee-Board.

The claim of the assessee was that the items on which the depreciation was claimed valued less than Rs. 5000/- each and, therefore, under the proviso to Section 32 of the Act, 100% depreciation was allowable.

On the other hand, the revenue had allowed 25% depreciation holding that the total value of the plant and machinery on which depreciation was claimed exceeded Rs. 5000. The revenue had placed reliance on a Bombay High Court judgment in Commissioner of Income Tax, Bombay City-IV, Bombay Vs. Hindustan Polymers Ltd.,

We have given our thoughtful consideration to the respective submissions of the learned counsel for the parties and do not find any merit in the submission made by the learned counsel for the revenue.

The Tribunal while accepting the plea of the assessee had held that the electricity connections constitute various components like switch gears including cable connections, installation of electric meter, electric wires and overhead wires etc. and each unit was a self unit/independent unit and was part of bigger unit and, thus, had to be taken as a separate unit for the purposes of determining the value of each item which was below Rs. 5000. In such circumstances, 100% depreciation was held to be allowable in place of 25%. The relevant findings recorded by the Tribunal are as under:-"Brief facts are that the assessee purchased certain items which were debited to plant and machinery account as the cost of which was less than Rs. 5000 each. This claim of the assessee was allowed while framing original assessment. Since the case was later reopened on the ground that the claim was wrongly allowed, therefore, the Ld. assessing officer disallowed the depreciation on such items on the ground that it is the composite value of all items is to be taken which will be determinative of the cost of assets and not the item wise cost of these items. We have perused the material and the assessment order wherein at page-2 of the assessment order even the Ld. assessing officer has mentioned that the assessee filed the details of the additions to the plant and machinery as these are below Rs. 5000. There is specific finding in the assessment order that as per the table shown in the (A) & (B) in the assessment order, the assessee is entitled to depreciation at 100%."

The aforesaid finding has not been shown to be perverse in any manner by the learned counsel for the revenue. Further, the judgment of Bombay High Court in Hindustan Polymers Ltd.''s case (supra) on which reliance had been placed by the revenue was a case where the assessee had sought to include all expenditure incurred for bringing the asset into working condition in the actual cost of the asset for determining depreciation thereon. The claim of the assessee had not been accepted by the assessing officer therein. However, the High Court affirming the order of the Tribunal had upheld the claim of the assessee by accepting the accountancy rule for determining the cost of fixed asset. Such is not the position in the present case. In view of the above, the substantial question of law is answered against the revenue. The appeal is dismissed.