Sponge Iron India Ltd., Hyderabad v. DCIT, Hyderabad

ITA 411/HYD/2007 | 2003-2004
Pronouncement Date: 21-05-2010 | Result: Partly Allowed

Appeal Details

RSA Number 41122514 RSA 2007
Assessee PAN MARCH1996A
Bench Hyderabad
Appeal Number ITA 411/HYD/2007
Duration Of Justice 3 year(s) 2 month(s)
Appellant Sponge Iron India Ltd., Hyderabad
Respondent DCIT, Hyderabad
Appeal Type Income Tax Appeal
Pronouncement Date 21-05-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted B
Tribunal Order Date 21-05-2010
Date Of Final Hearing 22-03-2010
Next Hearing Date 22-03-2010
Assessment Year 2003-2004
Appeal Filed On 21-03-2007
Judgment Text
ITA NOS.410 & 411/HYD/2007 M/S SPONGE IRON INDIA LTD. HYDERABAD IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B HYDERABAD BEFORE SHRI G.C. GUPTA VICE PRESIDENT AND SHRI CHANDRA POOJARI ACCOUNTANT MEMBER ITA NO.410/HYD/2007 A.Y. 2001-02 ITA NO.411/HYD/2007 A.Y. 2003-04 M/S SPONGE IRON INDIA LTD. HYDERABAD VS DCIT CIRCLE 3 (2) HYDERABAD (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI LAKSHMI NIWAS SHARMA RESPONDENT BY : SMT. VASUNDHARA SINHA DR O R D E R PER CHANDRA POOJARI ACCOUNTANT MEMBER THESE TWO APPEALS PREFERRED BY THE ASSESSEE ARE DIRECT ED AGAINST DIFFERENT ORDERS PASSED BY THE CIT(A) IV HYDE RABAD DATED 38.4.2006 AND PERTAINS TO THE ASSESSMENT YEARS 2001-02 & 2003-04. SINCE COMMON ISSUES ARE INVOLVED IN THESE TWO APPEALS TH EY ARE CLUBBED TOGETHER HEARD TOGETHER AND DISPOSED OFF VIDE THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. IN BOTH THE APPEALS THE FIRST GROUND RAISED BY THE ASSESSEE ARE COMMON AND GENERAL IN NATURE AND DOES NOT REQUIRE ANY ADJUDICATION. 3. THE GROUNDS 6 & 7 RAISED IN THESE TWO APPEALS FOR WHICH THERE IS NO PERMISSION FROM COD AND ACCORDINGLY THESE TWO GROUNDS ARE DISMISSED. ITA NOS.410 & 411/HYD/2007 M/S SPONGE IRON INDIA LTD. HYDERABAD 2 2 4. THE NEXT GROUND NOS.3 4 AND 5 ARE WITH REFEREN CE TO DISALLOWANCE OF DEPRECIATION ON SAF PLANT. 5. BRIEF FACTS OF THE CASE ARE THAT THERE WAS DISALLO WANCE OF DEPRECIATION ON SAF PLANT OF RS.4 45 39 956/- IN THE ASSESSMENT YEAR 2001-02. SIMILAR DISALLOWANCE WAS MADE IN OTHER YEAR UNDER CONSIDERATION ALSO. THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS CONSTRUCTED A SUB MERGED ARC FURNACE (SAF PLANT) WHICH WAS CAPITALIZED IN THE BOOKS W.E.F. 1.4.1999 FOR THE ASSESSMENT YEAR 20 00-01 AND THE FOLLOWING OBSERVATIONS HAVE BEEN MADE IN THE ANNUAL R EPORT: 5.1. 4. SAF PLANT HAS BEEN CAPITALIZED W.E.F. 1.4.1999. THE PLANT HAS NOT BEEN IN OPERATION SINCE CAPITALIZATION. HOWEV ER AN AMOUNT OF RS.145.22 LAKHS (PREVIOUS YEAR RS.145.22 LAKHS) HAS BEEN PROV IDED AS NORMAL DEPRECIATION ON THE ASSETS OF SAF. FURTHER THE DIRECTORS REPORT ALSO CONTAINS A REMA RK WHICH IS AS UNDER: 5.2. DURING THE YEAR 2002-03 ALSO THE SAF PLANT CONTINUE D TO REMAIN IDLE IN VIEW OF THE CONTINUED DEPRESSED CONDITIONS IN THE MARKET FOR SILICO MANGANESE. THOUGH THE COMPANY MADE EFFORTS WERE NO T SUCCESSFUL. 6. IN VIEW OF THE ABOVE THE ASSESSING OFFICER AFTER GIVING AN OPPORTUNITY TO THE ASSESSEE DISALLOWED THE DEPRECIATION CLAIMED ON THE SAF PLANT RELYING ON THE RATIO OF THE DECISION OF THE HONBLE MUMBAI HIGH COURT IN THE CASE OF DINESHKUMAR GULBCHAND AGRAWAL VS. CIT & ANOTHER (REPORTED IN 267 ITR 768) (BOM. HC) WHEREIN IT WAS HELD THAT FOR AVAILING THE DEPRECIATION THE ASSET MUST BE ACTUALLY USE D FOR THE PURPOSE OF BUSINESS AND NOT MERELY READY FOR USE. THE A SSESSING OFFICER ALSO RELIED ON THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. SUHRID GEIGY LTD. (REPORTED IN 133 ITR 88 4) (GUJ. HC) WHEREIN IT HAS BEEN EMPHASIZED THAT THE USE MUST BE ACT UAL REAL AND EFFECTIVE IN THE COMMERCIAL SENSE. ITA NOS.410 & 411/HYD/2007 M/S SPONGE IRON INDIA LTD. HYDERABAD 3 3 7. THE ASSESSING OFFICER DID NOT ACCEPT THE ASSESSEES CONTENTION THAT THE TEST OF USER HAS TO BE APPLIED TO THE BLOCK OF ASSETS AS A WHOLE INSTEAD OF EACH INDIVIDUAL ASSET OF THE BLOCK. IN THIS RESPECT THE ASSESSING OFFICER HELD THAT SINCE THE ASSETS OF THE SAF P LANT WERE ONLY INSTALLED AND NEVER PUT TO USE FOR COMMERCIAL PROD UCTION THE ASSETS CANNOT BECOME PART OF THE RESPECTIVE BLOCK OF ASSETS. 8. ON APPEAL TO CIT(A) HE CONFIRMED THE ORDER OF THE ASSESSING OFFICER. HENCE THE ASSESSEE IS IN APPEAL BEFORE US. 9. THE LEARNED AR SUBMITTED THAT THE COMPANY IS WHO LLY OWNED BY THE GOVT. OF INDIA AND GOVT. OF ANDHRA PRA DESH. IT IS ENGAGED IN MANUFACTURE AND SALE OF PIG IRON AND SPONGE IRON. THE ASSESSEES COUNSEL DREW OUR ATTENTION TO THE FLOW CHART OF PIG IR ON PRODUCTION. ITS MAIN ACTIVITY IS PRODUCTION OF SPONGE IRON AND SALE OF T HE SAME. HE STATED AS FOLLOWS: 9.1. THE PLANT AND MACHINERY WAS ESTABLISHED IN THE YE AR 1980 AT PALVANCHA AND THEREAFTER THERE WAS A SUBSTANTIAL EXPAN SION DURING THE YEAR 1985 AND THE FULL PRODUCTION INCLUDING THE PRO DUCTION IN THE EXPANDED THAT COMMENCED IN JULY 1985. AS CAN BE SEEN F ROM THE FLOW CHART OF THE PIG ORE AND COAL. THE LUMP IRON ORE AND THE COAL ARE CRUSHED THEY ARE SCRAMMED TO THE SIZE AND ARE FED TO TH E MANUFACTURING PROCESS. IN SO FAR AS THE COAL IS CONCERNED THE ENTIRE COAL IS USED IN THE KILN BUT IN SO FAR AS IRON ORE IS CO NCERNED 0.6% TO 1% OF THE IRON ORE FINES REMAIN AND CANNOT BE USED IN THE PROCESS OF MANUFACTURE. THEREFORE THEY HAVE TO BE DUMPED AS W ASTAGE AND ASSESSEE DID NOT FIND ANY USE FOR THE SAID IRON ORE FINES . IN SO FAR AS COAL IS CONCERNED THE PLANT LEAVES WASTE HEAT CHAR. THE ASSESSEE WAS OF THE VIEW THAT BY USING THE SPONGE IRON FINES AND TH E HEAT CHAR IT CAN ITA NOS.410 & 411/HYD/2007 M/S SPONGE IRON INDIA LTD. HYDERABAD 4 4 MANUFACTURE PIG IRON FROM THE SPONGE IRON AND ALSO PR ODUCE SILICON MANGANESE. THEREFORE IN THE YEAR 1996 IT ESTABLISHE D SUBMERGED ARC FURNACE (SAF) SO AS TO ENABLE THE COMPANY TO MANUFACTUR E PIG/SILICON MANGANESE. THE ENTIRE PROCESS OF MANUFACTURE OF PIG IRO N AND SILICON MANGANESE COMMENCED IN THE YEAR 1996 AS ENUMERATED IN T HE FOLLOWING PARAS. 9.2. THE PLANT WAS COMPLETED AND COMMISSIONED IN THE Y EAR 1996. DURING THE YEAR 1996 THE PLANT COMMENCED ITS P RODUCTION OF PIG IRON. HOWEVER WITH THE INTRODUCTION OF MINI BLAST FUR NACES IN INDIA THE PRODUCTION OF PIG IRON WAS MORE UNECONOMICAL IN SUCH MIN I BLAST FURNACES AND THE ASSESSEE STARTED INCURRING LOSSES IN THE PRO DUCTION OF PIG IRON. THE FOLLOWING FACTORS LEAD THE COMPANY TO ST OP THE MANUFACTURE OF PRODUCTION OF PIG IRON IN THE YEAR 19 97 ITSELF: A) WHEN THE PROPOSAL OF SETTING UP PIG IRON PLANT THROUG H SAF WAS TAKEN UP THERE WAS TREMENDOUS SHORTAGE OF PIG IRON IN THE COUNTRY AND IT WAS BEING IMPORTED. DURING THE IMPLE MENTATION PERIOD CONCEPT OF MINI BLAST FURNACE CAME INTO INDIA AN D MANY MINI BLAST FURNACES WERE SET UP AND COMMISSIONED IN INDIA FOR PRODUCTION OF PIG IRON ECONOMICALLY AND HENCE THE OPERA TION WERE NOT CONTINUED. B) DUE TO GLOBALIZATION PRICES OF STEEL AND OTHER PRODUCT S FELL DOWN DRASTICALLY AND THIS FURTHER AGGRAVATED THE SITUATION A ND OPERATIONS OF SAF BECAME UNECONOMICAL. HOWEVER SPONGE IRON PLANT AND POWER PLANT FROM WASTE HEAT RECOVERY SYSTEM WERE CONTINU OUSLY OPERATED TO MEET SIILS POWER REQUIREMENTS. 10.1. THEREAFTER IN THE YEAR 1997 THE FACILITY O F SAF HAS BEEN MODIFIED FOR PRODUCTION OF SILICON MANGANESE BY ADDING CERTAIN OTHER ITA NOS.410 & 411/HYD/2007 M/S SPONGE IRON INDIA LTD. HYDERABAD 5 5 EQUIPMENT. AT PRESENT THE ENTIRE PLANT TOGETHER CAN PRODUCE SPONGE IRON PIG IRON AND SILICON MANGANESE. THE PLANT SAF I S AN INTEGRAL PART OF THE TOTAL PLANT AND MACHINERY HELD BY THE COMPANY . SUCH PLANT CANNOT INDEPENDENTLY PRODUCE ANYTHING. BUT IT CAN CONV ERT SPONGE IRON TO PIG IRON IF ASSOCIATED WITH OTHER PLANT AND MACHIN ERY. THE EXPENDITURE INCURRED BY THE COMPANY IN INSTALLING SAF WAS CAPITALIZED IN THE YEAR 1999 AND ACCORDINGLY DEPRECIATION WAS CLAIMED FOR THE AY 2000-01 AND ONWARDS. THE FACT THAT IS CLAIMING DEPRECI ATION ON THE SAF HAS BEEN STATED BY MENTIONING IN THE FINAL ACCOUNTS FROM THE ASSESSMENT YEAR 2000-01 AND ONWARDS. FOR THE ASSESSMENT YEA R UNDER CONSIDERATION I.E. 2001-02 THE PROFIT AMOUNTED TO R S.663.62 LAKHS. ACCORDING TO THE COMPUTATION THE TOTAL INCOME WORKED O UT TO RS.5 10 06 055 AND AFTER CLAIMING SET OFF OF THE EARLI ER YEAR LOSSES THE NET INCOME IS REDUCED TO RS.NIL. ACCORDINGLY THE RETUR N OF INCOME WAS FILED ON 30.10.2001 ADMITTING THE TOTAL INCOME AT RS. NIL. 11. HE DREW OUR ATTENTION TO THE PROVISIONS OF SEC.32( 1) OF THE IT ACT AND STATED THAT AS PER SUB CLAUSE (II) OF SUB SECTIO N 1 OF SEC.32 THE PRESCRIBED PERCENTAGE OF DEPRECIATION TO BE COMPUT ED ON THE WRITTEN DOWN VALUE OF BLOCK OF ASSETS. THE WRITTEN D OWN VALUE IS DEFINED BY SEC.43(6)(C ) OF THE IT ACT. HE SUBMITTED THA T EVEN WHEN A PART OF THE ASSET IS NOT PUT TO USE THE WRITTEN DOWN V ALUE BECOMES ALLOWABLE FOR DEPRECIATION. ONLY WHEN ENTIRE BLOCK O F ASSETS IS NOT PUT TO USE DEPRECIATION MAY NOT BE ALLOWABLE. THE CONCEPT OF BLOCK ASSETS INTRODUCED FOR THE PURPOSE OF ARRIVING AT DEPRECIATION PROVIDES FOR DEPRECIATION EVEN ON THOSE ASSETS WHICH ARE NOT USED DURIN G THE PREVIOUS YEAR. HE SUBMITTED THAT IN THE CASE OF BLOCK A SSETS THE UTILIZATION OF ASSETS IS NOT RELEVANT AS THE ASSESSEE BECOMES ENTITLED FOR DEPRECIATION IF THE BLOCK IS PUT TO USE WHETHER PARTLY OR TOTALLY. THIS CONCEPT WAS INTRODUCED W.E.F. 1.4.88 BY THE TAXATION LA WS AND ITA NOS.410 & 411/HYD/2007 M/S SPONGE IRON INDIA LTD. HYDERABAD 6 6 AMENDMENTS AND MISCELLANEOUS PROVISIONS ACT 1988. HE SUBM ITTED THAT WHEN THE ASSETS ARE FORMED INTO A BLOCK OF ASSETS CAN NOT AGAIN BE SEPARATED. THE INTENTION OF THE LEGISLATURE IS TO GRA NT DEPRECIATION ON THE WRITTEN DOWN VALUE OF ENTIRE PLANT AND MACHINERY WITHOUT CONSIDERING THE INDEPENDENTLY UNIT OF MACHINERY. IN SU CH CIRCUMSTANCES THE ASSESSING OFFICER CANNOT DIVIDE INDIVIDUAL PARTS OF THE MACHINERY FOR GRANTING THE DEPRECIATION AND HAS TO CON SIDER THE PLANT AND MACHINERY AS AN INTEGRAL ONE UNIT. HE SUBMITTED THAT THE EXPRESSION OF WORD USED MENTIONED IN SEC.32 IS APPLICAB LE TO BLOCK OF ASSETS AND NOT TO AN INDIVIDUAL ITEM OF ASSETS INCLUDED I N THE BLOCK OF ASSETS. THE ENTIRE PLANT AND MACHINERY IS KEPT READY FOR USE AND WAS NOT USED FOR BUSINESS CONSIDERATIONS SINCE THE PRODUCTION O F PIG IRON AND SILICON MANGANESE IS NOT ECONOMICAL THE ASSESSEE STOPPED THE PROCESS OF MANUFACTURING THE PIG IRON AND IT WAS SELLI NG THE SPONGE IRON DIRECTLY TO VARIOUS INDUSTRIES IN INDIA. THE ASSESSEE CAN PRODUCE AT ANY POINT OF TIME PIG IRON IF SITUATION WARRANTS. HE SUBM ITTED THAT THE SAF PLANT IS NOT AN INDEPENDENT MACHINERY AND IT IS INTEG RAL OF THE ENTIRE PLANT AND MACHINERY SYSTEM FOR PRODUCTION OF PIG IRON. IN VIEW OF THIS HE SUBMITTED WHEN THE ENTIRE FACTORY IS READY TO USE AN D A PART OF THE PLANT AND MACHINERY OF THAT FACTORY IS NOT USED THE ENTIRE PLANT AND MACHINERY BECOMES ENTITLED FOR DEPRECIATION. 12. HE RELIED ON THE FOLLOWING JUDGEMENTS: A) PACT WELL PRINTERS VS. ACIT REPORT IN 59 ITD 340 B) INDOCTOTHERM INDIA LTD. VS. DCIT REPORTED IN 69 ITD C) CIT VS. SWAROOP VEGETABLE PRODUCTS REPORTED IN 198 CT R 595 13. FURTHER HE SUBMITTED THAT WHEN THE ASSESSEE BONA F IDELY INSTALLED THE MACHINERY BUT IT BECOMES DEFECTIVE OR NON FUNCTIONAL IT CANNOT BE SAID THAT ASSESSEE IS NOT PUT TO USE THE MACHINER Y FOR THE ITA NOS.410 & 411/HYD/2007 M/S SPONGE IRON INDIA LTD. HYDERABAD 7 7 PURPOSE OF BUSINESS AND IT CANNOT POSSIBLE TO DISALLOW THE DEPRECIATION. FOR THIS PROPOSITION HE RELIED ON THE JUDGEMENT OF KA RNATAKA HIGH COURT IN THE CASE OF CIT VS. CHAMUNDESWARI SUGAR LIMITED (309 ITR 326) (KARN. HC) 14. FINALLY HE SUBMITTED THAT FOR THE YEARS 1994-9 5 1995-96 AND 1996-97 PIG IRON WAS PRODUCED BY USING THE SAME P LANT. FOR THIS PURPOSE HE DREW OUR ATTENTION TO THE SHOW CAUSE NOTICE ISSUED BY COMMERCIAL TAX DEPARTMENT FOR THESE ASSESSMENT YEARS. HE A LSO DREW OUR ATTENTION TO RGI REGISTER FOR DEMONSTRATING THE PRODUCTION OF FERROUS WASTE FROM MANUFACTURE OF PIG IRON WHICH IS PL ACED ON RECORD AT PAGE NO.5A.1 TO 5A.5 5B.1 TO 5B.4 AND 5C.1 TO 5C.4 OF ASSESSEE PAPER BOOK. HE ALSO DREW OUR ATTENTION TO THE DETAILS OF EL ECTRICITY BILLS FROM JANUARY 1994 TO MARCH 1996 AND SUBMITTED THAT CONSUMPT ION OF ELECTRICITY HAS GONE UP IN THE MONTH OF JUNE 1994 AND AUGUST 1994 TO DECEMBER 1994 FOR HEATING UP/TRIAL OPERATION OF SAF PLANT. IN DECEMBER 1995 AND JANUARY 1996 AGAIN CONSUMPTION OF P OWER HAS GONE UP. HE ALSO CONTENDED THAT EVEN CLOSED UNIT EN TITLED FOR DEPRECIATION OR DEPRECIATION EVEN ALLOWABLE IF ASSETS NO T USED AT ALL FOR ENTIRE YEAR. FOR THIS PURPOSE HE RELIED ON VARIOUS U NREPORTED ITAT ORDERS. 15. ON THE OTHER HAND THE DEPARTMENTAL REPRESENTAT IVE SUBMITTED THAT BEFORE THE ASSESSING OFFICER ASSESSEE HAS TAKEN ONLY ONE PLEA THAT THE SAF PLANT WAS KEPT READY FOR USE. NOW THE PLEA OF THE ASSESSEE IS THAT THE SAF PLANT WAS USED IN EARLIER YEARS AN D ONLY IN THIS ASSESSMENT YEARS UNDER CONSIDERATION IT WAS NOT USED DUE TO BUSINESS CONSIDERATIONS. HE DREW OUR ATTENTION TO THE PAGE NO .2 OF THE ASSESSMENT ORDER OF ASSESSMENT YEAR 2003-04. FURTHER HE DREW OUR ATTENTION TO THE AUDIT REPORT OF THESE ASSESSMENT YEARS . FURTHER HE ITA NOS.410 & 411/HYD/2007 M/S SPONGE IRON INDIA LTD. HYDERABAD 8 8 SUBMITTED THAT AS PER 28 TH ANNUAL REPORT OF THE ASSESSEE THE SAF PLANT HAS BEEN CAPITALIZED W.E.F. 1.4.1999. THE PLANT HAS NOT BEEN IN OPERATION SINCE CAPITALIZATION. HOWEVER DEPRECIATION H AS BEEN PROVIDED FOR. HE SUBMITTED THAT THE SAF PLANT WAS NOT AT ALL P UT TO USE SINCE CAPITALIZATION. THE ARGUMENT OF THE ASSESSEE COUNSEL IS CO NTRARY TO THE RECORDS AND WHATEVER THE EVIDENCE PRODUCED BY THE ASSESSEE IN SUPPORT OF THE USAGE OF THE SAF PLANT IS NEW EVIDENCE WHICH CANN OT BE CONSIDERED AT THIS STAGE. HE SUBMITTED THAT EVEN IF THE TRIAL RUN CARRIED ON BY THE ASSESSEE IT IS AN EMPTY FORMALITY SINCE THERE IS NO INTENTION OF USAGE OF THE PLANT AND MANAGEMENT HAS TAKEN A DECIS ION NOT TO GO FOR COMMERCIAL PRODUCTION . FURTHER HE SUBMITTED THAT KEPT IN THE STATE OF READINESS TO USE OF THE PLANT IS NO MEANING SINCE VA RIOUS PARTS OF THE MACHINERY WERE REMOVED AT VARIOUS TIME. HE DREW OUR A TTENTION TO THE OFFICE NOTE DATED 09.12.2005 PLACED AT PAGE NO.7.7 OF THE ASSESSEES PAPER BOOK WHICH READS AS FOLLOWS: NOTE: THE EXISTING GEAR REDUCER OF DRP I COOLING TO WER FAN NO.2 IS COMPLETELY DAMAGED AND IS BEYOND REPAIRABLE. PROCUREMENT FOR A NEW GEAR BOX IS UNDER PROGRESS AND AS A STOP GAP ARRANGEMENT THE SAM E MODEL 346-602 TO DO PCT MAKE AVAILABLE AT OUR SAF PLANT. YOUR HONOUR MAY KINDLY BE SPARED TO PUT BACK THE FAN INTO OPERATION. SUBMITTED FOR KIND INFORMATION AND APPROVAL. SD/- (DGM) DGM(O): SINCE PLANT IS NOT IN OPERATION MAY BE SP ARED FOR THE DAP-II COOLING TOWER ON RETURNABLE BASIS AS PROCUREMENT ACTION IS UNDER PROGRESS. SD/- (DGM) HE FURTHER SUBMITTED THAT THERE WAS NO INTENTION TO USE THE PLANT AND IT IS A SCRAP MATERIAL CANNOT ENTER INTO BLOCK OF ASSETS AND D EPRECIATION WAS RIGHTLY DENIED . WE HAVE HEARD BOTH THE PARTIES AND PERUSED MATERIAL O N RECORD. THE SAF PLANT WAS ACQUIRED FOR THE PURPOSE OF PRODUCING PIG IRON. AS PER ITA NOS.410 & 411/HYD/2007 M/S SPONGE IRON INDIA LTD. HYDERABAD 9 9 ASSESSEES OWN AUDIT REPORT AND DIRECTORS REPORT THOUGHT THE ASSET WAS CAPITALIZED W.E.F. 1.4.1999 THE SAID PLANT WAS N OT IN OPERATION SINCE CAPITALIZATION. THE DIRECTORS REPORT OF THE YE AR 2002-03 CONTAINS THE REMARK THAT THE SAF PLANT CONTINUED TO R EMAIN IDLE IN VIEW OF THE DEPRESSED CONDITIONS IN THE MARKET FOR SILICON MAN GANESE. THOUGH THE COMPANY HAS MADE EFFORT TO FIND OUT THE PO SSIBILITY OF ALTERNATIVE USE OF SAF THESE EFFORTS WAS NOT SUCCESSFUL. AS PER RECORD IT WAS NOT PUT TO USE EVEN AFTER 7-8 YEARS FROM THE DA TE OF TRIAL PRODUCTION I.E. FROM THE DATE OF TRIAL PRODUCTION. T HERE WAS A INSPECTOR REPORT TO THIS EFFECT . CONTRARY TO THIS THE ASSESSEE P RODUCED CERTAIN UNSUBSTANTIATED DOCUMENTS WHICH ARE NOT PRODUCED BEFORE THE LOWER AUTHORITIES. THE EVIDENCE PRODUCED BY THE ASSESSEE AT TH IS STAGE WITHOUT ANY PETITION FOR ADMISSION OF THIS EVIDENCE OR EXPLAINING THE REASON FOR NOT PRODUCING THE SAME BEFORE THE LOWER AUT HORITIES WE ARE NOT IN A POSITION TO CONSIDER THE SAME. THE ASSESSEE HAS NO T SHOWN ANY REASONABLE CAUSE FOR NOT PRODUCING THE SAME BEFORE THE L OWER AUTHORITIES. THERE IS NO IOTA OF EVIDENCE OR DISCUSSION R EGARDING THIS EVIDENCE IN THE ORDER OF THE LOWER AUTHORITIES. IN O UR OPINION THIS EVIDENCE CANNOT BE CONSIDERED AT THIS STAGE. 15.2. FURTHER THE SAF PLANT IS NOT AN INTEGRAL PA RT OF THE MAIN PLANT AND THE MAIN PLANT CAN FUNCTION WITHOUT INVOLVI NG SAF PLANT. THE ASSESSEE WAS NOT ABLE TO SHOW ANY EVIDENCE TO THE EFFECT T HAT THE SAID SAF PLANT WAS KEPT READY WITH INTENTION TO USE. ON T HE OTHER HAND VARIOUS PARTS OF THE SAID PLANT WAS REMOVED AT VARIOUS T IMES. THEN IT MEANS THAT THERE WAS NO INTENTION TO USE OF THIS PLANT. THIS WAS FORTIFIED BY THE SCHEDULE -18 NOTES GIVEN AT PARA 7 OF ANNUA L REPORT FOR THE YEAR 1995-96 WHEREIN IT WAS STATED THAT AFTER ASCERTAIN ING THE POSSIBILITY OF PRODUCING THE PIG IRON OUT OF THE SPONGE IRON BY TRIAL OPERATION THE ITA NOS.410 & 411/HYD/2007 M/S SPONGE IRON INDIA LTD. HYDERABAD 10 10 PLANT HAS NOT STARTED ANY COMMERCIAL PRODUCTION BECAUSE O F TWO REASONS: 1. NON AVAILABILITY OF ADEQUATE AND SUSTAINED POWER FROM THE STATE ELECTRICITY BOARD 2. NON VIABILITY FROM ECONOMIC ANGLE ON ACCOUNT OF FREE AVAILABILITY OF HIGH GRADE PIG IRON BOTH FROM DOMESTIC MANUFACTURERS AS WELL AS BY WAY OF IMPORTS. SO AFTER TRIAL PRODUCTION THE VERY IDEA OF PRODUCING PIG IRON OUT OF SPONGE IRON WAS ABANDONED COMPLETELY WITHOUT TH ERE BEING ANY FUTURE PROSPECTS IN THIS RESPECT. THERE IS NO INTENTION O F PROSPECTIVE PRODUCTION OF PIG IRON IN FUTURE. BEING SO THERE I S NO MERIT IN THE ARGUMENT OF THE ASSESSEE COUNSEL THAT THE SAF PLANT WAS KE PT READY FOR USE. REGARDING VARIOUS CASE LAWS RELIED BY THE ASSESSEE COU NSEL WE ARE OF THE OPINION THAT THESE CASE LAWS NOT APPLICABLE T O THE FACTS OF THE PRESENT CASE. IN THE PRESENT CASE THE SAF PLANT NOT AT ALL USED AT ANY TIME AND THERE WAS NO INTENTION TO USE THE PLANT. IN STEAD VARIOUS PARTS OF THE PLANT WERE REMOVED AND USED FOR SOME OTHER PUR POSE. IN THESE CIRCUMSTANCES WE CANNOT APPLY THE RATIO LAID DOWN BY VAR IOUS CASE LAW CITED BY THE ASSESSEE COUNSEL. IN OUR OPINION EVEN AFTER INTRODUCTION OF CONCEPT OF BLOCK ASSETS THE IDENTITY OF THE INDIVIDUAL ASSETS WERE NOT LOST AND THE ASSESSING OFFICER CAN RESTRICT THE DEPRECIATION HAVING REGARD TO THE USAGE OF THE SAF PLANT. IN THE PRESENT CASE SI NCE CAPITALIZATION THIS SAF PLANT IT WAS NOT IN OPERATION AS SUCH IT CANNO T ENTER INTO BLOCK ASSET AND THE CONDITION LAID DOWN IN SEC.32 (1) NOT FUL FILLED AND THE ASSESSEE IS NOT ENTITLED FOR DEPRECIATION ON THIS PLANT. THIS GROUND OF THE ASSESSEE IS DISMISSED. 16. THE NEXT COMMON GROUND NOS. 8 & 9 ARE RELATING TO DISALLOWANCE OF OUTSTANDING EXPENSES AND ARREARS OF SALAR Y. ITA NOS.410 & 411/HYD/2007 M/S SPONGE IRON INDIA LTD. HYDERABAD 11 11 17. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE COMPAN Y HAS CLAIMED EXPENDITURE TOWARDS PROVISION FOR REVISION OF W AGES OF RS.1 89 31 000/- THE ASSESSING OFFICER HELD THAT SINCE TH E PROVISION IS NOT AN ACTUAL EXPENDITURE AND IN THE ABSENCE OF PROO F WHETHER IT IS ACTUALLY PAID IN THE SUBSEQUENT YEAR THE EXPENDITURE IS NOT ALLOWABLE AND THEREFORE THE SAME IS ADDED BACK TO THE RETURN OF INCOME OF THE ASSESSEE. SIMILARLY PROVISIONS OF MISCELLANEOUS EXPENSES A T RS.7 83 000/- WAS DISALLOWED WHILE COMPUTING THE INCOME AS PER THE PROVISIONS OF SEC.115JB OF THE IT ACT. 18. WE HAVE HEARD BOTH THE PARTIES AND PERUSED MATE RIAL ON RECORD. THE LEARNED COUNSEL RELIED ON THE ORDER OF TH E TRIBUNAL DATED 11.7.2005 IN ITA NO.12/HYD/2002 & OTHERS FOR THE ASSESSM ENT YEAR 1998-99 AND OTHERS IN THE CASE OF NMDC LTD. VS. DCIT F OR THE PROPOSITION THAT PROVISIONS MADE TOWARDS ADDITIONAL LIA BILITY ON ACCOUNT OF ENHANCED WAGE AND SALARY ARE ALLOWABLE IN THE YEAR OF MAKING SUCH PROVISION. AFTER CAREFULLY EXAMINING THE FACTS OF THE CASE WE ARE OF THE OPINION THAT THESE EXPENSES ARE DISALLOWED ON NON PROD UCTION OF EVIDENCE BY THE ASSESSEE FOR INCURRING THESE EXPENSES. IN THE INTEREST OF JUSTICE WE SET ASIDE THIS ISSUE TO THE FILE OF ASSESSING OFFICER FOR FRESH CONSIDERATION WITH A DIRECTION TO THE ASSESSEE TO PRODUCE NECESSARY EVIDENCE IN SUPPORT OF ITS CLAIM. THE ASSESSING OFFICER REQ UIRED TO REEXAMINE THE ISSUE IN ACCORDANCE WITH LAW. 19. THE LAST COMMON GROUND IN BOTH THE APPEALS ARE R ELATING TO INCORRECT CALCULATION OF MAT. 20. BRIEF FACTS OF THE CASE ARE THAT WHILE COMPUTIN G THE INCOME U/S 115JB THE ASSESSING OFFICER INTER ALIA ADDED THE VA RIOUS PROVISIONS TO THE BOOK PROFIT. BEFORE THE CIT(A) THE ASSESSEE NO T ABLE TO LEAD ANY ITA NOS.410 & 411/HYD/2007 M/S SPONGE IRON INDIA LTD. HYDERABAD 12 12 EVIDENCE IN SUPPORT OF ITS CLAIM. AFTER HEARING BOTH T HE PARTIES WE SET ASIDE THIS ISSUE TO THE FILE OF ASSESSING OFFICER FOR FRESH CONSIDERATION TO ALLOW ASCERTAINED LIABILITY ON PRODUCTION OF REQUISITE EVIDENCE BY THE ASSESSEE FOR CRYSTALLIZATION OF THIS EXPENDITURE IN THE ASSE SSMENT YEAR UNDER CONSIDERATION. 21. IN THE RESULT APPEALS OF THE ASSESSEES ARE PARTL Y ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT 21 :5.2010 SD/- SD/- G.C. GUPTA CHANDRA POOJARI VICE PRESIDENT ACCOUNTANT MEMBER DATED THE 21ST MAY 2010 COPY FORWARDED TO: 1. M/S LAKSHMI NIWAS & JAIN CA 5-4-726 STATION ROA D NAMPALLY HYDERABAD-1 C/O M/S SPONGE IRON INDIA LTD. 10-3-311/A COSTLA HI LLS. KHANJ BHAWAN 6 TH FLOOR MASAB TANK-HYDERABAD-28. 2. DCIT CIRCLE 3 (2) HYDERABAD 3. CIT(A)-IV HYDERABAD. 4. CIT HYDERABAD 5. THE D.R. ITAT HYDERABAD. NP