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Issues involved: Disallowance of depreciation at 80% and granting depreciation only at 7.69% on wind mill due to failure to exercise option in time as per rule 5(1A) of the Income-tax Rules.
Summary: The appeal was against the order of the Commissioner of Income-tax (Appeals) for the assessment year 2006-07, regarding the disallowance of depreciation on a wind mill. The Assessing Officer had restricted the depreciation to 7.69% as the assessee did not file the return in time for the previous year. The Commissioner upheld this decision based on section 32(1)(i) read with rule 5(1A) of the Income-tax Rules. The Tribunal noted that as per section 32(1)(i), depreciation on assets of a power generation undertaking is based on the actual cost. Explanation 5 clarified that this provision applies regardless of the assessee's claim for depreciation. The rule required the assessee to exercise an option for the higher depreciation rate as per Appendix I. The Tribunal emphasized that this option was to facilitate the Assessing Officer, ensuring depreciation is allowed as per the assessee's choice. The Tribunal found that the assessee was entitled to the higher depreciation rate but was denied due to a technical defect by the Assessing Officer. It was established that the assessee had indeed exercised the option, albeit belatedly, for the previous year. Once the option is exercised, it applies to subsequent years as per the rule. Therefore, the Tribunal held that the assessee met the requirements of the rule for the current year and was entitled to depreciation at the higher rate. In conclusion, the Tribunal allowed the appeal, setting aside the lower authorities' decision on the depreciation issue.
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