2012 (8) TMI 959 - AT - Income Tax

Determining the annual letting value (ALV) of the assessee s flat in the Walkeshwar Mumbai - entitled for the additional depreciation u/s. 32(1)(ia) on the wind mills.

Summary

Issues Involved:
1. Determination of Annual Letting Value (ALV) of the flat.
2. Entitlement to additional depreciation on windmills under Section 32(1)(iia) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Determination of Annual Letting Value (ALV) of the Flat:

The revenue appealed against the order of the CIT(A) regarding the determination of ALV of the assessee's flat in Walkeshwar, Mumbai. The flat, measuring 1169 sq. ft., was let out to the assessee's associate concern, M/s. Avinash Construction, with a claimed actual rent of Rs. 1,15,000. The assessee declared net rental income after deductions. However, the AO determined the annual value of the property under Section 23(1)(a) of the Income Tax Act, using a website to estimate the market rent at Rs. 2,50,000 per month, resulting in an ALV of Rs. 30,00,000.

The assessee contested this determination, and the CIT(A) referenced a previous ITAT decision in the assessee's favor for A.Y. 2005-06. The Tribunal reaffirmed this stance, noting that the property was let to a sister concern and thus fell under Section 23(1)(b). The AO did not establish that the case was exempt under the Maharashtra Rent Control Act, 1999. The Tribunal emphasized that the standard rent or municipal ratable value should be considered unless the actual rent exceeded these values. As the facts were identical to the previous year, the Tribunal upheld the CIT(A)'s order, dismissing the revenue's grounds 3 to 6.

2. Entitlement to Additional Depreciation on Windmills:

The second issue concerned whether the CIT(A) was justified in allowing additional depreciation under Section 32(1)(iia) for windmills. The assessee installed 8 windmills costing Rs. 30,96,00,000 in the previous year relevant to A.Y. 2005-06 and claimed additional depreciation. The AO disallowed this, arguing that power generation was not equivalent to the production of an article or thing as per the Income Tax Act.

The CIT(A) disagreed, citing the Supreme Court's decision in CST vs. M.P. Electricity Board, which recognized electricity as "goods." The CIT(A) concluded that electricity generation through windmills constituted production, thus qualifying for additional depreciation.

The revenue appealed, but the Tribunal referenced the ITAT Delhi's decision in NTPC Ltd vs. Dy CIT, which supported the view that electricity is an article or thing eligible for additional depreciation. The Tribunal noted that the generation of electricity involves a production process, aligning with the definition of manufacturing or production. Consequently, the Tribunal upheld the CIT(A)'s order, dismissing the revenue's grounds 7 to 9.

Conclusion:

The Tribunal dismissed the revenue's appeal, affirming the CIT(A)'s decisions on both the determination of ALV and the entitlement to additional depreciation on windmills. The order was pronounced on 27th August 2012.