2016 (3) TMI 1129 - AT - Income Tax

Disallowance of depreciation on the cost of foundation/ installation of the windmill - Held that - We find that the controversy in the present case is squarely covered by the recent decision of the Pune Bench of the Tribunal in the case of Shreem Electric Limited vs. JCIT 2015 (11) TMI 1607 - ITAT PUNE that the expenses incurred on erection & commissioning, civil work, etc. being necessary adjunct to the windmill and is not meant for any other purposes other than for operational functioning of wind turbine and therefore cannot be treated differently. Therefore, impugned capital expenditure towards civil work & commissioning etc. also will qualify for the same rate of depreciation as applicable to wind turbine itself. The issue is no longer res-integra and is covered by the decision of Co-ordinate Bench of the Tribunal in the case of Poonawala Finvest & Agro (P.) Ltd. vs. ACIT, (2008 (6) TMI 586 - ITAT PUNE ) wherein it has been clearly held that the capital expenditure incidental to the windmill has to be tested on the touchstone of the functional test and the assessee will be entitled to higher rate of depreciation on such incidental expenditure, if it has no other use except for power generation done by the windmill. - Decided in favour of assessee Disallowance on account of element of personal user towards vehicle repairs and maintenance, telephone expenses and travelling expenses, etc. on estimated basis - Held that - It is the case of the assessee that in the case of a company element of personal user out of expenses cannot be inferred. We find merit in the plea of the assessee. The company being juristic person, it is difficult to accept the basis for disallowance of the Revenue. A company is incapable of having any personal user of the facilities. The directors are separate from the company. Even assuming that facilities were occasionally used for personal purposes, it is a business expenditure in so far as company is concerned. Such usage of facilities at any rate can be possibly taxed in the hands of the user as perquisite alone. Therefore, no estimated disallowance on account of personal user is called for.- Decided in favour of assessee

Summary

Issues:
1. Disallowance of depreciation on windmill foundation and installation.
2. Disallowance of expenses on alleged personal use.

Issue 1: Disallowance of Depreciation on Windmill Foundation and Installation:

The appeal concerns the disallowance of depreciation amounting to ?10,12,043 on the cost of foundation and installation of a wind turbine. The assessee claimed accelerated depreciation at 80% for the entire windmill project, while the Assessing Officer contended that normal rates of 10% for civil work and 15% for installation were applicable. The CIT(A) upheld the disallowance, leading the matter to the Tribunal. The Tribunal referred to a recent decision where it was held that expenses on civil work and commissioning, integral to windmills' operational functioning, are eligible for the same depreciation rate as windmills. The Tribunal ruled in favor of the assessee, allowing the claimed depreciation. The decision was supported by precedents emphasizing the functional test for incidental expenditures related to power generation. Consequently, Ground Nos. 1 & 2 were allowed.

Issue 2: Disallowance of Expenses on Alleged Personal Use:

The second issue pertains to the disallowance of ?1,03,815 for personal use elements in vehicle repairs, maintenance, telephone, and travel expenses. The assessee argued that as a company, personal use could not be inferred from expenses. The Tribunal agreed, noting that a company, as a juristic person, cannot have personal use, and any personal usage by directors should be taxed as a perquisite. Therefore, estimating disallowance for personal use was deemed unnecessary. Consequently, Ground No. 3 was also allowed.

In conclusion, the Tribunal ruled in favor of the assessee, allowing the claimed depreciation on windmill foundation and installation while rejecting the disallowance of expenses on alleged personal use. The decision was based on the functional test for incidental expenditures related to power generation and the distinction between company and individual usage.