2011 (6) TMI 325 - AT - Income Tax

Dis-allowance of depreciation on windmills windmills installed & put to use on 31.03.05 generation of electricity started in April 2005 assessee admitted during survey that claim of depreciation was technical mistake - dis-allowance of bad debts Held that - Installation, commissioning and test run of the WEGs are sufficient to hold that the WEGs were used for the purpose of business during the previous year so as to enable the assessee to claim depreciation and additional depreciation on it. Further, the claim for depreciation has to be allowed if the conditions prescribed in law are satisfied and admission by the Assessee cannot be the basis to sustain the dis-allowance of depreciation. Decided in favor of assessee. In respect of bad debts it is held that loss on account of non payment of ICD was a capital loss and cannot be allowed under section 36(1)(vii) of the Act. Moreover, assessee has not established that the loss in question had occurred in the course of its business, the claim for deduction under section 28 cannot be allowed. Decided against the assessee.

Issues Involved:
1. Disallowance of depreciation on windmills.
2. Disallowance of bad debts.

Issue-wise Detailed Analysis:

1. Disallowance of Depreciation on Windmills:

The primary issue was whether the assessee was entitled to claim depreciation on windmills amounting to Rs. 4,66,68,750/- for the assessment year 2005-06. The assessee claimed that the windmills were installed and commissioned on 31/3/2005 and thus eligible for depreciation. The Assessing Officer (AO) disallowed the claim based on a statement made during survey proceedings under section 133A, where it was admitted that electricity generation started only from 30/4/2005. The CIT(A) upheld the AO's decision, reasoning that actual use of the windmills for generating electricity began only from 30/4/2005, and thus, the windmills were not used for business purposes within the relevant financial year.

The Tribunal reviewed the documentary evidence provided by the assessee, including orders for supply and commissioning of the windmills, agreements with Tamil Nadu Electricity Board (TNEB), and certificates from TNEB confirming installation and commissioning on 31/3/2005. The Tribunal noted that the basic conditions for claiming depreciation-ownership and use of the asset in the business-were satisfied. The Tribunal referenced judicial precedents, such as Omkar Textile Mills Pvt. Ltd. vs. ITO and ACIT vs. Ashima Syntex Ltd., which supported the view that commissioning and test runs are sufficient to claim depreciation. The Tribunal concluded that the windmills were indeed used for business purposes as of 31/3/2005 and directed the AO to allow the depreciation claim, rejecting the reliance on the survey statement as it was made under a misapprehension.

2. Disallowance of Bad Debts:

The second issue was the disallowance of bad debts amounting to Rs. 1,50,000/-. The assessee claimed this amount as a bad debt under section 36(1)(vii) of the Income Tax Act, asserting it was a trading loss. The AO and CIT(A) disallowed the claim, categorizing it as a capital loss since it was related to an inter-corporate deposit (ICD) given to a sister concern, M/s. ICA Mekkat Pvt. Ltd.

The Tribunal examined the assessee's contention that the amount was a trade advance given to a marketing representative. However, the assessee failed to provide sufficient evidence to substantiate this claim. The Tribunal upheld the CIT(A)'s decision, confirming that the loss was capital in nature and not incurred in the usual course of business. Consequently, the claim for deduction under section 28 was disallowed.

Conclusion:

The appeal was partly allowed. The Tribunal directed the AO to allow the depreciation claim on the windmills, while the disallowance of bad debts was upheld due to lack of evidence supporting the assessee's claim. The judgment emphasized the importance of documentary evidence and adherence to legal precedents in tax assessments.

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