2014 (4) TMI 616 - AT - Income Tax

Addition towards excess claim of depreciation on electrical equipments Held that - The emphasis for granting higher rate of depreciation as far as wind electric generators are concerned the necessity is to examine the functional test of the equipment - A categorical evidence has to be placed that the equipment is whether an integral part of wind mill power project - Such an evidence or finding is absent in the present case - nothing is on record to establish that on the touchstone of functional test the wind electric generators are so designed that they can only be used for power generation as done by the wind mill and meant for no other use. There is nothing on record such as a report from a qualified person to establish that the wind electric generators are designed in such a manner to facilitate the power generation and distribution from windmill - a machinery does not require protection so installed in a wind mill power project but such a generator cannot be said to be a part and parcel of the project - the Appendix and the depreciation schedule has categorically worded that windmills and any specially designed devices which run on wind mills are qualified for 100 per cent rate of depreciation - the generators are not specially designed devices and are not entitled for higher depreciation as claimed by the assessee thus the order of the CIT(A) set aside - Decided in favour of Revenue. Allowability of deduction u/s 80IA of the Act Explanation 5 to section 32(1)(iii) of the Act not considered Rule 18BBB not considered Held that - The decision in Asst. Commissioner of Income-tax Central Circle-5 Hyderabad & Others Versus M/s lanco Infratech Ltd. 2012 (10) TMI 529 - ITAT HYDERABAD followed - CIT(A) rightly held that the assessee is eligible for higher rate of depreciation for the AYs 2002-03 and 2003-04 on wind mill project and accordingly no depreciation remains to be claimed from the AY 2004-05 - the profits from wind power projects as calculated by the assessee company for the purpose of deduction u/s 80IA of the Act are correct. The assessee had computed profits of the undertaking and has also filed certificate of the auditor in respect of the eligible undertaking - there was no infirmity in the order of the CIT(A) in holding that no depreciations remains to be claimed from the AY 2004-05 and the profits from wind power projects as calculated by the assessee company for the purpose of deduction u/s 80IA of the Act are correct - the order of the CIT(A) is upheld Decided against Revenue.

Summary

Issues Involved:
1. Depreciation rate on wind electric generators.
2. Deduction under section 80IA of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Depreciation Rate on Wind Electric Generators:

The Revenue challenged the CIT(A)'s decision to allow 100% depreciation on wind electric generators, arguing that they should be classified under "electrical equipments" eligible for only 25% depreciation. The Assessing Officer had added back the excess depreciation claimed by the assessee for the assessment years 2002-03 and 2003-04.

The CIT(A) had allowed 100% depreciation, reasoning that wind electric generators are integral to wind power projects, which qualify for higher depreciation rates to encourage renewable energy projects. The CIT(A) relied on precedents from the Rajasthan High Court and ITAT Mumbai.

However, the Tribunal reversed the CIT(A)'s decision, emphasizing the need for a functional test to determine if the equipment is an integral part of the windmill power project. The Tribunal found no evidence that the wind electric generators were designed exclusively for wind power generation. The Tribunal also noted that the depreciation schedule in the IT Rules categorically distinguishes between different types of assets and their depreciation rates. The Tribunal concluded that wind electric generators do not qualify for the higher depreciation rate as they are not "specially designed devices" for windmills. Thus, the Tribunal restored the Assessing Officer's order, allowing only 25% depreciation.

2. Deduction Under Section 80IA of the Income Tax Act:

The Revenue also contested the CIT(A)'s decision to allow deductions under section 80IA for the assessment years 2004-05 to 2007-08. The Assessing Officer had disallowed these deductions, arguing that the assessee did not reduce profits by the depreciation on the windmill and failed to maintain separate accounts as required under Rule 18BBB of the IT Rules.

The CIT(A) held that since the assessee had already claimed full depreciation on the windmill in the assessment years 2002-03 and 2003-04, no depreciation remained to be claimed from 2004-05 onwards. Therefore, the profits calculated for section 80IA deductions were correct. The CIT(A) also noted that the Assessing Officer could not reassess the claim under section 80IA regarding the maintenance of books of account, as this was beyond the scope of the order under section 263.

The Tribunal upheld the CIT(A)'s decision, agreeing that no depreciation remained to be claimed from 2004-05 onwards. The Tribunal also referenced a coordinate bench's decision in the assessee's case for AY 2004-05, which had set aside the issue for reconsideration based on the assessee's working. The Tribunal found no infirmity in the CIT(A)'s order and dismissed the Revenue's appeals on this issue.

Conclusion:

The Tribunal allowed the Revenue's appeals concerning the depreciation rate on wind electric generators, restoring the Assessing Officer's decision to allow only 25% depreciation. However, the Tribunal dismissed the Revenue's appeals regarding the section 80IA deductions, upholding the CIT(A)'s decision that no depreciation remained to be claimed from 2004-05 onwards and that the profits calculated for the deductions were correct.