2014 (12) TMI 877 - AT - Income Tax

Claim of higher depreciation on windmill Expenses made on windmill Held that - Following the decision in CIT vs. Parry Engineering and Electronics P. Ltd. 2014 (12) TMI 752 - GUJARAT HIGH COURT windmill would require a scientifically designed machinery in order to harness the wind energy to the maximum potential - Such device has to be fitted and mounted on a civil construction, equipped with electric fittings in order to transmit the electricity so generated - Such civil structure and electric fittings, therefore, it can be well imagined, would be highly specialized - the installation of windmill and the civil structure and the electric fittings are so closely interconnected and linked as to form the common plant - the legislature has provided for higher rate of depreciation of 80 per cent on renewable energy devises including windmill and any specially designed devise, which runs on windmill - The civil structure and the electric fitting, equipments are part and parcel of the windmill and cannot be separated from the same - The assessee s claim for higher depreciation on such investment was rightly allowed Decided against revenue. Contribution to Group Gratuity Scheme disallowed Held that - Assessee has filed a Certificate of Commissioner of Income-tax, Ahmedabad-III, Ahmedabad dated 04.10.2011 and submitted that the gratuity fund is now approved by the Commissioner of Income-tax and that the expenditure claimed was allowable deduction to the assessee - this certificate was not available with the assessee during the course of assessment proceedings before the AO and during the course of appellate proceedings before the CIT(A) thus, the order of the CIT(A) is set aside and the matter is remitted back to the AO for fresh adjudication Decided in favour of assessee.

Summary

Issues:
1. Disallowance of depreciation on windmill.
2. Treatment of expenses made on windmill.
3. Disallowance of insurance and general insurance expenditure.
4. Disallowance of contribution to Group Gratuity Scheme.
5. Capitalization of finance charges.
6. Capitalization of insurance charges.
7. Disallowance of transportation charges.

Issue 1: Disallowance of Depreciation on Windmill
The appeal involved the Revenue and the assessee against the order of the Commissioner of Income Tax (Appeals). The Assessing Officer disallowed depreciation on civil work for a wind farm project, leading to an addition of a specific amount to the assessee's income. The CIT(A) reversed this decision, considering the civil work as an integral part of the windmill's cost. The Tribunal dismissed the Revenue's appeal, citing a decision by the Hon'ble Gujarat High Court in a similar case, emphasizing the interconnectedness of the civil structure and the windmill for higher depreciation allowance.

Issue 2: Treatment of Expenses Made on Windmill
Another ground of appeal related to expenses incurred on the windmill, specifically bank and loan processing charges. The Assessing Officer disallowed these expenses as capital expenditure, but the CIT(A) directed to allow depreciation at a higher rate. Following the same Gujarat High Court decision, the Tribunal dismissed the Revenue's appeal, upholding the allowance of higher depreciation on these expenses related to the windmill.

Issue 3: Disallowance of Insurance and General Insurance Expenditure
The third issue involved the disallowance of insurance expenditure claimed by the assessee on the windmill. The Assessing Officer treated it as capital expenditure, allowing only normal machinery depreciation. The CIT(A) allowed higher depreciation, and the Tribunal upheld this decision based on the Gujarat High Court's ruling, emphasizing the specialized nature of the civil structure and electric fittings required for windmill operation.

Issue 4: Disallowance of Contribution to Group Gratuity Scheme
In a cross-objection, the assessee challenged the disallowance of contribution to a Group Gratuity Scheme. The Assessing Officer disallowed it due to non-approval of the gratuity fund. The Tribunal remanded the matter back to the Assessing Officer for reconsideration with the approval certificate, allowing the assessee an opportunity to verify and support the deduction claim.

Issues 5, 6, and 7: Capitalization and Disallowance
The cross-objection also raised concerns about the capitalization of finance charges, insurance charges, and disallowance of transportation charges. The Tribunal noted that the assessee did not press these grounds during the hearing, leading to their dismissal for want of prosecution.

In conclusion, the Tribunal dismissed the Revenue's appeal while partially allowing the cross-objection filed by the assessee for statistical purposes, remanding one issue back to the Assessing Officer for further consideration.