2015 (11) TMI 922 - AT - Income Tax

Depreciation on the Wind mill on pro-rata basis - Held that - In sum and substance the Tribunal in A.Ys. 2007-08 and 2008-09 upheld the action of the Assessing Officer to restrict the depreciation @ 10% on some items but allowed the depreciation @ 80% on the cost of foundation as well as cost incurred on erection and commissioning of the Wind Mill. The Tribunal also held that cost incurred on installation of Wind Mill is an integral part of the Wind Mill and the assessee should be allowed depreciation @ 80% on the cost of foundation as well as on erection and commissioning. As the issue is consequential in this year vis- -vis the allocation made by the Ld. CIT(A), we find no reason to take different view. Accordingly, confirm the order of the Ld. CIT(A) to the extent of allocation of the expenditure and rate of depreciation on foundation, erection and commissioning expenditure. - Decided against revenue computing the deduction u/s 80IA - Held that - The term business used in sub- sec.(5) section 80IA in our humble opinion is confined to the independent undertaking and cannot get merged with the other businesses. In Sec. 80IA(2), for claiming deduction undertaking or Enterprise as such is to be considered. Sec.80IA(2) is charging sections for determining basic eligibility and there is no mention of word business . Sub-sec.(5) of Sec.80IA speaks of business but same is to be construed as business of undertaking or Enterprise as referred to in Sub-sec.(2) of Sec.80IA. It is well settled principle of interpretation of statutory provision that they are to be interpreted harmoniously to make workable to give intended results. Hence, as rightly held by Ld. CIT(A) term business used in sec.80IA(5) is to be construed and understood to mean business or undertaking or enterprise . In our opinion, the Ld. CIT(A) in his well reasoned order has rightly held that every unit constitute a separate undertaking engaged in the eligible business and losses from one unit cannot be set off against the profits. Another unit engaged in the same business for the purpose of computing the deduction u/s 80IA. We find no reason to interfere with the findings of the Ld. CIT(A) on this issue. Accordingly, the same are confirmed and grounds taken by the revenue are dismissed. - Decided against revenue

Issues Involved:
1. Depreciation on Windmill components.
2. Applicability of ITAT Pune Bench decision in Punawala Finest and Agro Pvt. Ltd. v/s ACIT.
3. Deduction under section 80IA(5) of the I.T. Act.
4. Interpretation of section 80IA(2) regarding separate profit centers.
5. Computation of allowable deduction under section 80IA(1) based on individual units.

Detailed Analysis:

1. Depreciation on Windmill Components:
The primary issue was whether the depreciation on the Windmill should be allowed on a pro-rata basis. The Assessing Officer had previously allowed depreciation at different rates: 10% for foundation work and road development, 15% for erection and commissioning, and 80% for the Windmill itself. The CIT(A) followed the decision in M/s. Chaphalkar Brothers, directing the AO to re-compute the depreciation accordingly. The Tribunal upheld the CIT(A)'s decision, confirming that the cost incurred on the foundation and erection and commissioning of the Windmill should be depreciated at 80%, while civil work costs should be depreciated at 10%.

2. Applicability of ITAT Pune Bench Decision in Punawala Finest and Agro Pvt. Ltd. v/s ACIT:
The Revenue contended that the CIT(A) erred by not appreciating the ratio laid down in the Punawala case. However, the Tribunal found that the CIT(A) had correctly applied the principles from the case of M/s. Western Precicast Pvt. Ltd., which were consistent with the Punawala decision. The Tribunal affirmed that the cost of components and accessories integral to the Windmill should be depreciated at 80%.

3. Deduction under Section 80IA(5) of the I.T. Act:
The issue was whether the CIT(A) erred in allowing the deduction under section 80IA(5) without setting off losses from other units. The CIT(A) held that each unit constitutes a separate undertaking, and losses from one unit cannot be set off against the profits of another for the purpose of claiming deduction under section 80IA. The Tribunal upheld this view, stating that the term "business" in section 80IA(5) refers to individual undertakings, not the overall business of the assessee.

4. Interpretation of Section 80IA(2) Regarding Separate Profit Centers:
The Revenue argued that the CIT(A) misinterpreted section 80IA(2) by treating each unit as a separate profit center. The Tribunal agreed with the CIT(A), emphasizing that section 80IA(2) allows the assessee to choose any consecutive period of 10 years within the first 15 years of operation, and this provision supports treating each unit as a separate profit center for computing allowable deductions.

5. Computation of Allowable Deduction Under Section 80IA(1) Based on Individual Units:
The Tribunal confirmed that the computation of allowable deduction under section 80IA(1) should be based on the profits of individual units engaged in the eligible business, not the aggregate profits of the entire business. This interpretation aligns with the legislative intent and ensures that each unit's financial performance is independently assessed for deduction purposes.

Conclusion:
The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decision on all grounds. The depreciation on Windmill components was to be calculated at 80% for foundation and erection costs, while civil work costs were to be depreciated at 10%. The deduction under section 80IA(5) was to be computed based on the profits of individual units, without setting off losses from other units. The interpretation of section 80IA(2) as treating each unit as a separate profit center was upheld, ensuring accurate computation of allowable deductions.

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