2014 (1) TMI 1850 - AT - Income Tax

Higher rate of depreciation of 80% on part cost incurred in order to bring windmill into existence and working condition - llowability of MEDA charges, civil work, application charges, professional fees, and bank charges as revenue in nature allowable u/s.37 - Held that - We find that the assessee in A.Y. 2007-08, the assessee has claimed the depreciation @ 80% on foundation on windmill is concerned, the same was found in the line of judgment in the case of Cooper Foundary Pvt. Ltd. 2011 (6) TMI 837 - BOMBAY HIGH COURT therefore, it was held allowable with regard to MEDA charges, civil work, application charges, professional fees, and bank charges to the extent of such expenditure referred to the item of windmill eligible to 80% of depreciation and the same should be allowed in order to allocate ocean of such expenditure of 80% on eligible assets and others. The Assessing Officer was directed to consider the submissions of the assessee and thereafter allocate the cost and re-compute the depreciation accordingly. So far as other additional ground relating to allowability of MEDA charges, civil work, application charges, professional fees, and bank charges as revenue in nature allowable u/s.37 of I.T. Act, is concerned, the same was held to be disallowed to be admitted following the ratio of Hon ble Supreme Court in the case of NTPC 1996 (12) TMI 7 - SUPREME COURT . On this aspect also, the matter was remitted to the file of the Assessing Officer who has directed to consider the said additional ground raised by the assessee on its merits after providing the reasonable opportunity of hearing to the assessee. Thus, this alternative ground was allowed for statistical purposes. - Appeal filed by the assessee is allowed for statistical purposes

Summary

Issues:
1. Disallowance of higher rate of depreciation on windmill.
2. Eligibility for additional depreciation under section 32(1)(iia) of the Act.
3. Allowability of certain charges as revenue expenditure under section 37 of the Act.

Issue 1: Disallowance of higher rate of depreciation on windmill:
The appellant contested the disallowance of eligible higher rate of depreciation of 80% on part cost incurred for the windmill, arguing that the windmill should be considered a single block entitled to uniform depreciation. The Assessing Officer allowed accelerated depreciation on specified items only, leading to a partial allowance by the CIT(A). The ITAT, referencing the judgment of the Hon'ble Bombay High Court, allowed depreciation at 80% on the windmill foundation and directed the AO to allocate costs accordingly for other eligible assets. The appellant succeeded on this ground.

Issue 2: Eligibility for additional depreciation under section 32(1)(iia) of the Act:
The appellant claimed additional depreciation of 20% on the windmill cost as per section 32(1)(iia) of the Act, citing the judgment of the Hon'ble Madras High Court. This claim was not raised before lower authorities but was allowed by the ITAT for adjudication as it involved a pure point of law without requiring fresh investigation of facts. The matter was remitted to the AO for consideration and granting of additional depreciation, with a reasonable opportunity for the appellant to be heard. The appellant succeeded on this ground for statistical purposes.

Issue 3: Allowability of certain charges as revenue expenditure under section 37 of the Act:
The appellant contended that certain charges amounting to a specific sum should be allowed as revenue expenditure under section 37 of the Act if not capitalized with the windmill cost. The ITAT admitted this ground for consideration, following the precedent set by the Hon'ble Supreme Court, and remitted the matter to the AO for a decision after providing the appellant with a fair hearing. The appellant succeeded on this ground for statistical purposes.

In conclusion, the ITAT ruled in favor of the appellant on all issues, allowing the appeal for statistical purposes. The judgment highlighted the importance of following legal precedents and providing opportunities for parties to be heard in matters concerning depreciation rates and the treatment of specific expenditures under the Income Tax Act.