2018 (5) TMI 430 - AT - Income Tax

Depreciation of claim - asset put to use - Held that - There is also a certificate issued by the engineers in respect of power generated between 27/03/2008 and 31/03/2008 which is a proof of the asset having been put to use during the year under consideration. The lower authorities have not brought any material on record which could be used as a basis for rejecting the assessee s claim that the asset was put to use during the year under consideration. It is settled law that even if an asset is put to use for a single day, the same is eligible for depreciation. Therefore, we find that the lower authorities have misdirected themselves in disallowing the assessee s claim of depreciation on the ground that the assessee was allegedly not the owner of the asset during the year under consideration and that the asset had not been put to use during the year under consideration. We reject the findings of both the lower authorities on this issue. Valuation of the wind turbines on the ground that the written down value in the books of the seller was much-much less than the value at which they were sold to the assessee company - Held that - The sale price at which the seller had transferred these wind turbines to the assessee company was in fact paid by the assessee company to the seller company in the subsequent assessment year and the same had duly been reflected in the return of income of the seller company. Thus, we are of the considered opinion that in view of these evidences both the lower authorities were patently incorrect in disallowing the assessee s claim of depreciation in respect of the wind turbines. Accordingly, we deem it fit to hold that the benefit of depreciation on wind turbines should be allowed to the assessee and we order accordingly by setting aside the order of the CIT (Appeals) and direct the AO to allow the benefit of depreciation on wind turbines to the assessee company.

Summary

Issues:
Disallowance of depreciation on wind turbines and disallowance under section 14A of the Income Tax Act, 1961.

Issue 1: Disallowance of Depreciation on Wind Turbines

The assessee, engaged in power generation and capital market operations, filed a return declaring a loss for the year. The Assessing Officer disallowed depreciation claimed on two wind turbines purchased during the year, as full payment was made in a subsequent year. The AO concluded that the assessee was not the owner of the turbines on 31/03/2008 and disallowed depreciation. The CIT (Appeals) upheld this disallowance. The assessee contended that the turbines were purchased from a public limited company, supported by agreements, invoices, possession letters, and certificates of power generation. The assessee argued that depreciation is allowable once the asset is put to use, even for a day. The Tribunal found the assessee had ownership based on agreements, possession certificates, and power generation evidence. The Tribunal held that the lower authorities erred in disallowing depreciation, as the asset was used during the year, and the transaction was genuine. The Tribunal allowed the depreciation claim, setting aside the CIT (Appeals) order.

Issue 2: Disallowance under section 14A of the Income Tax Act

The authorized representative did not press the challenge against the disallowance under section 14A due to the small amount involved. Consequently, this ground was dismissed. The focus of the appeal shifted to challenging the disallowance of depreciation on wind turbines. The Tribunal's decision on the depreciation issue rendered the challenge under section 14A moot, as the primary issue was resolved in favor of the assessee. Therefore, the disallowance under section 14A was not discussed further in the judgment.

In conclusion, the ITAT Delhi allowed the appeal partially, overturning the disallowance of depreciation on wind turbines. The Tribunal held that the assessee was entitled to claim depreciation as the turbines were put to use during the year, and the transaction was genuine. The decision emphasized the legal principles governing depreciation claims and ownership rights under the Income Tax Act. The judgment highlighted the importance of evidence in supporting ownership claims and asset utilization for depreciation purposes.