2015 (7) TMI 642 - AT - Income Tax

Disallowance of Excess Depreciation claimed on Wind Mill - CIT(A) deleted the addition - whether generator, transformers, HT lines, miscellaneous civil works will form part of wind mill so as to get 80% depreciation under that category? - Held that - The above units which are treated by the AO as separate independent Plant & Machinery are integral part of windmill system and has no independent existence as plant and Machinery. The civil works such as foundations can not be treated as buildings so as to consider them as independent assets. We hold that they are part of wind mill and is entitled for depreciation @ 80%. The order of CIT(A) is therefore upheld - Decided in favour of assessee.

Summary

Issues:
1. Disallowance of excess depreciation claimed on Wind Mill.
2. Consideration of Transformer, HT, Electrical supply unit as integral part of Wind Mill.

Issue 1: Disallowance of Excess Depreciation Claimed on Wind Mill:
The Revenue appealed against the Commissioner of Income Tax (Appeals)-4, Hyderabad's order deleting the addition made towards the disallowance of excess depreciation claimed on the Wind Mill. The Assessing Officer disallowed part of the depreciation claimed at 80% on items such as Transformer, HT, and Electrical supply, stating that higher depreciation was not allowable on these expenses not part of the Wind Mill. The CIT(A) deleted the disallowance, emphasizing that the assets were integral parts of the Wind Mill and eligible for higher depreciation. The AR argued that the character of the asset, not its description, determines depreciation allowance. The CIT(A) relied on a co-ordinate bench decision and held in favor of the assessee, stating that the expenditure was on assets integral to the Wind Mill and eligible for higher depreciation.

Issue 2: Consideration of Transformer, HT, Electrical Supply Unit as Integral Part of Wind Mill:
The Revenue contended that the generator, transformers, HT lines, and civil works were not part of the Wind Mill to qualify for 80% depreciation. However, the co-ordinate bench discussed the essential composite system of a Wind Mill, including power generation, transmission, and distribution systems, all integral to the Wind Mill. In another case, it was established that the Wind Mill generator was part of the Wind Mill equipment eligible for 100% depreciation. The technical expert's opinion and evidence presented confirmed the integral nature of the components to the Wind Mill. The bench upheld the CIT(A)'s decision, dismissing the Revenue's grounds and affirming that the units in question were integral parts of the Wind Mill system, qualifying for 80% depreciation.

In conclusion, the appellate tribunal upheld the CIT(A)'s decision, ruling in favor of the assessee regarding the disallowance of excess depreciation claimed on the Wind Mill and confirming the Transformer, HT, and Electrical supply unit as integral parts of the Wind Mill eligible for higher depreciation rates. The judgments and technical assessments supported the integration of these components into the Wind Mill system, leading to the dismissal of the Revenue's appeal.