2015 (12) TMI 556 - AT - Income Tax

Disallowance of depreciation on Wind Mill - put to use - CIT(A) allowed the claim - Held that - As per cl. (i) of sub-s. (1) of s. 32 the depreciation on the assets of an undertaking engaged in generation or generation and distribution of power is at a percentage as prescribed as per rates on the actual cost thereof. Thus sub-cl. (i) of sub-s. (1) of s. 32 provides the depreciation at a prescribed rate on the assets of specified undertaking on the actual cost instead of WDV. Explanation 5 to sub-s. (1) of s. 32 makes it clear that the provisions of sub-s. (1) to s. 32 of IT Act shall apply whether or not the assessee has claimed the deduction in respect of depreciation in computing his total income. The expression put to use for 180 days has been wrongly changed by the AO for 6 months . It is an admitted case that the Wind Mill was commissioned on 30th September, 2007 and further it is also an admitted case that the metering arrangement was also made by inter-connecting with the grid sub station of RRVPNL, Barmer. Thus all the installation of the Wind Mill, laying down of the transmission lines, and installation of meter and connection of the meter with the supply line of the assessee were completed on 30.09.2007. Therefore, in the opinion of the Bench the asset was put to use on or before 30.09.2007, thus the asset for which depreciation claimed was used for a period of more than 180 days. Our view is also supported by Judgment passed of K.K.S.K. LEATHER PROCESSORS (P) LTD 2009 (11) TMI 556 - ITAT MADRAS-D - Decided against revenue .

Summary

Issues:
1. Disallowance of depreciation by AO.
2. Justification of deleting the disallowance by CIT (A).
3. Interpretation of "put to use" for depreciation purposes.
4. Comparison between "180 days" and "6 months" for asset usage.
5. Applicability of relevant provisions of IT Act for depreciation.

Disallowance of Depreciation by AO:
The case involved the Revenue appealing against the order of the ld. CIT (A) regarding the disallowance of depreciation made by the Assessing Officer (AO) for the assessment year 2008-09. The assessee, engaged in manufacturing and trading of electrical equipment, claimed depreciation at 80% for a Wind Mill project. The AO reduced the claimed depreciation to 40% as he believed the Wind Mill was used for less than 6 months during 2007. The assessee submitted evidence, including a Commissioning Certificate, to support the claim that the Wind Mill was operational for more than 180 days. The AO's decision was based on the asset being put to use for less than 6 months, resulting in the depreciation reduction.

Justification of Deleting the Disallowance by CIT (A):
The ld. CIT (A) allowed the appeal of the assessee after considering the evidence provided. The Commissioning Certificate and other documents indicated that the Wind Mill was operational from September 2007, meeting the requirement of being put to use for more than 180 days. The ld. CIT (A) concurred with the submissions of the assessee's representative, stating that the evidence showed the Wind Mill was operational in September 2007. Therefore, the depreciation claimed at 80% was deemed allowable, and the disallowance by the AO was deleted.

Interpretation of "Put to Use" for Depreciation Purposes:
The interpretation of "put to use" for depreciation purposes was crucial in this case. The AO incorrectly equated "put to use" for 180 days with "less than 6 months." The Tribunal emphasized that the asset, in this case, the Wind Mill, was commissioned and operational on 30th September 2007, with all necessary installations and connections completed by that date. The Tribunal clarified that the asset was indeed put to use before September 30, 2007, for a period exceeding 180 days, supporting the assessee's claim for 80% depreciation.

Comparison Between "180 Days" and "6 Months" for Asset Usage:
The Tribunal highlighted the distinction between "180 days" and "6 months" concerning asset usage. The asset being operational for more than 180 days was the deciding factor for allowing the claimed depreciation. The Tribunal's decision was supported by a judgment from the Chennai bench, emphasizing the significance of the actual number of days an asset is in use for depreciation calculations.

Applicability of Relevant Provisions of IT Act for Depreciation:
The Tribunal referenced Section 32 of the Income Tax Act and relevant rules to determine the correct depreciation percentage applicable to the Wind Mill asset. The provisions specified depreciation rates based on the actual cost of assets, especially for power generation undertakings. The Tribunal's analysis of the legal provisions and the factual evidence led to upholding the ld. CIT (A)'s decision to allow the claimed depreciation and dismiss the Revenue's appeal.

In conclusion, the judgment by the Appellate Tribunal ITAT Jaipur upheld the allowance of depreciation claimed by the assessee for the Wind Mill project, emphasizing the correct interpretation of "put to use" for depreciation purposes and the adherence to legal provisions governing depreciation calculations.