2016 (9) TMI 598 - HC - Income Tax

Depreciation of depreciation on windmill - Held that - Tribunal was right in holding that the assessee is entitled to depreciation, as the assessee had taken over the possession of the wind mill, and that the same was put to use and started generating electricity, before 31.03.2008, during the financial year, relevant to the assessment year 2008-09. Hence, the first substantial question of law raised, is answered against the revenue.

Summary

Issues Involved:
1. Entitlement to depreciation on the windmill generator.
2. Alleged violation of Rule 46A by the Commissioner of Income Tax (Appeals).

Issue-wise Detailed Analysis:

1. Entitlement to Depreciation on the Windmill Generator:

The primary issue was whether the assessee was entitled to claim depreciation on a windmill generator for the financial year ending 31.03.2008. The Assessing Officer had disallowed the depreciation claim of ?3,78,00,000/- on the grounds that the windmill was not acquired during the relevant previous year. The reasons cited included:
- The invoice for the windmill was dated 31.03.2008.
- Only a partial payment of ?1,86,00,000/- out of ?9,45,00,000/- had been made by 31.03.2008.
- The remaining amount was paid in May and June 2008.
- The agreement with TNEB for the sale of power was dated 29.03.2008, and approval was communicated on 22.04.2008.
- No specific evidence was produced to show that the property had passed hands before 31.03.2008.

The Commissioner of Income Tax (Appeals) allowed the appeal, directing the deletion of the addition made on account of disallowance of depreciation. The appellate authority considered the sequence of events and supporting documents, concluding that the windmill was acquired, installed, and operational before 31.03.2008. The Tribunal upheld this decision, noting that the evidence supported the assessee's claim.

The High Court affirmed the Tribunal's decision, stating that the assessee had taken possession of the windmill and it was operational before the end of the financial year. The Court referenced Section 32 of the Income Tax Act, which does not stipulate that full payment is required to claim depreciation. The Court also cited relevant case law, including Mysore Minerals Ltd v. CIT and CIT v. Kences Construction (P) Ltd., supporting the assessee's entitlement to depreciation.

2. Alleged Violation of Rule 46A by the Commissioner of Income Tax (Appeals):

The second issue was whether there was a violation of Rule 46A of the Income Tax Rules, 1962, which deals with the production of additional evidence before the appellate authorities. The revenue contended that the Commissioner of Income Tax (Appeals) admitted additional evidence without giving the Assessing Officer an opportunity to examine it, thus violating Rule 46A.

The High Court examined Rule 46A and noted that the Commissioner of Income Tax (Appeals) is empowered to admit additional evidence to do substantial justice. The Court found that the documentary evidence was within the knowledge of the revenue, and there was no objection or challenge to the genuineness of the documents. The Tribunal had also observed that the revenue did not confront the evidence presented by the assessee.

The Court concluded that the Commissioner of Income Tax (Appeals) had properly exercised the powers under Rule 46A, and there was no violation. The Court emphasized that the revenue had the opportunity to rebut the additional evidence but failed to do so.

Conclusion:

The High Court dismissed the Tax Case Appeal, affirming the decisions of the Commissioner of Income Tax (Appeals) and the Tribunal. The Court held that the assessee was entitled to claim depreciation on the windmill generator and that there was no violation of Rule 46A. Both substantial questions of law were answered against the revenue and in favor of the assessee.