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2020 (3) TMI 630 - AT - Income TaxDisallowance of higher reduction of depreciation on the cost of civil engineering works for laying foundation of solar power panels - AO noted that the assessee has claimed depreciation on solar power plant which includes the cost of civil engineering works - AO accordingly bifurcated total cost of solar power plant and separated the cost of civil engineering works and allowed depreciation on the same at the rate as applicable on building and consequently the disallowance was made by the AO - HELD THAT - AO has not disputed the fact that soil leveling and other civil works carried out by the assessee is not required for installation of solar power panels. Therefore, the expenditure which is incurred by the assessee in the process of installation of solar panels is for the purpose of solar power plant. Thus the cost of said work cannot be separated from the installation of solar power plant and entire cost of solar power plant is eligible for depreciation as applicable for plant and machinery. Accordingly in view of the facts, circumstances of the case as well as the binding precedent of Hon'ble Jurisdictional High Court the case of CIT vs K.K. Enterprises 2015 (2) TMI 508 - RAJASTHAN HIGH COURT we decide the issue in favour of the assessee and thereby the addition made by the AO on account of disallowance of depreciation is delete. Addition on account of interest on Fixed Deposits during pre-commencement period as income from other sources - HELD THAT - If the fixed deposits were made to avail the bank guarantee for setting up of the solar power plant then it is inextricably linked with the setting of solar power plant and consequently the interest on said fixed deposits would be in the nature of capital receipt and not the Revenue receipt. Following the judgement of Hon'ble Delhi High Court in the case of Pr. CIT vs Facor Power Ltd. 2016 (1) TMI 461 - DELHI HIGH COURT we decide this issue in favour of the assessee and against the Revenue. Thus the addition made by the AO is deleted. The Ground of the assessee is allowed.
Issues:
1. Disallowance of higher reduction of depreciation on the cost of civil engineering works for laying foundation of solar power panels. 2. Treatment of interest earned on fixed deposits during the preoperative period as income from other sources instead of reducing the cost of the plant. Analysis: Issue 1: The appellant challenged the disallowance of higher reduction of depreciation on the cost of civil engineering works for laying the foundation of solar power panels. The AO allowed depreciation at a lower rate on the civil engineering works compared to the solar power plant. The appellant argued that the civil engineering works are essential for the installation of the solar power plant and should be considered part of the plant's cost. The appellant relied on precedents and contended that the entire cost of the solar power plant should be eligible for depreciation at the rate applicable to plant and machinery. The Tribunal agreed with the appellant, citing relevant case law and the interconnected nature of the civil works with the functioning of the solar plant. Consequently, the disallowance of depreciation was deleted in favor of the appellant. Issue 2: The second issue pertained to the treatment of interest earned on fixed deposits during the preoperative period. The AO considered this interest as income from other sources, leading to an addition to the appellant's income. The appellant argued that the fixed deposits were made to provide a bank guarantee for setting up the solar power plant, making the interest earned a capital receipt that should reduce the plant's cost. The Tribunal noted the direct link between the fixed deposits and the plant's establishment, following the decision of the Hon'ble Delhi High Court, and ruled in favor of the appellant. The interest on fixed deposits was deemed a capital receipt, and the addition made by the AO was deleted. The Tribunal allowed the appeal of the assessee based on this analysis. In conclusion, the Tribunal ruled in favor of the appellant on both issues, allowing the appeal and setting aside the lower authorities' decisions.
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