Tribunal grants depreciation for windmill civil work, emphasizes functional test

The Tribunal ruled in favor of the assessee, overturning the disallowance of depreciation on windmills. The decision emphasized the integral nature of civil work and commissioning expenses to the operational functioning of wind turbines, qualifying them for the same depreciation rate as wind turbines. The judgment underscored the significance of applying the functional test to assess depreciation eligibility for expenses related to power generation activities.

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Issues: Disallowance of depreciation on windmills

Issue 1: Disallowance of depreciation on windmills
The appeal was against the order of CIT(A) relating to the assessment year 2010-11 regarding the disallowance of depreciation on windmills by the Assessing Officer. The Assessing Officer recomputed the depreciation applying revised rates for foundation & civil work and erection & commissioning work of windmills, leading to disallowance of an alleged excess claim of depreciation. The CIT(A) upheld the disallowance, stating that different rates of depreciation are allowed for structures and machinery/plant due to their differing lifespans and purposes. The higher depreciation rates aim to encourage development in specific sectors. The Tribunal found that the expenses on civil work and commissioning were integral to the windmills' operational functioning and should qualify for the same depreciation rate as applicable to wind turbines. The decision was supported by previous Tribunal judgments. Therefore, the Tribunal held that the Revenue erred in disallowing the depreciation, and the appeal of the assessee was allowed.

In conclusion, the Tribunal ruled in favor of the assessee, allowing the appeal and overturning the disallowance of depreciation on windmills. The decision was based on the integral nature of civil work and commissioning expenses to the operational functioning of wind turbines, qualifying them for the same depreciation rate as applicable to wind turbines themselves. The judgment highlighted the importance of considering the functional test to determine depreciation eligibility for incidental expenditures related to power generation activities.

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