2012 (10) TMI 224 - AT - Income Tax

Depreciation allowed on wind energy device. Disallowance under section 14A.

Assistant Commissioner of Income Tax (OSD) Versus Parry Engineering & Electronics P. Ltd.

The ITAT held that depreciation is allowable on the entire device capable of generating electricity using wind energy, including foundation, civil, and ... Disallowance of depreciation on civil work in the installation of windmill @ rate of 80% - AO contended that depreciation at the rate of 80% was allowable only on the device of windmill and not on the entire cost including civil works, electrical installation, development expenses and other machinery etc. - Held that:- The depreciation is allowable on renewable energy device which also includes windmill. The depreciation at the rate of 80% is allowable on the entire device which is capable of generating electricity using wind energy. There is no provision in the Act to bifurcate the device into several parts and allow depreciation thereon at different rates of depreciation. The foundation, civil and electrical works are necessary for the installation of the windmill and is clearly part and parcel of the windmill project. Therefore depreciation at the rate of 80% is allowable. Issue decides in favour of assessee Disallowance of expenditure u/s 14A r.w.Rule 8D – Assessee contended that introduction of Rule 8D is w.e.f. AY 2008-09 and is not applicable for the year under consideration i.e. AY 2007-08 - No internet bearing funds have been used for earning exempt income - Held that:- Issue need to be remand to the AO to decide issue with reference to the decision in case of Walfort Share & Stock Brokers P. Ltd. (2010 (7) TMI 15 - SUPREME COURT). Issue remand back to AO. Issues:1. Disallowance of excess claim of depreciation on windmill.2. Disallowance made under section 14A r.w.s. 8D without applicability.Analysis:1. The Revenue appealed against the order of the Commissioner of Income Tax (Appeals) regarding the disallowance of excess claim of depreciation on windmill. The Revenue contended that depreciation at the rate of 80% was allowable only on the device of windmill and not on the entire cost, including civil works and electrical installation. The Revenue argued that the interest capitalized needed verification by the AO. However, the assessee argued that depreciation on civil and electrical works was necessary for the windmill installation and should be allowed. The ITAT held that depreciation is allowable on the entire device capable of generating electricity using wind energy, including foundation, civil, and electrical works. The ITAT dismissed the Revenue's appeal regarding depreciation and additional depreciation on these works but directed the AO to verify the utilization of borrowed amount for land purchase concerning depreciation on capitalized interest.2. The assessee's CO challenged the disallowance made under section 14A r.w.s. 8D without applicability for the assessment year 2007-2008. The CO argued that no interest-bearing funds were used for earning exempt income and cited legal precedents. The ITAT decided to restore this issue to the AO for fresh consideration in light of the legal position cited by the assessee and to provide a due opportunity for the assessee to be heard. Consequently, the Revenue's appeal was partly allowed for statistical purposes, and the CO of the assessee was allowed for statistical purposes.