Tribunal affirms additional depreciation on windmill, allows depreciation on fans, overturns ESOP expenses disallowance.

The Tribunal upheld the CIT(A)'s decision to allow additional depreciation on a windmill, citing precedents supporting the claim. It directed the AO to allow depreciation at 15% on fans and electrical installations. The disallowance of ESOP expenses was overturned based on previous rulings. The Tribunal remanded the recalculation of the written down value for depreciation. The challenge to interest charges was rejected, and the initiation of penalty proceedings was deemed premature. The Tribunal dismissed the Revenue's appeal and partly allowed the assessee's appeal.

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Issues Involved:
1. Deletion of addition by CIT(A) regarding additional depreciation on windmill.
2. Restriction of depreciation on fans and electrical installations.
3. Disallowance of ESOP (Employee Stock Option Plan) expenses.
4. Calculation of written down value for depreciation.
5. Charging of interest under sections 234B and 234C.
6. Initiation of penalty under section 271(1)(c).

Issue-wise Detailed Analysis:

1. Deletion of Addition by CIT(A) Regarding Additional Depreciation on Windmill:
The Revenue argued that CIT(A) erred in deleting the addition of Rs. 1,29,17,418/- made by the AO by disallowing additional depreciation on a windmill. The AO contended that the windmill generates power and does not manufacture any article or thing, thus making it ineligible for additional depreciation under Section 32(1)(iia). However, CIT(A) allowed the claim based on precedents from the Hon'ble Madras High Court, which established that additional depreciation is allowable even if the machinery is not directly used in manufacturing. The Tribunal upheld CIT(A)'s decision, citing the Hon'ble Gujarat High Court's ruling in CIT vs. Diamines & Chemicals Ltd., which supported the assessee's entitlement to additional depreciation on the windmill.

2. Restriction of Depreciation on Fans and Electrical Installations:
The assessee contested the CIT(A)'s decision to restrict depreciation on fans and electrical installations to 10% instead of the 15% applicable to plant and machinery. The AO had classified these items separately, leading to the lower rate. The Tribunal, referencing the ITAT's ruling in Madhu Industries Ltd., determined that electrical fittings and fans are integral to the plant and machinery and should not be classified independently. Consequently, the Tribunal directed the AO to allow depreciation at 15% and additional depreciation on these items.

3. Disallowance of ESOP Expenses:
The assessee challenged the disallowance of Rs. 92,10,249/- related to ESOP expenses. The Tribunal noted that the issue was previously addressed in the assessee's favor for AY 2007-08, following the ITAT Special Bench's ruling in Biocon Ltd. vs. Dy. CIT. The Special Bench had established that ESOP discounts are a form of employee remuneration and thus deductible. The Tribunal found no disparity in facts and concluded that the CIT(A) erred in upholding the disallowance. The Tribunal allowed the assessee's claim for ESOP expenses.

4. Calculation of Written Down Value for Depreciation:
The assessee argued that the written down value (WDV) should be recalculated to reflect the disallowed depreciation on the Mumbai Display Centre from AY 2007-08. The Tribunal agreed that disallowed depreciation increases the WDV, impacting subsequent depreciation calculations. The Tribunal remanded the issue to the AO for re-examination and recalculation of the WDV.

5. Charging of Interest under Sections 234B and 234C:
The assessee's challenge to the charging of interest under sections 234B and 234C was deemed consequential. As no specific arguments were presented, the Tribunal rejected this ground of appeal.

6. Initiation of Penalty under Section 271(1)(c):
The assessee contested the initiation of penalty proceedings under section 271(1)(c). The Tribunal considered this ground premature, noting that the assessee would have the opportunity to defend itself during the penalty proceedings. Hence, this ground was rejected.

Conclusion:
The Tribunal dismissed the Revenue's appeal and partly allowed the assessee's appeal for statistical purposes. The order was pronounced in open court on 29.5.2015.

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