Windmill depreciation and section 80IA unit-wise computation: installation-related costs get higher depreciation, and unit losses stay separate.

ITAT Pune held that windmill foundation, erection and commissioning expenditure is integral to installation and operationalisation of the turbine, so the portion attributable to those costs qualifies for the higher depreciation rate, while only purely civil work may be restricted to a lower rate. It also held that, for section 80IA, computation must be made undertaking-wise rather than on the assessee's composite business, so losses of one windmill unit cannot be set off against profits of another eligible unit where separate accounts are maintained. The Revenue's challenge failed on both issues and the relief granted by the first appellate authority was sustained.

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Issues: (i) Whether the assessee was entitled to depreciation at the higher rate on the cost of windmill foundation, erection and commissioning related expenditure, and whether the Revenue could bifurcate the cost into separate blocks attracting different rates of depreciation. (ii) Whether, for deduction under section 80IA, losses of one windmill unit could be set off against profits of another unit engaged in the same eligible business.

Issue (i): Whether the assessee was entitled to depreciation at the higher rate on the cost of windmill foundation, erection and commissioning related expenditure, and whether the Revenue could bifurcate the cost into separate blocks attracting different rates of depreciation.

Analysis: The Tribunal followed its earlier view that the expenditure on foundation, erection and commissioning forms an integral part of the windmill where the item of cost is directly connected with installation and operationalisation of the wind turbine. It accepted that only the purely civil work component could be restricted to the lower rate, while the cost attributable to foundation as well as erection and commissioning was eligible for the higher depreciation rate applicable to windmills.

Conclusion: The issue was decided in favour of the assessee and against the Revenue.

Issue (ii): Whether, for deduction under section 80IA, losses of one windmill unit could be set off against profits of another unit engaged in the same eligible business.

Analysis: The Tribunal applied the scheme of section 80IA and held that the relevant unit for computation is the undertaking or enterprise, not the assessee's composite business as a whole. Since each windmill location maintained separate accounts and constituted a distinct undertaking, losses of one unit could not be adjusted against profits of another unit while computing deduction under section 80IA. The Tribunal also relied on the principle of harmonious construction between sub-sections (2) and (5).

Conclusion: The issue was decided in favour of the assessee and against the Revenue.

Final Conclusion: The Revenue's challenge failed on both the depreciation issue and the section 80IA computation issue, and the appellate relief granted by the first appellate authority was sustained.

Ratio Decidendi: For windmill projects, installation-related expenditure that is integral to the functioning of the windmill is eligible for the higher depreciation rate, and under section 80IA each eligible undertaking must be computed separately so that losses of one unit are not set off against profits of another unit.

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