ITAT allows additional depreciation on windmill for manufacturing activities

The ITAT upheld the CIT(A)'s decision allowing additional depreciation on a windmill for Assessment Year 2006-07, despite the revenue's appeal. The court emphasized that the windmill was used for manufacturing and production activities, making the assessee eligible for the depreciation claimed, in line with a decision of the Madras High Court. The core issue revolved around the eligibility for depreciation under Section 32(1)(iia) for an asset not directly linked to the core manufacturing business, with the court ultimately ruling in favor of the assessee based on the nature of activities conducted using the windmill.

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Issues:
1. Additional depreciation on windmill under Section 32(1)(iia).
2. Eligibility for depreciation on windmill not purchased for core business of manufacturing.

Analysis:
1. The appeal was filed by the revenue challenging the order allowing additional depreciation on a windmill for Assessment Year 2006-07. The Assessing Officer observed the assessee claimed depreciation of Rs. 2,90,73,958 on the windmill. The Assessing Officer disallowed the additional depreciation stating that the assessee was not engaged in manufacturing but in power generation. He differentiated between generation and manufacturing, emphasizing that manufacturing involves transforming raw materials into finished goods on a large scale. The Assessing Officer allowed depreciation at a reduced rate, resulting in an addition to the assessee's income. The CIT(A) allowed the appeal, citing a decision of the Madras High Court that if the assessee is engaged in producing articles or things, additional depreciation on a new machine should be allowed. The ITAT upheld the CIT(A)'s decision, noting that the windmill was used for manufacturing and production activities, as per the Madras High Court's decision.

2. The core issue was whether the windmill, not acquired for the core business of manufacturing cables/conductors/parts, was eligible for depreciation under Section 32(1)(iia). The Assessing Officer contended that since the assessee was only generating electricity, not manufacturing goods, the additional depreciation was not justified. However, the CIT(A) relied on the Madras High Court's decision, emphasizing that as long as the assessee was engaged in producing articles or things, additional depreciation should be allowed. The ITAT agreed with the CIT(A), stating that the windmill was used for manufacturing and production activities, making the assessee eligible for additional depreciation. The ITAT dismissed the revenue's appeal, upholding the CIT(A)'s decision.

This detailed analysis of the judgment highlights the interpretation of the law regarding additional depreciation on windmills and the eligibility criteria for claiming depreciation when the asset is not directly related to the core business activities.

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