Revenue appeal dismissed, assessee cross objections partly allowed. Tribunal upholds higher depreciation rate for windmills.

The appeal of the Revenue was dismissed, and the Cross Objections of the assessee were partly allowed. The Tribunal upheld the higher depreciation rate for windmill-related civil work and installation, allowed depreciation on written-off mobiles, and directed a re-computation of interest expenditure in line with the project completion method.

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Issues Involved:
1. Higher rate of depreciation on civil work and installation and commissioning work for windmills.
2. Disallowance of capital expenditure of Rs. 3,00,000.
3. Disallowance of interest expenditure of Rs. 32,84,047.

Detailed Analysis of Judgment:

1. Higher Rate of Depreciation on Civil Work and Installation and Commissioning Work for Windmills:
The primary issue raised by the Revenue was the grant of a higher rate of depreciation at 80% on civil work and installation and commissioning work included in the block of assets of windmills. The assessee had claimed depreciation at 80% on these components, but the Assessing Officer (AO) restricted the depreciation to 10% for civil work and 15% for installation and commissioning work, relying on the decision in the case of Poonawalla Finvest and Agro Pvt. Ltd.

The CIT(A) allowed the higher depreciation rate of 80% on both civil work and installation and commissioning work, referencing decisions from the Pune Bench of the Tribunal in the cases of DCIT Vs. Aminity Developers and Builders and Cooper Foundry Pvt. Ltd. The Tribunal upheld the CIT(A)'s decision, emphasizing that civil work for the foundation and the cost of commissioning and erecting windmills are integral parts of the windmill itself, thus eligible for the same depreciation rate. This was supported by the functional test and previous rulings, including the Hon'ble Bombay High Court's decision in CIT Vs. Cooper Foundry Pvt. Ltd.

2. Disallowance of Capital Expenditure of Rs. 3,00,000:
The second issue in the Cross Objections was the disallowance of Rs. 3,00,000, classified as capital expenditure for mobiles written off. The AO made this disallowance based on the auditor's report and the assessee's admission. The CIT(A) upheld this disallowance, referencing the principle that no appeal lies against an agreed addition unless coercion or malafide is proven.

However, the assessee contended that it should be allowed depreciation on these assets, citing the Tribunal's decision in Inductotherm (India) Ltd. Vs. DCIT. The Tribunal agreed with the assessee, stating that the scrap value of the machinery must be ascertained before reducing it from the written-down value for depreciation purposes. Consequently, the Tribunal allowed the assessee's claim for depreciation on the written-off mobiles.

3. Disallowance of Interest Expenditure of Rs. 32,84,047:
The third issue was the disallowance of Rs. 32,84,047 as interest expenditure, which the AO capitalized as work-in-progress based on the assessee's admission. The CIT(A) upheld this capitalization, noting that the assessee had agreed to it during the assessment proceedings.

The assessee argued that the interest should be allowed as a deduction in line with the project completion method it followed, as decided by the Tribunal in the assessee's own case for previous years. The Tribunal directed the AO to re-compute the interest expenditure, allowing the interest attributable to completed projects as a deduction and capitalizing the rest. This approach was consistent with the Tribunal's earlier decisions for the assessee's previous assessment years.

Conclusion:
The appeal of the Revenue was dismissed, and the Cross Objections of the assessee were partly allowed. The Tribunal upheld the higher depreciation rate for windmill-related civil work and installation, allowed depreciation on written-off mobiles, and directed a re-computation of interest expenditure in line with the project completion method.

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