Tribunal decision: Assessee's appeal partly allowed, Revenue's appeal dismissed. Expenditure classification remanded.

The Tribunal partly allowed the assessee's appeal for statistical purposes and dismissed the Revenue's appeal. It remanded the issue of expenditure classification back to the AO, allowed higher depreciation rates on civil work foundation and HT lines, dismissed the adjustment of the opening WDV of Windmill assets issue, and permitted interest expenses as business expenditure.

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Issues Involved:
1. Classification of expenditure for common infrastructure facility in power evacuation.
2. Depreciation rate on civil work foundation and erection of HT lines.
3. Adjustment of opening WDV of Windmill block of assets.
4. Disallowance of interest expenses.

Issue-Wise Analysis:

1. Classification of Expenditure for Common Infrastructure Facility in Power Evacuation:
The first issue pertains to whether the contribution for common infrastructure facility in power evacuation is revenue expenditure or capital expenditure under intangible assets as part of Windmill. The assessee argued that the payment of Rs. 37.50 lacs was made during the course of business for the generation of power from Windmill and should be allowable under Section 37(1) of the Income Tax Act, 1961. The CIT (A) did not admit the additional grounds raised by the assessee, stating that the grounds were available at the time of filing the return and no new developments occurred post-filing of the appeal. The Tribunal, however, found that the facts were available on record and did not require fresh investigation. Hence, it admitted the additional grounds of appeal and remanded the issue back to the AO for verification and decision after allowing the assessee a reasonable opportunity to be heard.

2. Depreciation Rate on Civil Work Foundation and Erection of HT Lines:
The second issue involved the rate of depreciation on civil work foundation and erection of HT lines. The assessee claimed that these costs were integral parts of the Windmill and should be eligible for higher depreciation rates applicable to Windmills. The AO restricted the depreciation to normal rates, but the CIT (A) allowed higher depreciation on civil work while restricting it to normal rates for HT lines and Switchgear. The Tribunal considered precedents from the Hon’ble Punjab & Haryana High Court and the Hon’ble Rajasthan High Court, which held that civil work foundation, HT lines, and Switchgear are integral parts of Windmills and eligible for higher depreciation rates. The Tribunal directed the AO to allow higher depreciation rates on these components, thus deciding the issue in favor of the assessee.

3. Adjustment of Opening WDV of Windmill Block of Assets:
The third issue was regarding the adjustment of the opening WDV of the Windmill block of assets for granting correct depreciation for the assessment year 2007-08. The learned Counsel for the assessee stated that he had instructions not to press this issue. Consequently, the Tribunal dismissed this issue as not pressed.

4. Disallowance of Interest Expenses:
The fourth issue involved the disallowance of interest expenses amounting to Rs. 19,84,507/-. The AO disallowed the interest on the grounds that the borrowed funds were used for the purchase and installation of Windmills, which was considered a new business. The CIT (A) upheld the disallowance. However, the Tribunal found that the assessee was already in the business of power generation through Windmills and the installation of a new Windmill was merely an expansion of the existing business. It was also noted that the interest paid to partners was within the limits prescribed under Section 40(b) of the Act. Therefore, the Tribunal deleted the addition and allowed the interest expenses as business expenditure under Section 36(1)(iii) of the Act.

Conclusion:
In conclusion, the appeal of the assessee was partly allowed for statistical purposes, and the appeal of the Revenue was dismissed. The Tribunal remanded the issue of expenditure classification back to the AO, allowed higher depreciation rates on civil work foundation and HT lines, dismissed the WDV adjustment issue as not pressed, and allowed the interest expenses as business expenditure.

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