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Income Tax Appellate Tribunal, DELHI BENCH ‘F’ NEW DELHI
Before: SHRI N.K. BILLAIYA & SHRI SUDHANSHU SRIVASTAVA
This appeal has been filed by the assessee against order dated 21st of July 2014 passed by the Ld. Commissioner of Income Tax (Appeals) – XVII, New Delhi for assessment year 2008 – 2009.
The brief facts of the case are that the assessee, during the year under consideration, was engaged in the business of generating power and was also having income from capital market operations. The return of income Assessment year 2008-09 was filed declaring a loss of Rs. 11,90,356/-. Subsequently, the case was selected for scrutiny assessment and during the course of assessment proceedings the Assessing Officer observed that during the year under consideration the assessee had made addition under fixed assets on account of purchase of two wind turbines amounting to Rs. 71,17,569/-.
The AO also noticed that the assessee had claimed depreciation amounting to Rs. 28,47,027/- on these two wind turbines. The assessee was required to file necessary details with respect to the purchase of the two wind turbines. After perusal of the details and documents filed by the assessee, the Assessing Officer (AO) noted that the entire payment for the purchase of the wind turbines had been made in the subsequent assessment year except a payment of Rs. 1 lakh which was paid during the year under consideration. The AO also observed that the permission to transfer the name from the seller to the purchaser and the permission to sell the entire energy generated by the aforementioned wind turbines was granted by the Tamil Nadu Electricity Board in the month of May 2008 and July 2008, that is, in the subsequent assessment year. The AO also noted that the written down value of the wind turbines in the books of the previous owner was only Rs. 2,46,400/- for both the wind turbines whereas the assessee had paid an amount of Rs. 71,17,770/- as the purchase consideration. The Assessing Officer reached the conclusion that the assessee company was Assessment year 2008-09 neither the owner of the two windmills on 31/03/2008 nor was any power generated there from on or before 31/03/2008 and, therefore, the assessee’s claim of depreciation was not allowable during the year under consideration. An addition of rupees 28,47,027/- was made as a result of disallowance of depreciation on these wind turbines. Apart from this the Assessing Officer also made a disallowance of Rs. 6,299/- under section 14 A of the Income Tax Act, 1961 (hereinafter called “the Act”).
2.1 Aggrieved, the assessee approached the Ld. first appellate authority who upheld the findings of the assessing officer. Now, the assessee is before the Income Tax Appellate Tribunal and has challenged the action of the Ld. CIT (Appeals) in confirming the disallowance in respect of depreciation on wind turbines as well as disallowance under section 14A of the Act.
At the outset, Ld. authorised representative submitted that, on instructions of the client, ground No. 3 challenging confirmation of disallowance under section 14A was not being pressed due to smallness of amount. Accordingly, this ground is dismissed as not pressed.
3.1 The Ld. authorised representative submitted that the Ld. first appellate authority had erred on facts as well as in law in confirming the action of the assessing officer in disallowing the impugned amount of rupees 28,47,027/- on account of depreciation on wind turbines. It was Assessment year 2008-09 submitted that the lower authorities had arbitrarily rejected the explanation/s and the evidences brought on record by the assessee in support of the assessee’s claim.
3.2 The Ld. authorised representative submitted that the two wind turbines were purchased from M/s JPT Securities Ltd which was a public limited company. The Ld. authorised representative drew our attention to copy of the agreement between the assessee and M/s JPT Securities Ltd placed at pages 49 and 50 of the paper book as well as of the purchase invoices of the two wind turbines placed at pages 51 and 52 of the paper book. Our attention was also drawn to copy of lease deed, copy of letter submitted by M/s JPT Securities Ltd to the electricity distribution Department to effect the change in the name of the distribution circle. Our attention was also drawn to copy of letter submitted by the assessee to the Tamil Nadu Electricity Board for incorporating the change in name. The Ld. authorised representative placed reliance on copy of certificate issued by engineers in respect of power generated by the wind turbines between 27/03/2008 and 31/03/2008 as proof of the asset having been put to use during the year under consideration. With respect to the objection of the assessing officer regarding the valuation/market value of the wind turbines, reliance was placed on copy of quotation received from M/s United Engineers. Our attention was also drawn to copy of resolution Assessment year 2008-09 passed by M/s JPT Securities Ltd in respect of sale of machinery as well as letter of possession dated 26/03/2008 through which the possession of the wind turbines was handed over to the assessee. Our attention was also drawn to the copy of Annual Report of M/s JPT Securities Ltd wherein the sale of machinery was duly reflected as deduction in the schedule of fixed assets.
3.3 The Ld. authorised representative further submitted that there was no requirement under section 32 of the Act that full consideration should have been paid for the purpose of claiming depreciation on an asset. The Ld. authorised representative argued that payment of the asset can be deferred or the asset can be purchased on installments but the title of the asset passes to the buyer once the transaction is complete and the buyer can claim depreciation thereon.
3.4 The Ld. authorised representative further argued that it is settled law that even when in an asset is put to use for the purpose of business even for one single day, the same is eligible for depreciation. It was submitted that in the present case the wind turbine was installed and the power generated was sold to Shri Ganesh Wind Power Engineers Private Limited as was evident from page 60 of the paper book. It was submitted that this fact has neither been disputed by the assessing officer nor the Ld. CIT (Appeals).
Assessment year 2008-09 3.5 The Ld. authorised representative also submitted that the allegation of the assessing officer that the purchase of assets/wind turbines was a sham transaction was incorrect as the assessing officer as well as the Ld. CIT (Appeals) had disallowed only the depreciation claimed by the assessee but had accepted the purchase value. It was further submitted that a similar disallowance made in the subsequent assessment year was deleted.
It was also submitted that it is undisputed that in this case the receipts had been assessed in the hands of the seller and the same was not doubted and, therefore, the transaction cannot be regarded as sham and non-genuine.
3.6 It was further submitted that the allegation of the Department that the wind turbines had been valued at a higher rate was also incorrect as the assessee had got both the wind turbines valued from M/s United Engineers which was on record. It was also submitted that the assessee had sold these wind turbines at a consideration which was more than the purchase price in the subsequent years to unrelated parties. Ld. authorised representative submitted that the low value of the wind turbines in the books of the seller was due to the seller claiming 80% depreciation on them in the very first year of purchase but this did not mean that the real value of the wind turbines had gone down because the useful life of wind turbines is usually about 25 years. It was also submitted that even the electricity boards enter Assessment year 2008-09 into agreements for 20 years for generation of power. It was prayed that the disallowance of depreciation should be deleted.
In response, the Ld. senior departmental representative, vehemently supported the orders of the authorities below and submitted that in view of the concurrent findings of the Ld. CIT (Appeals), the matter had reached finality and submitted that the findings of the Ld. CIT (Appeals) be upheld.
We have heard the rival submissions and have also perused the material on record. A perusal of the paper book filed by the assessee shows that the assessee had filed voluminous evidences in support of its ownership of the wind turbines during the year under consideration as well as in support of its contention regarding generation of power, basis of valuation of purchase price and the transaction being genuine. However, the evidences and contentions of the assessee did not meet the approval of both the lower authorities. That the assessee had purchased the wind turbines at the value which is so claimed is evidenced by the confirmation under section 133 (6) of the Act by the seller company. The amount of sale price has been reduced from the block of assets in the fixed assets schedule annexed to the balance sheet of the seller company. Further, the seller company has duly disclosed the fact of sale in its return of income which has been accepted by the Department vide intimation under section 143 (1) of the Act. 7 Assessment year 2008-09 5.1 The first objection of the Department was that full value of consideration had not been paid by the assessee company during the year under consideration and, therefore, the assessee company was not entitled to claim of depreciation. However, this view of the Department is legally unsustainable because there is no such requirement under section 32 of the Act that full consideration should have been paid for the purpose of claiming depreciation. It is settled law that payment of an asset can be deferred but the assessee will be entitled to claim depreciation. The Hon’ble Delhi High Court in the case of CIT versus Bhushan Steel and Strips Ltd reported in 390 ITR 485 (Delhi) has laid down the ratio that the intention of the legislature in enacting section 32 of the Act would be best fulfilled by allowing depreciation in respect of depreciation to the person in whom the dominion vests for the time being and who is entitled to use the asset in its own right and is using the same for the purposes of its business or profession. Although, the Department has taken a contrary view, we are of the considered opinion that the assessee company became the owner of the wind turbines by virtue of agreement entered into with M/s JPT securities Ltd during the year under consideration. There is also a copy of possession certificate dated 26/03/2008 issued by M/s JPT securities in favour of the assessee and the same is on record and remains undisputed.
There is also a certificate issued by the engineers in respect of power Assessment year 2008-09 generated between 27/03/2008 and 31/03/2008 which is a proof of the asset having been put to use during the year under consideration. The lower authorities have not brought any material on record which could be used as a basis for rejecting the assessee’s claim that the asset was put to use during the year under consideration. Again, it is settled law that even if an asset is put to use for a single day, the same is eligible for depreciation.
Therefore, we find that the lower authorities have misdirected themselves in disallowing the assessee’s claim of depreciation on the ground that the assessee was allegedly not the owner of the asset during the year under consideration and that the asset had not been put to use during the year under consideration. We reject the findings of both the lower authorities on this issue.
5.2 We also do not agree with the findings of the lower authorities that the transaction of purchase of wind turbines was a sham transaction as the receipts in the hands of the seller were not questioned by the Department and were accepted as such. It is further seen that depreciation on wind turbines has been allowed by the assessing officer in subsequent assessment years and, therefore, it cannot be held that the Department had treated the transactions as an altogether sham transaction.
5.3 The Department has also objected to the valuation of the wind turbines on the ground that the written down value in the books of the 9 Assessment year 2008-09 seller was much-much less than the value at which they were sold to the assessee company. However, this objection of the Department is met by the certificate from M/s United Engineers which states that that the value of one of the turbine was approximately 20 Lacs whereas the value of the other turbine was approximately 50 lakhs. The certificate from M/s United Engineers has also not been disproved by the Department. Further, it is also seen that the sale price at which the seller had transferred these wind turbines to the assessee company was in fact paid by the assessee company to the seller company in the subsequent assessment year and the same had duly been reflected in the return of income of the seller company. Thus, we are of the considered opinion that in view of these evidences both the lower authorities were patently incorrect in disallowing the assessee’s claim of depreciation in respect of the wind turbines. Accordingly, we deem it fit to hold that the benefit of depreciation on wind turbines should be allowed to the assessee and we order accordingly by setting aside the order of the Ld. CIT (Appeals) and direct the AO to allow the benefit of depreciation on wind turbines to the assessee company.
In the result the appeal of the assessee stands partly allowed.
Assessment year 2008-09 This decision was pronounced in the Open Court on 3rd May, 2018.