VAATA SMART LIMITED,CHENNAI vs. CIT (A), CHENNAI

This appeal by the assessee is directed against the order passed by the Ld. Commissioner of Income Tax (Appeals)-11, Chennai dated 10.01.2017 in for the assessment year 2012-13 passed u/s.250(6) r.w.s.143(3) of the Act.

The assessee has raised several grounds in its appeal, however the crux of the issue is that the Ld.CIT(A) has erred in confirming the disallowance of depreciation amounting to Rs.27,68,500/- on the two windmills purchased by the assessee which had become scrap.

The brief facts of the case are that the assessee is a limited company engaged in the business of generating power and energy, filed its return of income for the assessment year 2012-13 on 28.09.2012 admitting loss of Rs.34,71,202/-. The case was selected for scrutiny and finally assessment order was passed U/s.143(3) of the Act on 25.03.2015, wherein the Ld.AO disallowed Rs.27,68,500/- towards depreciation on windmills.

During the course of assessment proceedings, it was noticed by the Ld.AO that the assessee had purchased 8 windmills from M/s. Fenner India Limited and the assessee had disclosed the addition of fixed asset as on 30.09.2011 at Rs.1,38,42,500/- in its books of accounts, however claimed depreciation on these windmills for the whole year. On further examination it was revealed that the assessee had installed only six windmills during the second half of the year. Hence, the Ld.AO allowed 50% of the depreciation claimed by the assessee and also disallowed depreciation with respect to the other two windmills, which was not installed. During the appellate proceedings, it was submitted by the assessee that though the assessee has purchased 8 windmills, only 6 windmills could be erected by salvaging the components from the other two windmills which was beyond repair. The Ld.CIT(A) rejected the claim of the assessee because the assessee had not adduced sufficient evidence before him to establish its claim by observing as under:- “4.3.2 During the appeal proceeding, the appellant’s AR has submitted that although the main intention was to salvage components of the 8 windmill spares, only 6 WEGs could be made into working condition and operational. During the appearance before the CIT(A) on 3.1.2017, the appellant’s AR clarified that 8 old wind mills were purchased which were dismantled and shifted to the appellant’s place and were converted into 6 windmills/ The appellant’s argument that 8 old wind mills were converted into 6 windmills and therefore depreciation had to be allowed for 8 wind mills is not an acceptable argument. There is no evidence whatsoever for such conversion. As per the provision of Sec.32 of the IT Act, depreciation can be given only for the wind mills which have been installed and commissioned before the end of the relevant previous year. Admittedly, the 7th and 8th wind mills were never commissioned. Just because the appellant produced the invoices for having purchased 8 old wind mills, it does not prove that all the 8 wind mills were installed, commissioned and put to use during the relevant previous year as required u/s.32 of the IT Act.

Before us, the Ld.AR reiterated the submission before the Ld.Revenue authorities and argued stating that since the spares from the two irreparable windmills were salvaged and used in the other six windmills, depreciation may be granted on the entire cost of the 8 windmills. The Ld.DR on the other hand relied on the orders of the Ld. Revenue authorities.

I have heard the rival submissions and carefully perused the material available on record. From the facts of the case, it is apparent that the assessee had incurred expenditure for the purchase of 8 windmills out of which only 6 windmills could be erected. The other 2 windmills were beyond repair and the spares salvaged from them were utilized for erecting the other 6 windmills. Hence, the cost of purchase of the 2 irreparable windmills has to be necessarily added to the cost of the 6 windmills which were repaired and erected. If the claim of the assessee is proved otherwise, i.e., the spares of the two irreparable windmills are not salvaged and used for repairing the other 6 windmills, then the entire two windmills have to be sold at scrap value which will result in higher claim of deduction by way of loss incurred by the assessee during the course of its business. However, the assessee has preferred to claim lesser deduction by way of 5 depreciation. In this situation, I do not find any reason to disbelieve the facts narrated by the assessee. Hence, I hereby direct the Ld.AO to grant depreciation to the assessee against the purchase of 8 windmills however after considering the period of usage.

In the result the appeal of the assessee is allowed.