DCIT, COIMBATORE vs. M/S. OLIVE ECOPOWER PVT. LTD.,, COIMBATORE

This appeal of the Revenue is directed against the order of the Commissioner of Income Tax (Appeals) -1, Coimbatore dated 22.08.2016 and pertains to the assessment year 2012-13.

The only issue arises for consideration is depreciation on the windmill.

Shri Pathlaveth Peerya, the Ld. Departmental Representative submitted that the assessee claimed depreciation on the windmill said to be purchased from M/s. KSK Wind Energy Private Limited by a slump sale deed dated 26.03.2012. Referring to the agreement said to be entered into between the parties, the copy of which is available at page No.1 of the paper book, the Ld. D.R., submitted that the physical possession of the windmill shall be handed over to the assessee on 26.03.2012 after full payment of Rs.138.74 crores. In fact, the full consideration was not paid as on 26.03.2012. Since, the payment was not made as per the agreement, according to the Ld. D.R., the windmill was not transferred to the assessee. Therefore, the assessee is not the owner of the said windmill. According to the Ld. D.R., for the purpose of allowing depreciation, the assessee shall be the owner of the machinery either wholly or partly and the machinery should also be used by the assessee. In this connection, the year under consideration, the assessee does not own the windmill. Therefore the depreciation shall not be claimed at all. Referring to the explanation said to be offered by the assessee before the Assessing Officer, the Ld. D.R., clarified that the assessee itself admitted that the assets are capitalized in the books of account and the transfer took place after 2 or 3 months from the date of acquisition. Even though the assessee claims before the Assessing Officer that there was a revised agreement between the parties, the same was not produced before the Assessing Officer or before the CIT (Appeals). The Ld. D.R., further clarified that the assessee has not recognized revenue from the windmill and no income was offered for taxation. Therefore, the CIT(Appeals) is not justified in allowing depreciation to the assessee. Referring to the judgment of the Apex court in Mysore Minerals Ltd v CIT(1999) 106 Taxman 166 (SC), the Ld. D.R., submitted that the assessee cannot be considered to be a beneficial owner since there was no transfer of windmill to the assessee.

On the contrary, Shri T. Raghunathan, the Ld. representative for the assessee submitted that as per the original agreement dated 26.03.2012, by virtue of clause 3, the physical delivery of the windmill has to be made on 26.03.2012 subject to full payment of the sale consideration of Rs.138.74 crores. The Ld. representative further submitted that in fact the full sale consideration was not paid. However, the windmill was transferred to the assessee on 26.03.2012. On a query from the bench, how the machinery was transferred on 26.03.2012 itself, when the agreement between the parties clearly says that the transfer has to be effected only on payment of full sale consideration. The Ld. representative clarified that inspite of this clause in the agreement, the windmill was physically transferred to the assessee. Therefore, the assessee becomes the owner of the asset. Referring to the judgment of the Apex court in Mysore Minerals Ltd (supra), the Ld. representative submitted that when the possession of the property was given to the assessee and the assessee enjoyed the property as it is owned then merely because the same was not registered with TNEB cannot be a reason for disallowing the claim of the depreciation.

We have considered the rival submissions on either side and perused the material available on record. The Assessing Officer disallowed the claim of the assessee on the ground that the assessee has not owned the windmill during the year under consideration. We have carefully gone through the agreement dated 26.03.2012. On 26.03.2012, when the agreement was executed both parties agreed that the physical possession of the windmill shall be handed over to the assessee subject to full payment of lumpsum consideration of Rs.138.74 crores. Now, the assessee claims that inspite of this agreement, the physical possession of the windmill was handed over to the assessee even though the full consideration was not paid. The CIT (Appeals) has referred to annual report of M/s. KSK Wind Energy Private Limited and found that M/s. KSK Wind Energy Private Limited has acknowledged the sale of windmill to the assessee. The fact remains is that there was an agreement between the assessee and M/s. KSK Wind Energy Private Limited for transfer of windmill to the assessee. Clause 3 of the agreement clearly says that windmill shall be handed over to the assessee subject to full payment of Rs.138.74 crores. The assessee now claims that even though the payment was not made, the physical possession of the windmill was transferred to it. The CIT (Appeals) by referring to the judgment of the Apex court in Mysore Minerals Ltd (supra) has simply found that the assessee is eligible for depreciation.

In the result, the appeal of the Revenue is allowed for statistical purpose.