Income Tax Appellate Tribunal - Hyderabad
Manjeera Hotels & Resorts Ltd., Hyd, ... vs Department Of Income Tax on 10 July, 2015
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCHES "B", HYDERABAD
BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER
AND
SHRI SAKTIJIT DEY, JUDICIAL MEMBER
I.T.A. No. 469/HYD/2015
Assessment Year: 2008-09
Asst. Commissioner M/s. Manjeera Hotels
of Income Tax, Vs & Resorts Ltd.,
Circle-16(2), HYDERABAD
HYDERABAD [PAN: AACCM3554C]
(Appellant) (Respondent)
For Revenue : Shri Rajat Mitra, DR
For Assessee : NONE
Date of Hearing : 06-07-2015
Date of Pronouncement : 10-07-2015
ORDER
PER B. RAMAKOTAIAH, A.M. :
This is Revenue's appeal against the order of the Commissioner of Income Tax (Appeals)-4, Hyderabad dated 23-01-2015. Revenue has raised the following grounds:
"2. The learned CIT(A) erred in deleting the addition made towards the Disallowance of Excess Depreciation claimed on Wind Mill.
3. The learned CIT(A) erred in considering the Transformer, HT, Electrical supply unit as integral part of Wind Mill".
I.T.A. No. 469/Hyd/2015 :- 2 -: M/s. Manjeera Hotels & Resorts Ltd
2. When the notice was issued and the case was taken up for hearing, none appeared on behalf of assessee. So appeal is being decided after hearing the Ld. DR, exparte assessee-respondent.
3. Briefly stated, assessee is engaged in the hotel business and forayed into the business of Wind Mill Power Generation. It admitted income of Rs. 60,19,060/- under normal provisions and deemed income of Rs. 4,08,79,035/- u/s. 115JB of the Income Tax Act [Act]. In the course of scrutiny assessment, Assessing Officer (AO) disallowed part- depreciation claimed at 80% of wind mill on other Plant & Machinery items such as Transformer of Rs. 13.91 Lakhs, HT of Rs. 19.45 Lakhs, Electrical supply of Rs. 27.56 Lakhs, total Rs. 60.92 Lakhs and certain civil works as excess depreciation. He was of the opinion that higher rate of depreciation was not allowable in respect of this expenditure which is not part of wind mill. Accordingly, he allowed depreciation @ 15% and on civil works, @ 10% only.
4. It was submitted before the Ld.CIT(A) that :
"i. Wind Mill Project included following Two bills (enclosed) of Rs. 90,09,692/-.
1. Civil work including foundation & allied works in respect of Windfarm Project Consisting of one No WTG for your 1.5MW Windmill at Location No R232-Rs.51,35,692.
2. Paid to TNEB on your behalf towards IDC-NOC Registration charges, Processing and Supervision charges for 1 WTG of 1500kw at Location No. R232- Rs. 38,74,000/-.
ii. The first Bill Rs. 51,35,692/- relates to foundation & allied works for the various windmills, without which it is impossible for the windmills erected over vast stretch of open land which are subject to high velocity winds and on cultivable lands all comprised in one Windfarm Project No WTG 1.5MW.
I.T.A. No. 469/Hyd/2015
:- 3 -: M/s. Manjeera Hotels & Resorts Ltd
iii. The second Bill Rs. 38,74,000/- relates to payment to Tamil Nadu Electricity Board for the purpose specified mentioned therein and in no way can be construed as for any Building civil works.
iv. There are no Buildings civil works in nature incurred, wherein anything is sheltered, comprised in the Windmill project erected by the Assessee.
B. Plant & Machinery held by AO as neither specialized nor part and parcel of windmill not qualifying for depreciation at higher rate of 80% :
1. Windmill Project included following Three bills (enclosed) of Rs.
60,92,845.
1. Component & Accessories of Renewable Energy Device 1700KV A, 33/0.690KV Copper Wound Transformer with all fittings - Rs.13,91,000.
2. Installation (with Material) of electrical line for power transmission and metering in respect of your windfarm project consisting of one WTG for your 1.50 MW Windmill at Location No. R232- Rs. 19,45,845.
3. Electrical Items, components of renewable energy device/windmill, in respect of windfarm project consisting of one WTG for your 1.5 Mw Windmill at Location No. R232- Rs. 27,56,000.
ii. It is submitted that the description as detailed in the above three bills categorically specify that the items mentioned herein are component & Accessories namely Transformer, HT and Electrical items embedded with the Renewable Energy Device of one integrated Windfarm Project WTG of 1.50 Mw and not to be construed as held by AO that these expenses are not part and parcel of the windmill or any specially devices which run on Windmill.
iii. True basis of depreciation allowance is the character of an asset and not its Description. The functional test is the decisive test. One is to look the finished product and not at the bits and pieces. All the expenses of civil works are specialized ones in erection of windmills and all the plant & machinery are part and parcel of the composite I.T.A. No. 469/Hyd/2015 :- 4 -: M/s. Manjeera Hotels & Resorts Ltd and integrated Wind Mill Project and are entitled for higher depreciation as set out in the Act".
It was contended that the true basis of depreciation allowance is the character of an asset and not its description.
5. Ld.CIT(A) after considering assessee's submissions and relying on the co-ordinate bench decision in the case of ACIT Vs. Rakesh Gupta (Chd-Trib) [60 SOT 81], deleted the disallowance made by AO and allowed the claim as such. His brief order is as under:
"6. The assessment order, submissions of the assessee and the documents placed on record are perused. The submissions of the AR during the appellate proceedings are also considered. The main contention of the AR is that the expenditure under contention is incurred on assets which are integral part of the capital asset i.e., the wind mill and is eligible for higher depreciation. The AR relied on the decision of Hon'ble ITAT in the case of ACIT Vs. Rakesh Gupta (Chd-Trib) 60 SOT 0081 where on a similar issue, it was held that expenditure related to generation and transmission facilities would be part of the capital asset and eligible for higher rate of depreciation. Respectfully following the ratio of above decision, it is held that the expenditure under consideration is on the assets which are integral part of the wind mill and accordingly eligible for higher rate of depreciation. The addition made by Assessing Officer is deleted".
6. After considering the Ld. DR and perusing the orders of the authorities, we do not see any reason to interfere with the order of Ld.CIT(A). The issue whether generator, transformers, HT lines, miscellaneous civil works will form part of wind mill so as to get 80% depreciation under that category was considered by the co-ordinate bench in the case of ACIT Vs. Rakesh Gupta (supra) as under:
I.T.A. No. 469/Hyd/2015 :- 5 -: M/s. Manjeera Hotels & Resorts Ltd "* The Income-tax Rules provide for allowance of depreciation at the rate of 80 per cent on 'renewable energy devices' - like wind mills and any other specially designed devices, which run on wind mills.
* Any 'electric power system' (EPS), to become operational and useful, can be divided into three systems, which when coalesced become the EPS. These parts are:
(i) power generation system, which is wind mill in this case;
(ii) power transmission system i.e. after power is generated it needs to be transmitted to places wherever it is required; and
(iii) power distribution system - this energy has to be distributed as per requirement.
* Without the existence of the above three systems, the idea of wind mill is meaningless. Thus, one can say with impunity that all the above, systems go to form an essential composite system known as 'wind mill'. This composite system is eligible for 80 percent depreciation. Wind mill is invariably installed at a place where ample wind pressure is found to move the sails, which in turn generates electricity. The electric power is generated at places which are usually intractable and near which the consumption of that energy is not possible. Therefore, this energy has to be 'transmitted' with the use of a 'transmission system' which further requires a 'distribution system' to make use of that energy. Therefore, the generation, the transmission and distribution of energy, in fact is the 'Wind-Mill'. Without the combination of the above three systems, the idea of wind mill will not became viable. Without the system No. (ii) and (iii), the wind mill cannot even be commissioned. Since the electricity cannot be stored, one cannot simply go on generating it in the air and let it be wasted. Therefore, the expenditure incurred towards systems (i), (ii) and (iii), have to be clubbed and cannot be separated".
7. Further, co-ordinate bench at Hyderabad in the case of M/s. Lanco Infratech Ltd., Hyderabad in ITA Nos. 252 & 253/Hyd/2013 also considered the same issue, wherein it was held has under:
"7. We have considered the submissions of the parties and perused the orders of revenue authorities as well as other materials I.T.A. No. 469/Hyd/2015 :- 6 -: M/s. Manjeera Hotels & Resorts Ltd on record. After going through the documentary evidences placed before us which also forms part of record before the departmental authorities, we do not find any infirmity in the findings of ld. CIT(A). It is clear from the assessment order, assessee's claim of depreciation at 100% on wind mill equipment was rejected by AO simply for the reason that as wind electric generator is in the nature of electrical equipment, depreciation is to be allowed @ 25% and not at 100%. However, as found from the facts on record, assessee claimed 100% depreciation on assets worth Rs. 14,73,71,680 by treating it as wind mill equipment. The break up of Rs. 14,73,71,680 is as under:
S.No. Description of assets Date of Amount (in acquisition Rs.)
1. Incidental expenses 08.01.2002 1,680
2. Erection & Commissioning 20.03.2002 3,98,90,000 charges
3. Purchase of wind electric 20.03.2002 10,61,10,000 generators
4. Registration & front end fee to 31.03.2002 13,70,000 IREDA Total 14,73,71,680
8. On perusal of the invoices raised towards sale of wind mill equipment and erection and commissioning of the same, it is to be noted that the price has been charged for supply, erection and commissioning of wind electrical generators. The seller of the wind mill equipment has also issued a certificate, a copy of which is at page 38 of the paper book, wherein it is clarified that the equipment supplied by them to assessee is not just wind electric generator but the complete wind mill unit consisting of the following components:
1. Gear Box & its related accessories, 2. Blades, 3. Tower, 4.
Generator & its related accessories, 5. Power cables, 6. Communication Cables, 7. Main Bearing and Shaft, 8. Electronic Controllers, and 9. Power (Main) Panel.
9. It was further clarified by the sellers that all the aforesaid components are integral part of the wind mill unit and without them the unit cannot function. Further, assessee has also obtained an opinion from a technical expert i.e. M/s Servel Krishna Engineers Pvt. Ltd. , who in their opinion have stated that the main components of wind turbines are as under:
I.T.A. No. 469/Hyd/2015 :- 7 -: M/s. Manjeera Hotels & Resorts Ltd
1. Blades, 2. Gear Box, 3. Generator, 4, Tower, 5. Foundation, 6.
Step up transformer, 7. Metering arrangement, and 8. 11/33 kV overhead lines.
They have further opined that wind electric generator is an integral part of the wind mill and it is specifically designed, so that they can convert mechanical energy into electrical energy when installed in a wind mill. Without the generator unit, the wind mill cannot achieve the desired purpose. They further clarified, as the generator is the main component, the equipment supplied for wind mill installation is sometimes referred to as wind electric generator in industry terms. It was stated that the complete unit of the wind mill comprising of the aforesaid components is a monolithic unit called 'wind mill or wind mill generator'. Apart from the aforesaid, technical opinion, a schematic diagram of the wind mill as provided by the seller of the wind mill equipment also clearly demonstrates that the generator is an integral part of the windmill unit. Therefore, considering the aforesaid factual aspect it has to be accepted that wind mill generator is nothing but wind mill equipment on which depreciation is allowable @ 100% as per the statutory provision. On a perusal of the assessment order, it is clear that AO without controverting the evidences and materials brought on record by assessee, has arbitrarily come to a conclusion that wind electric generators is an electric equipment eligible for depreciation @ 25%. Even at the time of hearing before us, ld. DR has not brought any contrary evidence to conclusively prove the fact that the equipment on which assessee claimed depreciation at 100% is not an integral part of the wind mill. In the aforesaid view of the matter, considering the fact that the materials brought on record clearly demonstrate that assessee has claimed depreciation at 100% on wind mill as a whole comprising of various ancillary and integral components including generator, we uphold the order of ld. CIT(A). Grounds raised by the department in both the appeals are dismissed".
8. In view of the above, the above units which are treated by the AO as separate independent Plant & Machinery are integral part of windmill system and has no independent existence as plant and Machinery. The civil works such as foundations can not be treated as buildings so as to consider them as independent assets. We hold that they are part of wind mill and is entitled for depreciation @ 80%. The I.T.A. No. 469/Hyd/2015 :- 8 -: M/s. Manjeera Hotels & Resorts Ltd order of CIT(A) is therefore upheld. There is no merit in Revenue's grounds and accordingly, they are dismissed.
9. In the result, appeal is dismissed.
Order pronounced in the open Court on 10th July, 2015.
Sd/- Sd/- (SAKTIJIT DEY) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER Hyderabad, Dated 10th July, 2015 TNMM Copy to :
1. Asst. Commissioner of Income Tax, Circle-16(2), Room No. 617, 6th Floor, Aayakar Bhavan, Basheerbagh, Hyderabad.
2. M/s. Manjeera Hotels & Resorts Ltd., 304, Aditya Trade Centre, Aditya Enclave Road, Ameerpet, Hyderabad.
3. CIT(Appeals)-4, Hyderabad.
4. CIT-IV, Hyderabad.
5. D.R. ITAT, Hyderabad.
6. Guard File.