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10.1. In the result, the appeal of the assessee is partly allowed for statistical purposes.

11. Now we take up Revenue's Appeal in ITA No.963/PUN/2014.

12. First ground is with respect to depreciation on windmill. 12.1. During the course of assessment proceedings, AO on perusing the depreciation schedule noticed that assessee has claimed depreciation of Rs.10,51,87,561/- on windmill. AO also noticed that the addition made to fixed assets on account of seven windmills was to the extent of Rs.26,29,68,903/-. The assessee was asked to furnish the details with respect to addition to windmill and the calculation of depreciation on windmill. AO noticed that during the year assessee company had installed seven windmills on 30.12.2006 for generation of power and had claimed 40% depreciation on such windmills. On perusing the details, he noticed that assessee had claimed depreciation on the windmills and also on the cost of transformer, DP, civil construction and others. The submission of the assessee that the entire expenditure with cost of windmills is entitled to higher depreciation as other expenditure incurred are integral part of windmills was not found acceptable to AO. AO was of the view that the depreciation rate applicable on civil construction, earth work and foundation etc., is 10% as in the case of block of assets of buildings and not 40% as claimed by the assessee. He therefore restricted the depreciation on construction activity to 10% and on erection and commissioning expenditure to 15%, being the rate applicable to the plant and machinery, and accordingly worked out the excess depreciation to the tune of Rs.56,69,031/- and disallowed the same. Aggrieved by the order of AO, assessee carried the matter before Ld.CIT(A), who decided the issue by holding as under :

"4.2 I have gone through the submissions of appellant and reasons given by the AO for disallowance of depreciation on windmill. I have also gone through the decision on which the AO & the appellant have placed reliance.

4.3 The main contention of the assessee is that civil work related to foundation done to install windmill and commission charges are part of the plant & machinery Le. Windmill and the assessee is entitled for depreciation of at 80%. The assessee has also stated the Pune ITAT case (Poonawala Finwest & Agro P Ltd) on which AO had placed reliance deals with civil cost incurred on roads, control room, etc adjacent to windmill. The assessee also pleaded during the appellate proceedings that in order to treat a particular structure as building, it is necessary to have a roof, flooring etc. for the same. Considering the huge structure of windmills, special foundation is required for the same and the same is integral part of windmills.

4.4 To decide the issue of the classification of asset for the purpose of depreciation, its predominant function needs to be checked. In other words, functional test needs to be applied. By applying functional test to civil foundation for windmills, there is no doubt that, without civil foundation the windmill will not generate power. In other words, it (civil foundation) is employed in carrying on the activity of generation of electricity. The civil foundation cannot be separated from the windmill & treated as building. In my opinion, cost on the foundation of windmill is eligible for depreciation rate which is applicable for windmill as it is integral part of windmill. The work order placed by the appellant on contractor for civil foundation also includes work related to construction of approach & internal roads. The appellant informed during appellate proceedings, the cost of internal road is approx. Rs. 5 lacs. Relying on the decision on Pune ITAT in Poonawala Finvest & Agro Pvt. Ltd. vs ACIT, I hold that depreciation on internal roads will not be allowable at rate of 80% but the same is allowable @ 10%. The cost of foundation will be Rs.1,24,45,634/- (i.e. cost of foundation Rs.1,24,95,634/- less cost of roads Rs. 5,00,000/-. The depreciation allowable on roads will be restricted to Rs. 25,000/-. The Assessing officer is directed to delete the addition Rs. 15,90,219/- ( Rs. 16,15,219 less Rs. 25,000).

Aggrieved by the order of Ld.CIT(A), Revenue is now in appeal before us.

13. Before us, Ld.D.R. supported the order of AO. Ld.A.R. on the other hand, reiterated the submissions made before AO and Ld.CIT(A) and further submitted that the issue is also covered in favour of the assessee by the decision of Pune Bench of the Tribunal in the case of DCIT Vs. Aminity Developers and Builders in order of Ld.CIT(A).

14. We have heard the rival submissions and perused the material on record. The issue in the present ground is with respect to depreciation on windmills. AO denied the claim of depreciation at 40% which is applicable to the windmills, on cost of foundation, erection and commissioning expenditure. He denied the higher rate of depreciation for the reason that he was of the view that the rate of depreciation applicable on such costs is the normal rate of depreciation which is applicable to building and plant and machinery. We find that Ld.CIT(A) while deciding the issue has given a finding that by applying functional test that without civil foundation the windmills will not generate power and that civil foundation cannot be separated from windmills and cannot be treated as a separate building. With respect to the cost of erection and commissioning expenditure, Ld.CIT(A) has given a finding that the same cannot be separated from windmills as the same are directly related to the functioning of windmills. The aforesaid findings of Ld.CIT(A) has not been controverted by Revenue. We further find that the Hon'ble Rajasthan High Court in the case of CIT Vs. Mehru Electricals and Mechanical Engineers Pvt. Ltd., reported in (2016) 388 ITR 168 (Rajasthan) has held that the rate of depreciation applicable to windmills also applies to civil foundation and electric turbine generator for windmill as they are the part of the windmill. We further find that the Hon'ble Bombay High Court in the case of CIT Vs. CTR Manufacturing Industries Pvt. Ltd., (in ITA No.2125 of 2013 order dt.01.03.2016) has held that the depreciation of windmill is to be allowed even on the cost like erection and commissioning charges, electric items, application charges etc., which are capitalized to windmill. Before us, Revenue has not placed any contrary binding decision in its support. In view of the aforesaid facts, we find no reason to interfere with the order of Ld.CIT(A) and thus, this ground of the Revenue is dismissed.