CHENNAI, SEPT 16, 2016: THE issue is - Whether when assessee has taken over possession of wind mill before end of relevant FY and same was put to use generating electricity before 31 st March, depreciation can still be denied in same FY. NO is the Verdict of the High Court.

Facts of the case

The assessee is a private limited company, engaged in the business of running a Tourist Hotel. It had filed its return of income, admitting total income as Rs.70,10,580/-. Return was taken for scrutiny and assessment u/s 143(3) was completed, wherein AO disallowed the claim of depreciation of Rs.3,78,00,000/-, on the cost of Wind Mill of Rs.9,45,00,000/-, because the wind mill was not acquired during the relevant previous year. AO observed that the invoice for sale of the windmill was of the last date of the relevant previous year. Assessee had paid only Rs.1,86,00,000/- out of the total cost of the windmill Rs.9,45,00,000/- as on the relevant date. The balance amount of Rs.7,79,00,000/- was paid during the month of May & June 2008. The agreement with TNEB for sale of power was dated 29.03.2008 and the approval of the same was communicated on 22.04.2008. The office of S.E. TNEB had not responded to the query raised by AO to clarify as to how sale agreement of power could be entered with the assessee by the TNEB on 29.03.2008 when the assessee had purchased the windmill vide invoice dated 31.03.2008. No specific evidence was produced either by the seller or by the buyer of the windmill that the property had passed hands before 31.03.2008. By the test of preponderance of probabilities, it was construed that the windmill would have passed hands only during the Financial Year 2008-09 relevant to the AY 2009-10.

On appeal, CIT(A) held that it was amply made clear that assessee had paid an advance of Rs. 20,00,000/- for purchase of windmill of 1500 KV capacity from M/s Simran Wind project P Ltd. at a cost of Rs.9,45,00,000/- on 02.02.2008, subsequently on 14.02.2008 a further amount of Rs.1,66,00,000/- had been paid by the company to the supplier of windmill. Further there was a sanction of term loan of Rs. 7,00,00,000/- by SBI for acquisition of windmill on 19.03.2008. There was also subsequent payment of Rs.59,00,000/- on 25.03.2008 by the assessee to the Supplier. On delivery as well as installation of windmill and generation of electricity and entering of approval for transfer of the windmill to assessee by the TNEB on 29.03.2008 itself proved that the windmill had been kept on operation and started generating electricity during the FY relevant to the AY 2008-09 had been commenced and therefore assessee was eligible to claim the depreciation on the windmill at Rs. 3,78,00,000/-. Thus, it had held that AO was not justified in denying the depreciation without analyzing various materials brought on record. Thus, the assessee had not only established the acquisition of the asset but also the putting the windmill into use for generation of electricity from the asset acquired before 31.03.2008. Section 32 nowhere stipulates that an assessee in order to claim depreciation ought to have paid the full cost of acquisition of depreciable asset. Thus, CIT(A) concluded that AO was not justified in denying the claim of assessee for depreciation. Therefore AO was directed to delete the addition made on account of disallowance of depreciation claimed by assessee at Rs. 3,78,00,000/-."

The DCIT(A) filed an appeal before Tribunal, where it was held that the wind mill had been installed and commissioned at the site and was operational before 31.03.2008. It started generating electricity during the financial year, relevant to the AY 2008-09 and therefore, the appellate authority held that assessee was eligible to claim the depreciation on the windmill at Rs.3,78,00,000/-. CIT(A) had also observed that the section does not stipulate any condition that an assessee, in order to claim depreciation, ought to have paid the full cost of acquisition of depreciable asset. Tribunal noted that sufficient evidence were before the Revenue based on which CIT (A) had come to a conclusion that the windmill had been purchased before 31.03.2008 and commissioned. The genuineness of the documents produced by the assessee could not be satisfactorily confronted by the Revenue. Moreover it was also noticed that Rule 46A was ever violated by CIT(A) because the A.R had certified that all the documents were produced before the both the Revenue Authorities and the same could not be proved otherwise by D.R by producing the assessment records. Further it was apparent from the order of A.O that he had placed more reliance on the theory of preponderance of probabilities because many of the material events had occurred during the fag end of the previous year which arise some suspicion. Thus, the Tribunal held that we do not find it necessary to interfere with the order of CIT (A) who had arrived at his decision based on the above mentioned documents and certain Judgments of the higher judiciary which were in support of the case of assessee. Hence Tribuanl upheld the order of CIT (A).

Having heard the matter, the High Court held that,

++ we are of the view that the Tribunal was right in holding that the assessee is entitled to depreciation, as the assessee had taken over the possession of the wind mill, and that the same was put to use and started generating electricity, before 31.03.2008, during the financial year, relevant to the assessment year 2008-09. Hence, the first substantial question of law raised, is answered against the revenue. Going through the documents issued by the State Bank of India and the Tamil Nadu Electricity Board and other evidences, the Tribunal has observed that the genuineness of the documents has not been confronted by the Revenue. Same was the case before the Commissioner of Income Tax (Appeals). When production of evidence at the appellate stage, is permissible under the Income-Tax Act, 1961 and the Rules made thereunder, nothing prevented the Revenue from raising objections or to question the genuineness of the documents. What is contemplated under the rules is examination of evidence or to cross examine the witness produced by the appellant. Revenue is also entitled to produce any evidence or witness, rebutting the additional evidence produced by the appellant. When all the above was open to the revenue, it is the categorical finding of both the appellate authority and the Tribunal that the revenue has not confronted the evidence adduced by the assessee, in which event, it would not be correct to contend that the Commissioner of Income-Tax (Appeals), ought to have sought for a remand report. There was no challenge to the documentary evidence;

++ the question now posed before us, is whether, the CIT(A), has properly exercised the powers, under Rule 46A of the Income Tax Rules, 1963. It is the case of the revenue that a remand report ought to have been obtained. Exercise of power by the CIT(A), is to enable the appellate authority to pass orders, for substantial cause, while entertaining additional evidence, the appellate authority is empowered to allow additional evidence to do substantial justice, between the parties. The appellate authority may admit the evidence and decide the appeal. The appellate authority may keep the appeal pending and direct the assessing officer to ascertain the facts, essential for the purpose of deciding the appeal and then, on the basis of the remand report, decide the appeal. Where additional evidence is adduced, the other side has to be given an opportunity to explain or rebut such additional evidence. It is also well settled that if evidence has been allowed to be let in, without objection, it will not be open to the party aggrieved to raise any objection, as to its admissibility, at a subsequent stage. When all the materials were available before the appellate authority and not objected by the revenue, the contention that a report ought to have been obtained, cannot be countenanced. Exercise of jurisdiction by the appellate authority, cannot be said to be contrary to the provisions of the Income Tax Rules, 1963;

++ when the State Bank of India, a schedule bank/Public Sector Undertaking has issued documentary proof for disbursement of the loan on 19.03.2008, amounting to Rs.7,00,00,000/- and the Tamil Nadu Electricity Board, controlled by the State, have issued documents to prove the purchase of power generated by the windmill from the assessee, they were not objected by the department and in such circumstances, it would not be appropriate to contend that the Tribunal went wrong in holding that there is no violation of Rule 46-A of the Income-Tax Rules, 1962. Thus, both before the CIT(A), Trichy and the Tribunal, the revenue has not only failed to controvert the contents of the documents nor produced the assessment records, to disprove the same. Thus, after considering the credence of the documentary evidence, produced by the assessee and on the facts and circumstances of the case, the Tribunal, by observing that the AO had placed reliance only on the theory of preponderance of probability, and thus, disallowed depreciation, has confirmed the order of CIT(A), Trichy. The Tribunal has also found that the decisions relied on, supported the case of the assessee. In the light of the above discussion and the decisions, we are of the view that the appellant has not made out a case for an answer in its favour, on the substantial question of law No.2, raised in the instant appeal. Hence, the same is answered against the revenue. There are no valid grounds to reverse the order of the Tribunal. Both the questions of law raised are answered against the revenue and in favour of the assessee. In the result, the Tax Case Appeal is dismissed.

(See 2016-TIOL-2134-HC-MAD-IT)