INCOME TAX ACT, 1961

Section 32, Explanation 3 to section 43(1)

Depreciation - Windmill - Second hand windmill - Determination of actual purchase price

Assessee's case was selected for scrutiny and notice under section 143(2) was issued, after which, the assessment was completed. Assessment was reopened under section 147 on the ground that there was an excess claim of depreciation in respect of purchase of a windmill. After affording an opportunity to the assessee, assessment was completed disallowing the depreciation claimed by assessee. It was contended that there was a huge market for second-hand wind mills and the assessing officer failed to note the location of the windmill, the make and capacity, it had more than 15 years of balance use life and past performance of the mill in generating electricity. Thus, it was contended that owing to all these features, the assessee had purchased the windmill for a sum of Rs. 2,36,00,000. The Commissioner (Appeals) partly allowed the appeal filed by the assessee, faulted the valuation method adopted by the assessing officer to be unscientific and ultimately, determined the cost of the windmill at Rs. 1,50,00,000 and directed the assessing officer to grant depreciation on the said amount. Aggrieved by such order, the assessee as well as the Revenue filed appeals before the Tribunal. By the impugned order, the appeal filed by the Assessee has been dismissed and the appeal filed by the Revenue has been allowed. Held: The Commissioner (Appeals), while partly allowing the assessee's appeal, proceeded to make a adopt estimations of the value and fixed the sum at Rs. 1,50,00,000. We there was no scientific basis for such fixation of the value of the second-hand windmill and such fixation had been done based on the personal opinion of the Commissioner (Appeals). Therefore, the Tribunal was fully justified in allowing the Revenue's appeal. With regard to the assessee's appeal, the Tribunal re-appreciated the factual position and in particular, noted that the manufacturer of the windmill has certified that the windmill, which was sold to the assessee is no more in the market value and the technology has become obsolete. The Tribunal also considered as to what would be the effect of a report of the government valuer and noted Explanation III to section 43(1), which requires the assessing officer to arrive at an objective satisfaction. Further, the Tribunal observed that valuations may be relevant in ordinary circumstances, but when cumulative depreciation claimed was far in excess of the cost, the valuation report of the approved valuer becomes insignificant. Thus, in the Tribunal has reappreciated the factual position and come to a conclusion that the order passed by the assessing officer required no interference. Thus, we conclude by observing that there is no question of law much less substantial question of law arising for consideration in these appeals.

REFERRED : V. Sabithamani v. ACIT & Vice-Versa 2017 TaxPub(DT) 1013 (Chen-Trib)

FAVOUR : Against the assessee

A.Y. : 2009-10

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