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2014 (12) TMI 1310 - AT - Income TaxDisallowance of depreciation on certain equipment forming part of cogeneration system - Held that:- As we consider the contention of the assessee that the higher efficiency boiler and 12.65 KVA turbine have to be considered together along with other equipments necessary for generation of power, as the integrated cogeneration system. In our view, there cannot be two opinions that high efficiency boiler along with turbine and the associated equipments connecting them, increasing its efficiency etc., are to be considered as part of cogeneration system and are therefore eligible for higher depreciation allowance. CIT(A) observed that RCC Chimney and Bagasse Drier are part of the higher efficiency boiler. This factual finding is not disputed before us by the revenue. Thus, both these items have to be considered as integral part of the cogeneration system. The very expression ‘cogeneration’ refers to simultaneous generation of two forms of power i.e. heat and electricity. Boiler is one component of such system wherefrom the root power i.e. steam is generated and it is this steam that is converted into electricity power with the use of a turbine. Thus, the boiler has a dual utility i.e. as standalone item and also a part of cogeneration system. High efficiency boilers are required for generation of power. Therefore, RCC Chimney and Bagasse drier forming part of boiler system are eligible for higher depreciation. Coming to DC Drier which are energy saving devices, we are of the view that this cannot be used independently in a cogeneration system. These are energy saving device and are eligible even on standalone basis for higher rate of depreciation. They fell within one of the specific category in energy saving device. Hence, higher rate of depreciation should be allowed on this equipment also. Steam Piping is part of the boiler. We do not appreciate the findings of the revenue authorities that steam piping cannot be considered as part of cogeneration system. Even applying the test laid down by various courts, we have to necessarily hold that steam piping cannot be used independently or standalone basis. It is an integral part of cogeneration system, hence, eligible for higher depreciation. Coming to the coal & gas feeding system and coal handling system, we apply the decision of Hon’ble M.P. High Court in the case of Vippy Solvex Products Ltd (2007 (3) TMI 746 - MADHYA PRADESH HIGH COURT) and come to our conclusion that this is an integral part of high efficiency boiler. The very description of nature of the equipment demonstrates that it cannot be independently used and has to be used along with the boiler. Thus, we direct the AO to treat the coal & gas feeding system and coal handling system as integrated part of cogeneration system and allow higher depreciation on the same. With regard expenditure on Sub-station power line, we cannot agree with the contention of the appellant that expenditure incurred on sub-station power line is also part of the cogeneration system. This expenditure is necessary for onward distribution of the power generated in a cogeneration system and hence cannot be considered as an integral part of the cogeneration system. We now consider the additional ground raised by the assessee on the issue of expenditure incurred on sub-station power line, which was ultimately handed over to APTRANSCO. Both the parties agreed that this is legal claim and that the facts are on record. Under these circumstances, we hold that the ld CIT(A) should have admitted this additional ground of the assessee and adjudicated the same following the decision of Hon’ble Supreme Court in the case of NTPC Ltd., (1996 (12) TMI 7 - SUPREME Court). We direct the AO to treat the expenditure incurred by the assessee on construction of sub-station power lines as incurred in the revenue field and allow the claim of the assessee. Needless to say that since the entire expenditure incurred by the assessee is allowed as revenue expenditure the question of allowance of depreciation does not arise. Claim of the assessee that the expenditure incurred for sanction of HT power line is in the revenue field. The amount is paid as non-refundable amount to obtain approval of power distribution company ltd., for extension of power supply. No asset has been created and hence, the question of treating the expenditure as capital in nature does not arise. Consistent with the view taken by us in the case of Substation power line, which was handed over to APTRANSCO, we direct the AO to allow this expenditure as in the revenue field.
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