The Hindu Business Line : Windmills gone with the wind!

Who would not have read about Don Quixote de la Mancha, in Miguel de Cervantes' famous work! Of relevance to our story is chapter VIII, which you can read on www.online-literature.com.

`At this point,' the hero and his squire `came in sight of thirty forty windmills that there are on plain.' Don Quixote said to his squire: "Fortune is arranging matters for us better than we could have shaped our desires ourselves, for look there, friend Sancho Panza, where thirty or more monstrous giants present themselves, all of whom I mean to engage in battle and slay, and with whose spoils we shall begin to make our fortunes."

Perhaps, modern day people are no different, as one can notice in the NEPC India Ltd case that came up before the Chennai tribunal recently. The company was unhappy that the Department wasn't allowing depreciation on windmills installed at Perungudi and Kethanur in Tamil Nadu.

"The Assessing Officer (AO) by an order dated March 29, 1996 found that no windmill was installed at Mandvi in the State of Gujarat. In respect of windmills installed at Perungudi and Kethanur in the State of Tamil Nadu, the AO during his personal inspection found that the windmills were in existence." One learns that the AO disallowed NEPC's claim for windmills installed at Perungudi and Kethanur, saying that the assessee could not have installed windmills on or before March 31, 1993.

Depreciation in respect of windmills at Mandvi was Rs 22 lakh, while the total claim of depreciation was about Rs 7.6 crore. At various levels of appeal, the company found that the authorities weren't considering the windmills in Perungudi and Kethanur for the grant of depreciation.

After hearing the case, N.R.S. Ganesan, Judicial Member of the Income Tax Appellate Tribunal ruled that the issue of depreciation "in respect of windmills said to be installed at Perungudi and Kethanur in the State of Tamil Nadu" be remanded back to the file of the Commissioner of Income-tax (Appeals) for consideration.

However, Chandra Poojari, Accountant Member had a different view. "During the course of assessment, the AO required the assessee to furnish the details of actual installation and commercial use and other details like date of installation, location of installation, date of issue of NOC, Safety Certificate, date of getting HT (high tension) Connection and copy of agreement entered into with the Government, and details of power generation and also details of transportation of Wind Turbine Generators (WTGs)," noted Poojari. "The assessee did not furnish evidence and details in support of its claim that WTGs were actually installed and put into commercial use before March 31, 1993 and also not produced details of electricity generated."

Of interest are the evidences cited by the AO, as one learns from the text of the tribunal's order. These are about the mismatch in the identification numbers of the generators, and the clinching dates, post March 31, 1993, be they for HT connection or date of power purchase agreement with the TNEB.

About the Gujarat installation, the AO had stated that the WTGs belonged to NEPC's subsidiary company, Gujarat Wind Farms Ltd. "No installation has been made by NEPC Micon Ltd," he'd said. Also, "The arguments of the assessee have been contradictory and continuously changing," he opined.

Poojari's order cites a snatch from the CIT(A)'s order thus: "I am inclined to accept the appellant's request for direction to the AO to offer one more opportunity to rebut with evidence all the facts brought on record in the impugned order. The AO is also directed to visit Mandvi again with the appellant's representative in search of the WTG units not found earlier."

Accordingly, the AO wrote a letter to NEPC asking it to depute a person to accompany him on a mutually convenient date for visiting Mandvi and look for windmills. After many months of non-cooperation, NEPC wrote that its representative was not in a position to accompany the AO to Mandvi for inspection and verification `on account of deterioration in the liquidity position' of the company.

Recording all this in his 1999 order, the AO wondered, "It is difficult to appreciate as to how the deterioration in financial liquidity could undermine the visit to Mandvi especially when the assessee on its own initiative requested for it and the assessee's very claim for depreciation rested heavily on this inspection."

There's more: "While a visit to Mandvi did not materialise, the assessee's representative by his letter dated August 21,1998 stated that windmills at Mandvi might have been damaged due to supernatural forces." An instance of windmills gone with the wind?

The AO emphasised that the existence of windmills, their installation and commissioning were the basic requirements for allowance of depreciation thereon. "The assessee has not been able to establish the existence of those WTGs either physically or through documentation in an installed and commissioned condition."

Disaster? `Fly not, cowards and vile beings, for a single knight attacks you.' That's how Don Quixote shouted rushing towards the windmills, without paying heed to Sancho's warnings. "A slight breeze at this moment sprang up, and the great sails began to move, seeing which Don Quixote exclaimed, `Though ye flourish more arms than the giant Briareus, ye have to reckon with me.'"

What happened subsequently was disaster. Don Quixote charged at Rocinante's fullest gallop and fell upon the first mill that stood in front of him, narrates Cervantes.

"But as he drove his lance-point into the sail the wind whirled it round with such force that it shivered the lance to pieces, sweeping with it horse and rider, who went rolling over on the plain, in a sorry condition." Resuming the case on hand, Poojari dismissed NEPC's appeal. In view of the difference of opinion between the two members, M.K. Chaturvedi, Vice President of the tribunal studied the issue. He concurred with the Judicial Member.

Even as the suspense remains on whether the windmills in Tamil Nadu too haven't met with the fate that engulfed the ones in Gujarat, a question pops up: Who is tilting at the windmills — the taxman, the tribunal or the assessee?

Tailpiece

"When my doctor told me that I should not overload my heart... "

"You changed your lifestyle?"

"No, I switched my job, to become a tax officer."

http://Detaxification.blogspot.com

D. Murali

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