2014 (4) TMI 1105 - AT - Income Tax

Additional depreciation u/s. 32(1)(ii) - whether assessee has not satisfied the condition of engaging in the business of manufacture or production of any article or thing?- Held that - Generation of electricity is a manufacturing activity. The assessee is involved in the manufacturing activity and fulfills the conditions as laid down under section 32(1)(iia). The Government vide Finance Act, 2012 has amended the provisions of section 32(1)(iia) to include the business of generation or generation and distribution of power, eligible for benefit under section 32(1)(iia). Although the said amendment is with effect from 1.4.2013 but it gives impetus to the view that generation of electricity is a manufacturing process and qualifies for the benefits under section 32(1)(iia). See ACIT Vs. M.Satishkumar reported as (2012 (11) TMI 215 - ITAT CHENNAI). Rate of depreciation on civil and electrical fittings - Held that - We find that this issue has also been dealt with in the case of R.Ramanathan Vs. DCIT (2011 (8) TMI 1143 - ITAT CHENNAI), wherein the Tribunal has held that wind mills are fabricated/erected on a specialized foundation and the civil and electrical components of the structure are indivisible parts of the wind mill parts as a whole. As such, the civil and electrical components of the wind mill structure cannot be dis- associated from the sole and substance of the wind mill and cannot be given a separate treatment for depreciation and directed the assessing authority to grant depreciation @ 80% on the whole cost of wind mill including civil and electrical components.

Summary

Issues involved:
1. Claiming additional depreciation u/s. 32(1)(ii) of the Income Tax Act.
2. Treatment of wind mill and electrical works as separate components for depreciation.

Issue 1: Claiming additional depreciation u/s. 32(1)(ii) of the Income Tax Act:
The appeals were filed by the Revenue against the orders of the Commissioner of Income Tax(Appeals) for AYs 2007-08 & 2008-09. The Revenue contended that the assessee did not satisfy the condition of engaging in the business of manufacture or production of any article or thing for claiming additional depreciation u/s. 32(1)(ii). The Assessing Officer had disallowed additional depreciation claimed by the assessee on the wind mill and restricted the rate of depreciation on civil works and electrical fittings. The CIT(Appeals) allowed the appeals of the assessee, citing previous tribunal judgments supporting the view that generation of electricity is akin to manufacturing of a new product. The Tribunal upheld the CIT(A) order, stating that generation of electricity qualifies as a manufacturing activity and fulfills the conditions under section 32(1)(iia). The Tribunal dismissed the Revenue's appeal, as the issue had already been adjudicated in a previous case.

Issue 2: Treatment of wind mill and electrical works as separate components for depreciation:
The second issue involved in the appeal was regarding the rate of depreciation on civil works and electrical fittings. The Tribunal referred to a previous case where it was held that wind mills are fabricated/erected on a specialized foundation, and the civil and electrical components are indivisible parts of the wind mill. Therefore, the civil and electrical components cannot be given separate treatment for depreciation. The Tribunal directed the assessing authority to grant depreciation at 80% on the whole cost of the wind mill, including civil and electrical components. Based on this decision, the Tribunal dismissed the Revenue's appeal on this ground as well.

In conclusion, the Tribunal dismissed both appeals of the Revenue, as the issues raised had been previously adjudicated and the decisions were in favor of the assessee. The judgments cited by the parties and the previous tribunal decisions played a crucial role in the final decision of the Tribunal.