2012 (5) TMI 127 - AT - Income Tax

Withdrawing the additional depreciation on the ground that electricity is not an article or thing Held that - CIT while treating the electricity as not an article or thing has not made reference to any provisions of the Income-tax Act, 1961 and simply construed the meaning of electricity as not article or thing on the basis of his own inference as per the definition of goods as given in Article 366(12) of the Constitution it means all kinds of moveable property and the term moveable property when considered with reference to goods as defined for the purpose of sales-tax cannot be taken in a narrow sense and merely because electricity energy is not tangible or cannot be moved or touched like it cannot be cease to be moveable property when it has all the attributes of such property. It is capable of abstraction, consumption and use - If there can be sale and purchase of electrical energy like any other moveable object, this Court held that there was no difficulty in holding that electric energy was intended to be covered by the definition of goods - electric energy has all trapping of an article or goods in favour of assessee. Provisionally revising the sales downward on estimate basis as per the earlier norms of CERC, final order yet to be passed in succeeding year Held that - An error has crept in the assessment order if an verification of the record, Learned Commissioner formed an opinion that an issue available in the computation of income required verification and investigation at the end of AO before its acceptance or rejection and such inquiry was not conducted - such an error caused a prejudice to the revenue than assessment order on such issue could be set aside - on reduction of sales Learned CIT has rightly taken cognizance u/s. 263 and has rightly remitted this issue to the Assessing Officer for fresh adjudication.

Summary

Issues Involved:
1. Validity of the invocation of Section 263 of the Income-tax Act, 1961 by the Commissioner.
2. Withdrawal of additional depreciation under Section 32(1)(iia) of the Income-tax Act, 1961.
3. Provisional revision of sales and its treatment in the assessment order.

Issue-wise Detailed Analysis:

1. Validity of the Invocation of Section 263 of the Income-tax Act, 1961:
The Commissioner of Income Tax (CIT) exercised powers under Section 263 of the Income-tax Act, 1961, to revise the assessment order. The CIT believed that the Assessing Officer (AO) did not properly scrutinize the issues of additional depreciation and provisional revision of sales, making the order erroneous and prejudicial to the interest of the revenue. The Tribunal examined the principles laid down by various judicial precedents, including the Supreme Court's decision in Malabar Industrial Co. Ltd. v. CIT, which requires both conditions of the order being erroneous and prejudicial to the revenue to be met for invoking Section 263. The Tribunal found that the AO had not conducted any inquiry on the two issues, making the order erroneous. Therefore, the CIT's invocation of Section 263 was justified.

2. Withdrawal of Additional Depreciation under Section 32(1)(iia):
The CIT withdrew the additional depreciation claimed by the assessee on the grounds that the generation of power does not qualify as the manufacture or production of an article or thing under Section 32(1)(iia). The Tribunal analyzed various judicial pronouncements, including the Supreme Court's decisions in CIT v. Sesa Goa Ltd. and India Cine Agency v. CIT, which elucidated the meaning of "manufacture" and "production." The Tribunal also referred to the Supreme Court's rulings in CST v. Madhya Pradesh Electricity Board and State of Andhra Pradesh v. NTPC, which recognized electricity as "goods." The Tribunal concluded that electricity qualifies as an article or thing, and its generation is akin to manufacture or production. Thus, the additional depreciation claimed by the assessee was admissible, and the CIT's order to withdraw it was reversed.

3. Provisional Revision of Sales:
The CIT observed that the AO allowed the assessee to revise sales downward by Rs. 938.03 crores without proper examination. The assessee argued that the revision was based on provisional tariffs set by the Central Electricity Regulatory Commission (CERC) and disclosed all material facts in the annual report. The Tribunal noted that the AO did not raise any queries or conduct an inquiry on this issue during the assessment proceedings. The Tribunal upheld the CIT's decision to remit the issue back to the AO for fresh examination, as the failure to inquire into the provisional revision of sales rendered the assessment order erroneous and prejudicial to the revenue.

Conclusion:
The Tribunal partly allowed the appeal, upholding the CIT's invocation of Section 263 and the remittance of the issue of provisional revision of sales for fresh examination. However, it reversed the CIT's order on the withdrawal of additional depreciation, allowing the assessee's claim. The decision was pronounced in the open court on 30.04.2012.