2013 (8) TMI 283 - AT - Income Tax

Deduction of additional deduction - windmill power generation - Held that - electricity falls within the definition of sale of Goods Act, 1930 and process of generation of electricity is akin to manufacture or production of an article or thing . The power generated need not necessarily be used in the production of assessee s own products namely mining and extraction of gold. The use of electricity in the manufacturing activity of the core business of the assessee is not a precondition for the grant of additional depreciation under the statue - 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 - Decided against Revenue.

Issues:
1. Denial of additional depreciation on windmill by Assessing Officer.
2. Appeal filed by the assessee before CIT (A) challenging the denial.
3. CIT (A) allowing the claim of the assessee for additional depreciation.
4. Revenue's appeal against CIT (A) order before ITAT Bangalore.
5. Interpretation of provisions related to additional depreciation u/s 32(1)(iia).
6. Whether power generation qualifies as a manufacturing activity for additional depreciation.

Analysis:
1. The Assessing Officer denied the claim of additional depreciation on a windmill installed by the company for power generation, stating it was not used in the production of the company's main products. The AO held that the windmill was not installed for the business of manufacturing gold, hence not eligible for additional depreciation.

2. The assessee appealed before CIT (A) contending that the power generated through the windmill was a separate line of business, covered under the definition of "article" or "thing." The CIT (A) agreed with the assessee, stating that the power generation was part of the company's business as per its objectives, and allowed the claim for additional depreciation.

3. The Revenue appealed the CIT (A) decision before ITAT Bangalore, arguing that the power produced was not used in the production of any article or thing, and thus, additional depreciation should not be granted. The Revenue also raised the issue of windmills being eligible for 80% depreciation previously, and the amendment to include power generation for additional depreciation was only clarificatory.

4. ITAT Bangalore upheld the CIT (A) order, emphasizing that electricity generation qualifies as a manufacturing activity. Referring to relevant judgments, the Tribunal clarified that electricity falls within the definition of goods and the process of electricity generation is akin to the manufacture of an article or thing. The Tribunal also noted that the amendment to include power generation for additional depreciation was supportive of this view.

5. The Tribunal dismissed the Revenue's appeal, stating that the assessee fulfilled the conditions under section 32(1)(iia) for additional depreciation. The Tribunal also highlighted that the Revenue's argument regarding the previous year's depreciation rate was not relevant to the current claim for additional depreciation on windmills.

6. Ultimately, the ITAT Bangalore upheld the CIT (A) decision, dismissing the Revenue's appeal and affirming that the power generation through windmills qualified for additional depreciation as per the law.

Conclusion:
The judgment clarified that power generation activities through windmills qualify as a manufacturing process eligible for additional depreciation, emphasizing the broader interpretation of the law beyond the direct production of the company's main products.

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