2017 (5) TMI 1727 - AT - Income Tax

Reopening of assessment u/s 147 - satisfaction of conditions laid down in the statute for the issuance of notice under section 148 - HELD THAT - We find to the AO had applied his independent mind on the basis of material available on record for A.Y. 2008-08 and also for assessment year under consideration and find that the information pointed out by the audit was on factual error. AO has formed his opinion about reason to believe that income chargeable to tax had escaped assessment. Reopening of assessment is perfectly in accordance with law hence same is upheld. This ground of appeal of the assessee is therefore dismissed. Disallowance of claim of additional depreciation u/s 32 (1) (iia) on Wind Electric Generator - assessee's case is that by using windmill the assessee is producing an article or a thing as define under section 32 (1) (iia) hence, it is entitled to additional depreciation - HELD THAT - In the instant case, it is not in dispute that new machinery or plant has been acquired and installed after the 31st March 2005. It is also not in dispute that the assessee has claimed depreciation u/s 32(1)(ii) of the Act. Once the AO has accepted the assessee's claim u/s 32(1)(ii) of the Act, we do not see a reason why the assessee should be denied the claim of additional depreciation on the same assets u/s 32(1)(iia) of the Act. We find that it is now a settled proposition as held by the Hon'ble Supreme Court and the various Co-ordinate Benches of the Tribunal that the process of generation of electricity is akin to manufacture of an article or thing, the assessee in the instant case satisfy the requirement that it is engaged in the business of manufacture or production of an article or thing. Coming to the amendment which has been brought-in by the Finance Act 2012 w. e. f. A.Y. 2013-14 whereby the assessee engaged in the business of generation or generation distribution of power have specifically been included and held eligible for claim of additional depreciation. In our view, the said amendment cannot be held to disentitle the assessee to claim of the additional depreciation. Various Coordinate Benches have held that even prior to the amendment brought in by the Finance Act 2012, that the assessees engaged in generation or generation and distribution of electricity were held eligible for additional depreciation. The said amendment cannot be read to negate the settled legal position that generation of electricity is akin to manufacture or production of an article or thing. As held by Coordinate Bench in M Satishkumar 2012 (11) TMI 215 - ITAT CHENNAI the said amendment by the Finance Act 2012 gives an impetus to the view that generation of electricity is a manufacturing process. Assessee is held entitled to the additional claim of depreciation on the power plant and the windmill installed during the year. Hence, the ground of the assessee is allowed. Charge of interest u/s. 234B (3) - HELD THAT - We find that the charging of interest under section 234B(3) is mandatory as held in the case of CIT v. Anjum M. H. Ghaswala 2001 (10) TMI 4 - SUPREME COURT - Interest would be chargeable as per law laid down by Vijay Kumar Saboo (HUF) v. Asstt. CIT 2011 (7) TMI 135 - KARNATAKA HIGH COURT . However, as we allowed the main ground of appeal on favour of the assessee it becomes academic in nature and consequential in nature and not required adjudication. However, we held the assessee is entitled to consequential relief if any as arise out on giving effect to this order in a case with law.

Summary

Issues Involved:
1. Validity of reassessment proceedings under section 147 of the Income Tax Act.
2. Disallowance of claim of additional depreciation under section 32(1)(iia) of the Act.
3. Levy of interest under section 234B.

Issue-wise Detailed Analysis:

1. Validity of Reassessment Proceedings under Section 147:

The assessee challenged the initiation of reassessment proceedings under section 147, arguing that the assessment was reopened merely on the basis of a change of opinion, which is not permissible under the law. The Tribunal noted that the original assessment was completed on 30-10-2009, and the case was reopened under section 147 by issuing a notice under section 148 on 29-09-2011. The reasons for reopening were recorded before the issuance of the notice, as evidenced by the note sheet entry dated 29-09-2011. The Tribunal found that the Assessing Officer (AO) had satisfied the required conditions laid down in the statute for the issuance of notice under section 148. The Tribunal upheld the reopening of the assessment, stating that the AO had a reason to believe that income chargeable to tax had escaped assessment. This view was supported by the decision of the Bombay High Court in the case of Grindwell Norton Ltd. v. Jagdish Prasad Jangid, Asstt. CIT. The Tribunal further emphasized that the words "reason to believe" cannot mean that the AO should have finally ascertained the facts by legal evidence. The court will not examine the sufficiency of the reason which led the AO to believe that the income had escaped assessment, as held in the case of Praful Chunilal Patel v. M. J. Makwana, Asstt. CIT. The Tribunal concluded that the reopening of the assessment was in accordance with the law and dismissed the ground of appeal regarding the validity of the reassessment.

2. Disallowance of Claim of Additional Depreciation under Section 32(1)(iia):

The assessee claimed additional depreciation of ?1,20,20,000 on Wind Electric Generators, which was disallowed by the AO on the grounds that power is not an article or thing as envisaged in section 32(1)(iia) of the Act. The CIT (A) upheld the disallowance, noting that the relevant provision inserted in the Finance Act 2012, which allowed additional depreciation for the business of generation and distribution of power, was applicable from the assessment year 2013-14. The Tribunal, however, referred to various judicial precedents, including the decisions of the Madras High Court in the cases of CIT v. Hi Tech Arai Ltd. and CIT v. VTM Ltd., which held that electricity is considered as goods and the generation of electricity amounts to the production of an article or thing. The Tribunal also referred to the decision of the Supreme Court in the case of NTPC Ltd., which held that electricity is goods within the meaning of the Sales Tax Act. The Tribunal concluded that the assessee was entitled to additional depreciation on the Wind Electric Generators, as the generation of electricity is akin to the manufacture of an article or thing. The Tribunal allowed the ground of appeal regarding the claim of additional depreciation.

3. Levy of Interest under Section 234B:

The assessee challenged the levy of interest under section 234B, arguing that interest under section 234B(3) is applicable only from the date of the original assessment and not from the first day of the assessment year. The Tribunal upheld the charging of interest under section 234B(3) as mandatory, as held in the case of CIT v. Anjum M. H. Ghaswala. However, the Tribunal noted that the interest would be chargeable as per the law laid down by the Karnataka High Court in the case of Vijay Kumar Saboo (HUF) v. Asstt. CIT. Since the main ground of appeal was allowed in favor of the assessee, the issue of interest became academic and consequential in nature. The Tribunal disposed of the ground of appeal accordingly.

Conclusion:

The Tribunal upheld the validity of the reassessment proceedings under section 147, allowed the claim of additional depreciation under section 32(1)(iia), and upheld the levy of interest under section 234B, subject to the law laid down by the Karnataka High Court. The appeal of the assessee was partly allowed.