2016 (7) TMI 747 - AT - Income Tax

Revision u/s 263 - allowability of additional depreciation u/s 32(1)(iia) - Held that - It is undisputed that no opportunity was afforded to the assessee in the instant case before us by the ld CIT to address on the aspect of lack of enquiry on the allowability of claim of additional depreciation. We hold that the ld CIT in concluding that lack of enquiry with regard to allowability of additional depreciation on the part of the ld AO would automatically make the order of ld AO erroneous and prejudicial to the interest of the revenue, is palpably illegal in the facts and circumstances of the case in as much as no opportunity of hearing was given to the assessee in that regard. - Decided in favour of assessee

Issues Involved:
1. Justification of the CIT in invoking revisionary jurisdiction under Section 263 of the Income Tax Act.
2. Allowability of additional depreciation under Section 32(1)(iia) of the Income Tax Act for the assessment year 2011-12.

Issue-wise Detailed Analysis:

1. Justification of the CIT in invoking revisionary jurisdiction under Section 263 of the Income Tax Act:
The primary issue in this appeal is whether the CIT was justified in invoking revisionary jurisdiction under Section 263 of the Income Tax Act. The CIT issued a show cause notice, arguing that the additional depreciation claimed by the assessee was only applicable from the assessment year 2013-14, due to an amendment brought by the Finance Act 2012. The CIT concluded that the AO's order was erroneous and prejudicial to the interest of revenue because the AO had allowed additional depreciation for the assessment year 2011-12 without proper enquiry. The assessee countered by citing various judicial decisions, including Supreme Court rulings, which established that the generation of electricity amounts to the production of goods, thus qualifying for additional depreciation under Section 32(1)(iia). The Tribunal found that the AO had followed judicial precedents and that the CIT's change in reasoning—from incorrect application of law to lack of enquiry—was not communicated to the assessee, violating the principles of natural justice.

2. Allowability of additional depreciation under Section 32(1)(iia) of the Income Tax Act for the assessment year 2011-12:
The assessee argued that it was engaged in the business of generation and distribution of electricity, which qualifies as the production of an article or thing under Section 32(1)(iia). This was supported by several judicial decisions, including those of the Supreme Court, which held that electricity is considered "goods" and its generation is akin to production. The Tribunal noted that the AO had allowed similar claims of additional depreciation in earlier years under Section 143(3) proceedings, and the CIT's revisionary order did not consider these precedents. The Tribunal concluded that the AO's order was not erroneous as it was based on a permissible view of the law, supported by various judicial decisions. The Tribunal also found that the CIT's order was procedurally flawed as it did not provide the assessee an opportunity to address the new ground of 'lack of enquiry.'

Conclusion:
The Tribunal quashed the CIT's order under Section 263, holding that the AO's order was neither erroneous nor prejudicial to the interest of revenue. The Tribunal emphasized the importance of judicial discipline and the need for the CIT to provide an opportunity for the assessee to address any new grounds before passing a revisionary order. The appeal of the assessee was allowed, reaffirming the allowability of additional depreciation under Section 32(1)(iia) for the assessment year 2011-12.

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