2022 (5) TMI 1232 - HC - Income Tax

Disallowance u/s. 43B - Electricity Duty deposited into designated bank Account as per direction of this Court - HELD THAT - On the issue of electricity duty, there is merit in the contention of Mr. A.U. Senapati that the facts of the present case are different from the case of Indian Metal and Ferro Alloys Ltd. 2022 (3) TMI 390 - ORISSA HIGH COURT . In that case the differential electricity duty paid in the loan lien account remained there and therefore, was inaccessible to the Government. In the present case, however, under the interim orders passed by this Court as much as nearly Rs.100 crores has been released to the State Government. In other words, the amount has not only been parted with by the Assessee but also has been received by the Government. Consequently, the deduction under Section 43B of the Act as claimed by the Assessee cannot be denied to it. It requires to be mentioned here that against the order passed by this Court in 2010 (5) TMI 952 - ORISSA HIGH COURT and the State Government filed an SLP before the Supreme Court of India 2015 (3) TMI 1414 - SC ORDER an order was passed by the Supreme Court on 23rd March, 2015 recoding a settlement between the parties, pursuant to which full payments have in fact been made by NALCO to the State Government. In that view of the matter, question No.(i) is answered in favour of the Assessee and against the Department by holding that the AO, the CIT(A) and the ITAT were not justified in sustaining the addition/disallowance under Section 43B of the Act in respect of electricity duty deposited in the SBI Bank account under the direction of this Court. On this issue, the matter is remanded to the AO for a fresh computation keeping in view the amounts already released by the Petitioner to the State Government. Additional depreciation under Section 32(1)(iia) - components/parts of a plan which were acquired prior to 31st March, 2005 but all such components/parts fitted into the plant after 31.03.2005 and installed after 31.03.2005 - HELD THAT - The decision in PCIT v. IDMC Ltd. 2017 (2) TMI 644 - GUJARAT HIGH COURT of the Gujarat High Court squarely applies to this issue. There it was held that machines that might have been acquired before 31st March, 2005 but installed after 31st March, 2005 would be eligible for grant of additional depreciation under Section 32(1)(iia) of the Act for the AY 2006-07. That decision of Gujarat High Court has been upheld by the Supreme Court by dismissal 2017 (10) TMI 732 - SC ORDER Accordingly, in the present case question No.(ii) is answered in favour of the Assessee and against the Department by holding that the component/parts of a plant acquired prior to 31st March, 2005 but fitted to the plant thereafter would be eligible for additional depreciation under Section 32(1)(iia).

Summary

Issues:
1. Disallowance of electricity duty under Section 43B of the Income Tax Act.
2. Disallowance of additional depreciation under Section 32(1)(iia) of the Income Tax Act.

Issue 1 - Disallowance of Electricity Duty under Section 43B:
The case involved the Assessee, a public limited company engaged in mining and manufacturing, claiming additional depreciation under Section 32(1)(iia) of the Income Tax Act for the assessment year 2006-07. The Assessee, NALCO, also had a captive power plant in Odisha and was directed by the High Court to deposit differential electricity duty amounts in a fixed deposit with a nationalized bank. The Assessee subsequently transferred significant sums from the fixed deposits to the State Government, totaling Rs.130 crores by February 2006. The Assessing Officer disallowed the deduction claimed under Section 43B of the Act for electricity duty paid, treating it as a deposit in a designated bank account. The Commissioner of Income Tax (Appeals) upheld the disallowance. The Assessee appealed to the Income Tax Appellate Tribunal (ITAT), which dismissed the appeal. The High Court found that the Assessee had indeed paid the electricity duty as directed by the court, and the amounts had been received by the Government. The Court held that the Assessee was entitled to the deduction under Section 43B of the Act, ruling in favor of the Assessee against the Department. The matter was remanded to the Assessing Officer for a fresh computation considering the amounts already released to the State Government.

Issue 2 - Disallowance of Additional Depreciation under Section 32(1)(iia):
The second issue pertained to the disallowance of additional depreciation claimed by the Assessee under Section 32(1)(iia) of the Act. The Assessee relied on a decision of the Gujarat High Court, which held that components of a plant acquired before March 31, 2005, but installed after that date, would be eligible for additional depreciation. The High Court noted that the decision of the Gujarat High Court had been upheld by the Supreme Court. Consequently, the Court ruled in favor of the Assessee against the Department, allowing the claim for additional depreciation. The appeal was allowed with no order as to costs, and an urgent certified copy of the order was directed to be issued.

In conclusion, the High Court judgment addressed the issues of disallowance of electricity duty under Section 43B and disallowance of additional depreciation under Section 32(1)(iia), ruling in favor of the Assessee on both counts and remanding the matter to the Assessing Officer for further action.