2022 (4) TMI 839 - AT - Income Tax

Additional Depreciation on Power Generation Unit - Depreciation at the rate of 80% on all the Plant Machinery used in the co-generation unit - Extending benefit of initial depreciation to the power sector - depreciation Claim of 80% OR 15% - AO disallowed the same on the ground that the words or in the business of generation and distribution of power were inserted by Finance Act 2012 w.e.f. 01.04.2013 and therefore, the additional depreciation would be allowable only from AY 2013-14. - HELD THAT - We find that this issue is covered in assessee s favor by the decision of Vishakhapatnam Tribunal in Sri Sarvaraya Sugars Limited 2017 (12) TMI 1220 - ITAT VISAKHAPATNAM wherein it was held that various components which form integral part of cogeneration plant are to be allowed higher rate of depreciation. We find that the facts are similar in the present case whereas the undisputed findings are that the various components form part of integral part of cogeneration plant. These components could not be used on standalone basis but part and parcel of power generation unit. Each item would not have any function by itself except when it forms part of the whole system. Therefore, no infirmity could be found in the impugned order, on this issue. The grounds thus raised stands dismissed. Eligibility to claim additional depreciation u/s 32(1)(iia) - HELD THAT - We find that it is undisputed position that the assessee has fulfilled all the conditions laid down u/s 32(1)(iia) for claiming additional depreciation. In such a case, new plant machinery as installed by the assessee would be entitled for additional depreciation since the assessee was engaged in manufacturing and production of article or thing. In the case of CIT V/s VTM Ltd. 2009 (9) TMI 35 - MADRAS HIGH COURT held that in order to claim additional depreciation u/s 32(1)(iia), what is required to be satisfied is only that a new machinery or plant has been acquired and installed after 31-3-2002 by an assessee, who was already engaged in business of manufacture or production of any article or thing. The provisions do not state that setting up of a new machinery or plant, which was acquired and installed after 31-3-2002, should have any operational connectivity to article or thing that was already being manufactured by the assessee. Respectfully following the same, we dismiss the grounds raised by the revenue.

Summary

Issues Involved:
1. Depreciation at the rate of 80% on all Plant & Machinery used in the co-generation unit.
2. Additional depreciation on certain assets.
3. Excess depreciation claim of 80% instead of 15%.
4. Excess additional depreciation on certain assets.

Detailed Analysis:

1. Depreciation at the Rate of 80% on All Plant & Machinery Used in the Co-Generation Unit:

The Revenue contended that the CIT(A) erred in allowing depreciation at 80% on all Plant & Machinery used in the co-generation unit, without considering that the Income Tax Rules specify which Plant & Machinery are eligible for such a rate. The assessee argued that additional depreciation on new plant and machinery acquired and installed after 31.03.2005 is eligible under Section 32(1)(iia) of the Act. The AO disallowed this claim, stating that the words "or in the business of generation and distribution of power" were added by the Finance Act 2012 effective from 01.04.2013, making additional depreciation allowable only from AY 2013-14. However, the CIT(A) and various judicial decisions, including the Chennai Tribunal in M. Satishkumar V/s DIT, held that generation of electricity is a manufacturing activity, thus qualifying for additional depreciation even before AY 2013-14. The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeal on this issue.

2. Additional Depreciation on Certain Assets:

The Revenue argued that the CIT(A) erred in allowing additional depreciation on certain assets not eligible for such claims, despite similar disallowances being upheld for AYs 2011-12 and 2012-13. The AO disallowed additional depreciation on assets totaling ?844.47 Lacs, stating that these assets were eligible for additional depreciation only from AY 2013-14. The CIT(A) relied on judicial decisions, including the Chennai Tribunal in M. Satishkumar V/s DIT and the Hon’ble Madras High Court in CIT V/s Texmo Precision Castings, to conclude that generation of electricity qualifies as a manufacturing process, thus allowing additional depreciation. The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeal on this issue.

3. Excess Depreciation Claim of 80% Instead of 15%:

The AO disallowed higher depreciation of 80% claimed by the assessee on specific assets like Chimney, Bagasse Handling System, Distribution Control Systems, Air Compressor, Ash Handling Systems, and others, stating that these were mere accessories and not eligible for 80% depreciation. The CIT(A) concluded that these assets were integral parts of the power generation unit, thus eligible for 80% depreciation. The Tribunal found that the assets formed part of the co-generation plant and could not function independently, thereby upholding the CIT(A)'s decision and dismissing the Revenue's appeal on this issue.

4. Excess Additional Depreciation on Certain Assets:

The AO disallowed additional depreciation on certain assets totaling ?2510.79 Lacs, stating they were not eligible under Section 32(1)(iia). The CIT(A) opined that the assessee was engaged in manufacturing and the assets were used in the business of generation of power, thus eligible for additional depreciation. The Tribunal found that the assessee fulfilled all conditions under Section 32(1)(iia) and upheld the CIT(A)'s decision, dismissing the Revenue's appeal on this issue.

Conclusion:

The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decisions on all issues. The order was pronounced on 21st March 2022.