2022 (4) TMI 1071 - AT - Income Tax

Disallowance of additional depreciation - Extending benefit of initial depreciation to the power sector - HELD THAT - We find that in terms of the provisions of Sec. 32(1)(iia), in case of any new machinery or plant (other than ships and aircrafts) which has been acquired and installed after 31.03.2005 by an assessee engaged in the business of any article or thing, a further sum equal to 20% of actual cost of such machinery or plant shall be allowed as deduction. However, the benefit of such provisions has been extended to power sector by Finance Act, 2012 by insertion of the words or in the business of generation or generation and distribution of power under these provisions with effect from 01.04.2013 As decided in MR. M. SATISHKUMAR, 2012 (11) TMI 215 - ITAT CHENNAI we are of the considered opinion that generation of electricity is a manufacturing activity. The assessee is involved in the manufacturing activity and fulfils 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, eligible for benefit under section 32(1)(iia). Although the said amendment is with effect from April 1, 2013 but it gives impetus to the view that generation of electricity is a manufacturing process and qualifies for the benefits under section 32(1)(iia). In view of the above, the order of the Commissioner of Income-tax (Appeals) is upheld and the appeal of the Revenue is dismissed being devoid of merit. The revenue has relied upon the decision of coordinate bench of Tribunal in assessee s own case for AY 2011-12 wherein the coordinate bench has confirmed the stand of Ld. CIT(A) on the ground that the business of generation, transmission or distribution of power was brought within the ambit of Section 32(1)(iia) of the Act, by the Finance Act, 2012 w.e.f. 01.04.2013 i.e., from the assessment year 2013-14. Another finding as rendered by the bench is that it is not the case of the assessee that the assessee is claiming the additional depreciation with respect to its manufacturing activities. We find that so far as the first finding is concerned, the same is not in accordance with the cited decisions of Hon ble High Court of Madras M/S. VTM LIMITED 2009 (9) TMI 35 - MADRAS HIGH COURT . However, the second finding is vital one and the same would require concrete findings by the lower authorities. It has been observed by the bench that it is not the case of the assessee that the assessee is claiming the additional depreciation with respect to its manufacturing activities. If this finding is correct, the assessee would certainly be not eligible to claim additional depreciation in view of the fact that the assessee is engaged in manufacturing and selling of windmills. On the other hand, if the same run contrary, the assessee would be eligible to claim the depreciation in terms of aforesaid decisions. Therefore, we set aside the impugned order and restore the matter back to the file of Ld. AO to render a finding on the aspect that the additional depreciation was with respect to assessee s manufacturing activities. If this fact is established, the assessee would be eligible to claim the additional depreciation otherwise not. The assessee is directed to file requisite details and substantiate its case. Appeal stand allowed for statistical purposes

Summary

Issues:
- Claim of additional depreciation for Assessment Year 2010-11.

Detailed Analysis:

Assessment Proceedings:
The case involved an appeal by the Revenue for Assessment Year (AY) 2010-11 against the order of the Commissioner of Income Tax (Appeals) regarding the disallowance of additional depreciation claimed by the assessee. The Assessing Officer (AO) rejected the claim of additional depreciation, stating that it is only allowed to those engaged in manufacturing or producing any article or thing, and not to power generating units like windmills.

Appellate Proceedings:
During the appellate proceedings, the assessee relied on various decisions, including those of the Hon'ble High Court of Madras, to support their claim for additional depreciation. The Commissioner of Income Tax (Appeals) allowed the claim based on the cited decisions. The Revenue, aggrieved by this decision, further appealed to the Tribunal.

Findings and Adjudication:
The Tribunal analyzed the provisions of Section 32(1)(iia) which allow a further sum equal to 20% of the actual cost of new machinery or plant for those engaged in the business of manufacturing or production. The Finance Act, 2012 extended this benefit to the power sector, effective from April 1, 2013. The Tribunal considered arguments from both sides, with the Revenue contending that the amendment was prospective and not clarificatory. In contrast, the assessee argued that electricity generation qualifies as manufacturing, even prior to the amendment. The Tribunal referred to the decision in M. Satishkumar v. DIT and held that electricity generation is akin to manufacturing, making the assessee eligible for additional depreciation.

Judicial Precedents:
The Tribunal cited various decisions, including those of the Hon'ble High Court of Madras and the Supreme Court, supporting the view that electricity generation qualifies as manufacturing. The Tribunal also referenced a decision by the Kolkata Tribunal, affirmed by the Hon'ble High Court of Calcutta, in a similar context.

Decision and Conclusion:
The Tribunal overturned the decision of the Commissioner of Income Tax (Appeals) and allowed the appeal in favor of the assessee. The Tribunal emphasized the manufacturing nature of electricity generation, making the assessee eligible for additional depreciation. The matter was remanded back to the Assessing Officer for further examination regarding the eligibility of the assessee to claim additional depreciation based on their manufacturing activities.

Conclusion:
The Tribunal's decision favored the assessee by recognizing electricity generation as a manufacturing activity, entitling them to claim additional depreciation. The case highlighted the importance of judicial precedents and legislative amendments in determining tax benefits for specific business activities.